Shelter Shorts

Self-Help CDFI Creates New Market for Low-Income Mortgages

Fannie Mae, the largest banking organization in America, may soon be rewriting its lending criteria, bringing homeownership to hundreds of thousands of low-wealth people, thanks to the work of Self-Help of North Carolina, an innovative community development financial institution (CDFI).

In 1994, Self-Help began the Home Loan Secondary Market Program to purchase mortgages made to people, principally minorities, whose assets are insufficient to qualify for traditional mortgage financing. By purchasing these loans and selling them in the securities market to investors, Self-Help provided new funds to North Carolina banks to make additional loans.

In a national test of these mortgages, the Fannie Mae Corporation will purchase and securitize $2 billion of the loans over a five-year period. The actual loans – which are expected to serve about 35,000 new homebuyers – will be made by BankAmerica, Chase Manhattan, NationsBank, Banc One, and Norwest, and then sold to Self-Help, which will insure them against losses and resell them to Fannie Mae. The Ford Foundation contributed $50 million to the effort to cover any losses Self-Help might incur as a result of defaulted loans.

Mortgage candidates must earn less than 80 percent of the median income of the community they’re buying into, and will be judged by criteria beyond their income. “We’re focusing on people who are right at the economic edge, so we have to be more flexible in looking at things like credit history,” added FannieMae chairman and CEO James Johnson. “What we’re doing today has never been done before This initiative will have enormous implications for community lending in America.” With access to a secondary mortgage market for loans to low-wealth homebuyers, banks around the country will have increased funds for such lending.

“Homeownership is one of the primary means for building family wealth and economic security,” said Martin Eakes, president of Self-Help. “We have learned in our work in North Carolina that there are a lot of hardworking, bill paying low-income and low-wealth people who may not meet conventional mortgage standards but have income sufficient to support monthly home loan payments.”

The Ford Foundation’s involvement in the initiative is part of its emphasis on creating wealth among the poor. According to Ford vice president Melvin L. Oliver, although black Americans earn close to 60 percent of what whites do, their assets amount to only 8 percent of those of whites. This initiative will target low-wealth homebuyers of all ethnic backgrounds, but it particularly seeks to help minority communities. For example, homeownership rates are only 45 percent for blacks, compared with 72 percent for whites.

Ford contributed an additional $1.8 million to cover costs of administering the program. The additional funds will also be used to fund a multi-year study of the program, which will analyze the types of families that are able to become homeowners and the communities in which they live. One of the most important goals of the foundation’s grant will be to test whether families that have been denied mortgages in the past are creditworthy. “If we find that certain categories of low-wealth families can manage monthly mortgage payments, we can help to open up lending policy across the nation to enable thousands of others to own a home,” said Susan V. Berresford, president of the Ford Foundation.

Homebuyers interested in this program can call 1-800-7FANNIE (1-800-732-6643) for more information. Self-Help:, Ford Foundation:, Fannie Mae Corporation:

Lenders still favor whites

In 1997, African-Americans suffered a denial rate of 53 percent when they applied for conventional mortgage loans, more than twice the white denial rate, and an increase from the 49 percent denial rate in 1996. More than half of Native-American applicants were denied loans, and Hispanics experienced a rejection rate of about 38 percent, which was also higher than last year’s rejection rate.

For borrowers with less than 50 percent of the median family income in their geographical area, 48.1 percent of Hispanic applicants were denied, 57.2 percent of blacks and 55.1 percent of American Indians, compared with 46.3 percent of whites. For homebuyers with income of  50 percent to 79 percent of the median, the denial rates were 37.6 percent for Hispanics, 45.6 percent for blacks, 43.2 percent for American Indians, and 29.4 percent for whites.

The annual report on lending by banks and other financial institutions covered by the Home Mortgage Disclosure Act (HMDA) requires lenders to report not only on the number of loans they approve or reject but also on race or national origin, gender, and income of applicants.

John Taylor, President of the National Community Reinvestment Coalition, called the trend evidence that “fair lending enforcement has trailed off,” and called upon banking regulators to tighten enforcement of CRA laws and curtail the growth of megamergers. NCRC: 202-628-8866.

Shelterforce is the only independent, non-academic publication covering the worlds of community development, affordable housing, and neighborhood stabilization.


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