Crisis at Rocky Mountain Mutual Housing Association

Case Details Case Introduction 1 Case Introduction 2 Case Excerpts

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The Saving & Loan Crisis And The Resolution Trust Corporation

The Savings and Loan Crisis of the 1980s resulted in the mass insolvency and failure of hundreds of savings and loan associations (S&Ls) throughout the United States. S&Ls, or “thrifts” had existed for over 100 years as community-based institutions for the purpose of providing savings and mortgages. During the 1980s, as interest rates rose sharply, many depositors withdrew their money from low-rate S&L savings accounts to take advantage of higher-yielding money market opportunities.

Many of the S&Ls had overextended themselves by making bad fixed-rate mortgage loans to risky customers in an effort to take advantage of the period’s higher interest rates. As a result, the S&Ls found themselves with insufficient funds to cover their depositors’ withdrawals. This forced the S&Ls to sell their assets (long-term fixed-rate mortgages) in order to provide the necessary funds to their depositors. As interest rates continued to rise, the value of these fixed-rate mortgages continued to fall, resulting in massive losses and the eventual collapse of the thrift industry.

Business Ethics Case Studies | Case Study in Management, Operations, Strategies, Business Ethics, Case Studies
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The Early Years

The Mutual was eager to bring to Colorado its innovative approach to the affordable housing shortage. The infant organization had neither full-time staff nor a portfolio of properties. Out of the initial members of what would become the Board of Directors, two advisory committees were established to undertake the tasks of finding a CEO to run the organization and locating potential properties for purchase......

Hud, Due Diligence And The Not-For-Profit World

One reason for the low selling price of Mountain Terrace was that the property needed significant rehabilitation work. The U.S. Department of Housing and Urban Development (HUD) was managing the property while it was for sale from the Resolution Trust Corporation. HUD was unable or unwilling to undertake the necessary rehabilitation. Thus the property fell further into decrepitude. Luckily for the Mutual, HUD was so eager to sell Mountain Terrace that upon acquisition it offered the Mutual a special “grant-loan” financing package for the purpose of rehabilitating the property.......

Enacting The Gospel OF The Mutual

The Mutual’s management team devised additional programs to provide job skill training, computer literacy training, personal and small-business financial planning guidance, and home-buying education. Other community-based resident services such as after-school youth activities and preferential hiring practices for qualified residents were instituted. These programs and services increased the empowerment and inclusion of the residents in the Mutual’s operations and affairs. These programs, however, were enormously costly. .......

The Latter 1990's

Mountain Terrace was acquired in 1993 and renovation of the property was completed in 1995. Having witnessed immediate success with Mountain Terrace, John Milliken, with the support of the Board, charged forward to acquire and develop additional properties......

1999-kicking Off The Plan To Add 1000 Units Year

The 1999 Annual Report included an ambitious expansion plan that the Mutual intended to pursue for the five years following the turn of the century. Unofficially dubbed “The 1000 Units A Year Plan,” the plan was conceived by John Milliken, who then sold the idea to the Board of Directors as a lofty goal that would elevate the Mutual to superstar status in the affordable housing world. The success of the Mutual’s first properties and programs, coupled with the heightened enthusiasm of the Board and staff, and the seemingly positive economic conditions of the late 1990’s all influenced the Board to set the expansion bar high.....

2001-The Economy Starts To Slip

After almost a decade of economic strength, in 2001, the US economy began to weaken. The “dot com” bubble burst and investor confidence was at its lowest levels since the early 1990’s. Further, the events of September 11, 2001, brought the economy to a halt as pessimism and fear paralyzed investor and consumer confidence. Unemployment levels began to rise (see Exhibit 1), spending began to fall, and the markets took a turn for the worse. In Denver, the real-estate market started to crash as the city began to feel the tremors of the national economic downturn.....

Board Governance

The governance structure of the Mutual was similar to other not-for-profit or publicly held corporations. The chief governing body of the Mutual was the Board of Directors. The Mutual’s Board of Directors was intended to be populated by a majority of residents and “resident advocates” from the Mutual’s communities. The idea, of course, was that the Mutual’s mission called for participation, ownership, and leadership from those who were directly affected by the organization’s actions and policies.....

John Milliken To Leave

In late 2002, John Milliken received a grant from the Fannie Mae Foundation for the purpose of studying affordable housing from the European perspective. To complete the study, John required a three-month sabbatical from his duties as the Mutual’s CEO. With the organization’s immediate future looking rather bleak, this was an inopportune time for the CEO to take an extended leave of absence. In its first move to try and save the failing organization, the Board of Directors terminated John Milliken in late 2003. But the termination was led and done very hastily by the general counsel without full board participation. ....

The Government Study

NeighborWorks America was one of the Mutual’s primary grant funding sources. In 2003, in response to the Mutual’s financial trouble, NeighborWorks commissioned a study to determine possible solutions for regaining control of the distressed organization. The idea was that the study could give the Board of Directors several options on how to proceed with saving the Mutual, as there was a great deal of confusion about how troubled the organization actually was.......


Exhibit I: Unemployment Statistics
Exhibit II: Vacancy Rates (%) by County in the Denver Metro Area
Exhibit III: Vacancies and Concessions in the Apartment Rental Market
Exhibit IV: Multi-Family Rental Property Sales by volume and Average Price per Unit
Exhibit V: Rocky Mountain Mutual Housing Association, Inc and Subsidiaries