Shelter Shorts

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

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: www.self-help.org, Ford Foundation: www.fordfound.org, Fannie Mae Corporation: www.fanniemae.com

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.

Short Takes

Housing Cheaper than Hospitals for Homeless

It would cost less to provide housing and support services for New York City's homeless than it does to provide them with medical care in the city's public hospitals, an article in The New England Journal of Medicine [338 (24):1734] reported in June. Researchers found that homeless individuals were more likely to be admitted to public hospitals, and once there, tended to stay 36 percent longer than other patients. Better access to supportive housing for patients currently homeless could ultimately cost taxpayers $5,000 less per individual per year, the report said. NEJM: 617-893-3800.

Wealthy+Educated=Healthy

Surprise, surprise. The National Center on Health Statistics' annual report card on the nation's health says Americans can stay healthy by being rich and educated. The report included a special study of socioeconomic disparities in health and found that for almost all health indicators considered, each increase in either income or education increased the likelihood of being in good health. Persons with lower income or education also had a higher prevalence of health risk factors, such as a sedentary life style and cigarette smoking, were less likely to have health insurance coverage or receive preventive care, and were more likely to report unmet health care needs. Adults with low income are up to seven times more likely to report fair or poor health than high-income Americans, according to the report, and blacks and Hispanics, with a poverty rate of close to 3.3 times that of non-Hispanic whites, are more prone to illness, shorter life expectancy, and higher infant mortality rates. Nat. Ctr. on Health Statistics: www.cdc.gov/nchs

More PHAs to Favor Working Poor

Following the New York City Housing Authority's decision to favor families and individuals with jobs during the tenant selection process (See Shelterforce #97), at least two other major cities have recently enacted similar guidelines, according to several Associated Press articles. Vacant public housing units in Denver will first go to working families and those on Social Security, even before homeless families with no income, until 40 percent of the leases annually are filled. Baltimore is considering similar rules, which would set aside 70 percent of the city's subsidized units for residents with jobs. PHAs are claiming the increased revenue generated by rents will help fill the gap created by diminishing federal subsidies.

Welfare To What?

Only half the Cleveland area residents who left the welfare rolls in 1996 found work within a year, and 25 percent were back on welfare within one year. Only 35 percent earned more than $3,000 in the first quarter after leaving the welfare rolls, an article in The Cleveland Plain Dealer (8/9) reports. Similarly, a series of articles in The New York Times (4/12-15) found that workfare programs in New York City are failing to result in long-term employment opportunities for former welfare recipients, and in other cases are displacing city employees. The Times further found that small private programs are proving more successful at moving people from welfare to work. These programs combine specific job training with work experience and may include remedial training in math and reading as well as job-seeking instruction.

One Strike Strikes out

A federal judge has ruled against the federal government's "one-strike" eviction policy, barring the Oakland Housing Authority from evicting low-income tenants for outside drug activities by household members that the tenants knew nothing about, the Associated Press reported (6/27). The policy required PHAs to evict tenants for any drug-related criminal activity "on or near" the premises by a tenant, a household member, a guest, or anyone under the tenant's control. (See Shelterforce #99)

EBT Short-Circuits in DC

The first day of a pilot project allowing 5,000 Washington, DC, residents to withdraw welfare and other government benefits from ATM machines was a "nightmare," according to a Department of Human Services official quoted in the Center For Community Change's newsletter, Organizing (June-July). Many residents found their cards were not accepted by machines in their neighborhood, and those who looked for other machines had to travel miles away to locations often outside of DC. Among the list of possible ATM locations was the 9:30 Club, a night club that did not have the capacity to provide services and is closed during the day. The experiment demonstrated what advocates for low-income people have warned could go wrong with electronic benefits transfer (EBT). (See Shelterforce #96)

Chicago Pays a Living Wage

The Chicago City Council passed the Jobs and Living Wage Ordinance in July, which requires that city contractors pay workers in specific job categories at least $7.60 an hour, enough to lift a family of four above the federal poverty line. The Living Wage Ordinance is the result of a two-year campaign by a citywide coalition of community, religious, and labor groups. Chicago Coalition for the Homeless: 312-435-4548. (See Shelterforce #97)

Subsidized Housing Not Hurting the Market

Subsidized housing scattered within a market-rate neighborhood does not affect nearby property values, according to a study conducted in Montgomery County, Maryland, and Fairfax County, Virginia. The study found no significant difference in price trends between non-assisted homes in a subdivision with assisted units and the market as a whole, no difference in price behavior between non-assisted houses within 500 feet of subsidized housing and those farther away, and no detrimental effect on price trends of immediately adjacent homes. Innovative Housing Institute: 301-460-3956; www.inhousing.org

No Job Loss After Minimum Wage Increase

Recent hikes in the minimum wage resulted in strong wage gains for low-income working households and no loss of jobs, according to an Economic Policy Institute report entitled Making Work Pay: The Impact of the 1996-97 Minimum Wage Increase. The gains primarily benefited the lowest-income workers, slightly reducing the wage gap, the report says. Economic Policy Institute: http://epinet.org/

Copyright 1998

Back to July/August 1998 index.