By the time thousands of parishioners stream into the 3,000-seat Ebenezer AME Church on Easter Sunday, church leaders hope to have something else to celebrate: financial revival.
The congregation, one of America's largest, has been scrambling to raise funds to save the arena-sized sanctuary from potential foreclosure. To that end, it has enlisted national leaders, such as the Reverend Jesse Jackson and Harvard Law School's Charles Ogletree, who was President Barack Obama's law professor.
Thanks to its 10,000-member congregation and connections with business and civic leaders, Ebenezer expects to avoid the fate of a growing number of U.S. churches, which are defaulting on loans, facing foreclosure and even declaring bankruptcy at an unprecedented pace.
"It's happening to virtually every church," said the Rev. Grainger Browning, senior pastor of Ebenezer. "At a recent meeting with the 100 top pastors in the country, it was amazing how all of us were facing some sort of challenge with the banks."
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 Centre of Rockford, Illinois. "They like newness," he says of younger churchgoers.
Mr. Hampton's mega-church was erecting a new sanctuary that could seat almost 2,000 when his lender refused further credit beyond an initial $4.2-million (U.S.). The Faith Centre, which also has a 48,000-square-foot "life centre" that operates various ministries, is being foreclosed upon.
"People call and say 'You're not alone'," Mr. Hampton said.
Foreclosure filings triple
Getting a complete picture of the financial health of churches across the country is difficult. But a review of filings in the Thomson Reuters Westlaw legal database shows foreclosure proceedings against U.S. churches have nearly tripled since December 2007, when the recession began, compared with the previous seven years, which included the dot.com bust and economic downturn.
Court records also reveal more than 100 churches have declared bankruptcy in the last year, often in a last-ditch attempt to halt a sheriff's sale. That number could rise fast.
An investigation by a Memphis television station found hundreds of churches in the city fighting foreclosure. Mr. Jackson estimates thousands of African-American churches nationwide are in danger of foreclosure, with 200 in Atlanta alone.
Ebenezer AME got into trouble when its cash reserves fell below $750,000, tripping a covenant on its loan.
Its lender, Bank of America, initially insisted that the church hire a consultant, at a cost of $5,000 a day, to keep a watch on its finances, and required cuts to pastoral benefits such as a car allowance. The bank eventually dropped those demands, along with a plan to raise the interest rate on the church's $8.5-million mortgage, so long as Ebenezer AME found another lender to take over the loan.
Other lenders have been somewhat less forgiving. Court records show that JPMorgan Chase & Co relied on a private investigator to compile evidence against Hopewell Baptist Church, which operates out of the former B'nai Jeshurun synagogue in Newark, New Jersey, and is the home of "kosher gospel" music.
The private investigator, according to the court documents, photographed the license plates of everyone who drove up, in an apparent attempt to determine if the church was operating and likely to be collecting rent.
The court ended the church's bankruptcy protection and it is slated for sheriff's sale in April.
Of course, things are not uniformly bleak. In the case of Ebenezer, the Maryland megachurch, its prayers may be answered. The church hopes to finalize a deal with a new lender, Industrial Bank of Washington, DC, to take over the loan this week.
New lending fuelled building boom
Churches emerged from previous economic downturns relatively unscathed, lenders noted. But the recent recession was preceded by an unusual boom in church building.
Spending on construction of religious buildings rose sharply in the late 1990s, climbing 70 per cent from 1995 to 1999 to an annual rate of $7.3-billion. New building continued to tick up, eventually reaching an annual rate of nearly $9-billion in 2003 before levelling off, according to data from the U.S. Census Bureau.
As was the case in the residential housing market, the church property boom was accompanied by the rise of more specialized lending. Church lending was historically done by community banks, which sometimes have ties through a member of a congregation. Loans were often set at a fixed rate and for a set term.
The emergence of larger congregations and the rush to build venues to accommodate them encouraged specialized lending that grew more aggressive.
Evangelical Christian Credit Union, America's Christian Credit Union and Strongtower Financial began to expand rapidly and compete for new business. Some regional and community banks that were nudged out of residential lending by Wall Street banks also discovered lending to churches as a relatively fragmented and inviting business with a history of low defaults.
"They entered the business with an absolute vengeance," said Phil Myers, president of the American Church Mortgage Co. "Five or six years ago there may have been two or three lenders competing on a deal. Now there were five. Those loans are coming home to roost."
Traditional church lenders such as American Church Mortgage Co and Bank of the West found themselves struggling to compete as competitors stretched lending guidelines and dangled ever larger loans in front of church administrators and pastors.
"We often lost business when offering $8-million and someone else would come in and offer $10-million," said Dan Mikes, who heads church lending for Bank of the West.
Bank of the West has zero nonperforming loans to churches, which the bank attributes to its prudent lending guidelines.
Many of the loans made in recent years contained many of the same features that exacerbated the residential real estate crash, such as low-interest teaser rates, securitized loans and balloon payments.
As a result, bad loans are rising rapidly for those lenders that pushed aggressively into church finance. Delinquent loans at the Evangelical Christian Credit Union, which expanded its loan portfolio from about $225-million to more than $1-billion over the last decade, have risen to 7.4 per cent of their loans from 3.6 per cent a year ago. Until 2007, the lender did not have a loan in foreclosure.
Ministry Investment Partners Co, which finances evangelical churches and purchases loans from the Evangelical Christian Credit Union, reported 13.3 per cent of its loans were nonperforming, up from 1.9 percent a year ago.
And in 2008, the Church Mortgage and Loan Co filed for bankruptcy after a third of its outstanding loans were in foreclosure.
As these lenders struggle or disappear, many churches are finding their lifeline of credit has dried up. What is more, the value of many of the buildings and properties owned by churches has fallen sharply, sometimes even below the mortgage used to finance a project, making refinancing almost impossible.
"It's an unprecedented time," Mr. Mikes said.
Cutting staff and reducing programs
Even the richest, most established churches have not been immune to this economic downturn. A study by the researcher Barna Group found more than half of U.S. churches said they have been hurt by the recession, with one church in six cutting staff.
The Episcopal Church in the United States, one of the wealthiest U.S. denominations, is feeling the pinch from a $1-billion loss in the combined investment portfolio for 2008, according to Kirk Hadaway, the head of congregational research for the Episcopal Church.
Yet the financial woes appear to be the most severe among nondenominational churches which were also among the fastest growing over the past decade. Many churches attracted younger members and families by offering an array of activities and events, and began building centres with health clubs, meeting rooms, cafes and sports fields.
The new-look houses of worship were often located along busy commercial strips on major thoroughfares, and bear little resemblance to the steepled churches that dot rural New England.
"Churches were trying to fill many roles," said Faith Centre's Hampton. "They were trying to fill cultural gaps."
Without the support of a large national organization, some churches felt the need to take on debt to support their growth and building. Now, many are cutting staff, reducing programs and reining in expenses. "Churches have downsized staff, moved from full-time to part-time clergy, because the revenues are not coming in," said Scott Thumma, a sociology of religion professor with the Hartford Institute for Religion Research.
One-time emergency giving campaigns can also fill a short-term gap. Rick Warren, who delivered a prayer at President Barack Obama's inauguration, recently raised more than $2-million during a one-weekend emergency appeal for funding.
And churches have given up immediate plans for building. "They've decided to rent movie theaters or contract with local hotels to have multiple services," rather than build a new building, Mr. Thumma said. "They might have a worship service with a live band but the main sermon is from a live feed. That's becoming more common because of the economy."
African American churches in particular appear hard hit. Their congregations have suffered higher unemployment, and often the churches provide more services.
"It's devastating," Reverend Jackson said. "They are closing down services to seniors. They are closing down feeding programs. Demand for services are on the rise and the ability to provide services is decreasing," he said.
Mr. Jackson is organizing a campaign against church foreclosures. "It's our largest single institution," he said, "the greatest cash-flow institution."