Typically a church building loan is one of the safest loans to be made. But in the go go years of easy credit and cheap loans, churches succumbed to excessive borrowing.
And now the chicken is coming home to roost. Churches are defaulting on loans at 3 times the rate they traditionally have and it is worrying lenders. Typically these loans are for high dollar totals and the properties do not covert easily to other uses. If due to tough economic times the churches default there is no way to easily recover the money.
Churches are also being deeply affected by the economy as donations are decreasing. It is hard to fund raise when 10 percent of your congregation is unemployed.
Supercheap, few-questions-asked loans were a temptation even churches could not resist, but now they are paying for their sins as the debt crisis enters the house of God.
Long considered among the safest of borrowers, churches gambled on real estate at a time when credit copiously flowed and lenders were startlingly lax.
But places of worship have since been battered by the economic downturn. Donations have dipped, investment returns have plunged and bank credit is still hard to come by.
“You build it and they will come. It really was true through the years,” said Brad Hampton, executive pastor at the Faith Center of Rockford, Illinois. “They like newness,” he says of younger churchgoers.
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There are a number of reasons that churches may be defaulting on their note payments.
1. The recent scandals involving the Catholic faith my have some churchgoers questioning their religion. Thus, many may have discontinued their membership
2. Generation Y is not as religious as Gen X nor the Baby Boomer generation. Churches will need to appeal to the younger generation in a more unique way to increase their members.
Wow, that's a pretty big default rate. I guess it's even worse if they are on ARMs.
What an increase… This is not shocking with the secularization of America. Buildings that were built years ago, now have less people paying those bills.
Commercial Note, while I would be tempted to agree, I have a feeling that Catholic Church isn't suffering. They're one of the richest organizations in the world, so I think it's more a matter of Protestant churches that have less structure to fall back on.
LORE, Again, decent point, but I think that that would have been the case as much in 2005 as it is now. Generations can't really explain poor borrowing practices in the short term.
Of all of the buildings affected by the economic downturns, I never expected it to be churches! As an Arlington VA custom home builder, many examples of excessive borrowing are seen by the public. I am very surprised to learn that at the very least, churches are not exempt from the hard times and defaulting on loans. Custom modular homes (and even churches) are meant to be enjoyed, not cause worry.
Thank you for the interesting information in your article! I certainly learned something new.
I doubt the church as a whole is in any real trouble. But then they did just lose a major chunk of their flock with these recent scandals. Should be interesting to see how things evolve from this point.
"Church" is a pretty generic term and I doubt the article is pointing at the Catholic Church. When our church, catholic, expanded the congregation had to have almost 50% in cash and we signed a pledge toward the church fund. I can guess many of us may have had to cut back, but the "collection" is not off by much.
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