Major Low-Income Housing Drive Launched : Development: A private-sector coalition hopes to raise $500 million. Los Angeles is among 20 cities to benefit.

WASHINGTON —  A coalition of seven nonprofit foundations and the Prudential Insurance Co. announced plans Wednesday to launch a private-sector initiative expected to generate $500 million for community housing development in 20 U.S. cities, including Los Angeles.

The National Community Development Initiative will provide an initial $62.5 million in grants and loans for local community development corporations to begin low-income housing programs in several demonstration neighborhoods in each city, its sponsors said.

In addition, the coalition intends to work with the Federal Home Loan Mortgage Corp., a quasi-governmental agency known as Freddie Mac, to increase the pool of money available for such projects by creating a secondary market for affordable-housing mortgages.

The coalition hopes that it can attract additional support from financial institutions, local foundations and corporations and state and local governments, ultimately enabling it to reach the $500 million target.

“Over the past two decades, community development corporations have proven their effectiveness in revitalizing communities,” said Peter Goldmark, president of the Rockefeller Foundation, one of the coalition participants. “They don’t just build housing--they build responsibility, social standards and ownership.”

Freddie Mac, the first financial institution to announce its support for the initiative, said that it has committed $100 million to buy low-income rental housing mortgages from local lenders during a two-year period.

The agency said that its participation will increase the availability of long-term, fixed-rate financing for low-income rental housing by packaging, insuring and selling the mortgages to investors on the secondary market.

“Never before has a group of foundations provided credit support for low-income rental housing,” said Freddie Mac chief executive Leland C. Brendsel. “Without this support, the program wouldn’t be possible.”

Los Angeles is slated to receive $3 million of the initial funds. The loans and grants would be used as seed money to help finance construction and rehabilitation of 200 to 300 units of low-income housing, National Community Development Initiative officials said. The San Francisco Bay Area also would receive pilot project funding.

Initiative officials characterized the effort as one of the largest non-governmental investments in low-income neighborhood renewal in the country’s history.

The program is to be administered by two leading community development support organizations, the Local Initiatives Support Corp. and the Enterprise Foundation. Both provide financial and technical assistance to more than 1,000 nonprofit, community-based development groups across the country.

No Los Angeles-area neighborhood programs have been selected for funding yet, but representatives of potential candidates for pilot projects were enthusiastic about the coalition’s plans.

Community development groups, which consist of and are controlled by local citizens who live in affected neighborhoods, have sprung up over the last 20 years in economically depressed areas to respond to specific community needs and issues.

In Los Angeles, for example, the Concerned Citizens of South-Central Los Angeles was organized in 1985 to protest construction of a trash-burning incinerator. Since then it has expanded its focus and plans to begin construction this spring of a 40-unit development of very-low to moderate-income housing.

Juanita Tate, the organization’s executive director, said the new development will have an after-school nanny program and a mandatory recycling program. The recycling effort will be managed by young residents, who will be allowed to keep half of the money they earn for their own use. The balance will be invested in the community development credit union to be used for their future education, she said.

“The primary focus is to take this 10-block area and make a change,” Tate said in a telephone interview. “You see it today and it’s one thing. You come back in two years and you won’t know it’s the same area that you left. It’s a real effort to revitalize a very depressed area, but we decided as a community to do it.”

Sister Diane Donahue of the Esperanza Community Housing Corp., another Los Angeles community development group, said that any money received by her organization likely would be used for land acquisition and predevelopment costs, typically the most difficult money to raise. Esperanza has plans to build a 10-unit apartment building in June for low-income families.

“You have to do soil tests, have the land appraised and do the environmental impact,” she said in a telephone interview. “If you get bad reports, you’ve lost it. So it’s risk money and it’s very hard to come by.

“We’re very hopeful,” Donahue said. “That’s what the word (esperanza) means.”

In addition to Prudential and the Rockefeller Foundation, coalition participants include Lilly Endowment Inc., the William and Flora Hewlett Foundation, the Knight Foundation, the Pew Charitable Trusts, the John D. and Catherine T. MacArthur Foundation and the Surdna Foundation.