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NeighborWorks is working.

The NeighborWorks Campaign for Home Ownership is successfully working with lenders and other partners to turn modest income renters into homeowners. Working in the toughest housing markets in the country, the campaign met its five-year goals a year early and is winning converts from New York to Chicago to Great Falls, Montana.

Not long ago, many lenders - If they made affordable-housing loans at all - looked at them effectively as charity. These loans were made from specially designated funds, and the rate of failures and defaults was relatively high.

Now the Neighborhood Reinvestment Corporation and its nationwide network of local NeighborWorks[R] organizations are working to turn around the traditional affordable-housing scenario.

By partnering with a low- or moderate-income borrower from the beginning, providing up-front counseling and help with the loan application, offering an affordable loan product, and then following through with postpurchase assistance and counseling, NeighborWorks organizations and their lender-partners are producing success rates that have lenders grinning broadly with enthusiasm.

The process is ongoing, but has been highlighted in the NeighborWorks Campaign for Home Ownership, which over four years has counseled 76,400 potential buyers and assisted 10,447 low- and moderate-income families in 105 communities across the country to purchase homes with a total mortgage dollar value of almost $707 million.

"What we're talking about is a business - loans, rates, profitability - not a grant and not charity," says Howard Bluver, senior vice president and general counsel of GreenPoint Bank in New York. GreenPoint is a lender-partner with Neighborhood Housing Services of New York City, a NeighborWorks organization.

"What makes it different is Neighborhood Reinvestment," says Wesley J. Ley, sales manager-affordable housing, The First National Bank of Chicago. "They're a proven entity. They can deliver. That's what this is all about." First Chicago is a lender-partner with Neighborhood Housing Services of Chicago, also a NeighborWorks organization.

National NeighborWorks network

NeighborWorks refers to the work of thousands of residents, business people, government officials and others who are partners to a national network of nonprofit organizations that are turning distressed communities into healthy communities. In the last five years, as of September 1996, NeighborWorks organizations were responsible for almost $1.5 billion in total direct investment in the communities they serve, including building or improving more than 38,800 units of housing.

This national NeighborWorks network is backed by Congress and the American people through the Neighborhood Reinvestment Corporation, a national public nonprofit.

The 171 local NeighborWorks organizations are autonomous, resident-led nonprofits chartered to Neighborhood Reinvestment. By operating in more than 500 communities around the country and in the Commonwealth of Puerto Rico, NeighborWorks organizations are a force for positive change both locally and nationally.

Collectively, these partnerships are helping to change the way housing is financed for lower-income working families and are proving that communities in trouble can be transformed into communities of choice. Through homeownership promotion, the development of affordable housing, the reclamation of abandoned or deteriorated land and housing, the training of resident leaders, and the provision of community-building services, these organizations accomplish neighborhood transformation comprehensively.

Neighborhood Reinvestment supports the NeighborWorks network with technical assistance, training, funding, program monitoring and other services that enable them to work as efficiently and effectively as possible. This support includes access to a national secondary market and specialized loan products through Neighborhood Housing Services of America (NHSA). NHSA purchases loans and sells them to social investors, providing local NeighborWorks organizations with revolving loan funds that enable them to leverage their resources.

With more than 20 years of experience, Neighborhood Reinvestment and the NeighborWorks network offer compelling proof that communities once in decline can be made whole again, with residents participating in community life and taking pride in community renewal.

NeighborWorks Campaign for Home Ownership

When the NeighborWorks Campaign for Home Ownership was launched in 1993, its original goals over five years were to educate and counsel 75,000 potential buyers, to secure homeownership for 10,000 buyers and to attract $650 million in public- and private-sector investment.

Within four years, however, by December 1996, the campaign had met and surpassed its original goals. The five-year totals obviously will beat the goals, the only question is by how much.

New York City and Chicago are but two of the campaign communities.

Over the past four years, working with GreenPoint and an array of other lenders in the nation's toughest housing market, NHS of New York City has helped 646 low- and moderate-income New York City families become homeowners, with a total investment of nearly $94.7 million, as part of the campaign.

In Chicago, Neighborhood Housing Services of Chicago, working with more than two dozen lender-partners, has helped 522 families become homeowners, with a total investment of nearly $46.6 million.

Other leading campaign cities are Chattanooga, Tennessee, where Chattanooga Neighborhood Enterprise has helped 1,112 buyers with homeownership for a total investment of $55.5 million; Minneapolis, where Northside NHS has helped 519 new homeowners, with total investment reaching $32.9 million; and Milwaukee, where NHS of Milwaukee has helped 426 buyers and total investment has reached $18.8 million.

The typical campaign buyer, compared with the typical U.S. buyer, earns more than one-third less ($24,732 vs. $39,558), purchases a home costing less than half as much ($64,362 vs. $139,000), and is more than twice as likely (96 percent vs. 42 percent) to be a first-time homeowner. Campaign buyers also are more than twice as likely (42 percent vs. 17 percent) to be female and nearly four times as likely (61 percent vs. 16 percent) to be an ethnic minority.

Even so, mortgage-loan performance among campaign buyers is very competitive. Using 90-day delinquencies (as of December 1996) as a measure, campaign loans have a rate of 0.9 percent - that's higher than the 0.3 percent rate of conventional loans but lower than the 1.3 percent rate of FHA loans.

"Early intervention in each phase of the cycle is by far the most important strategy," says GreenPoint Bank's Howard Bluver.

Making loans that work

NeighborWorks lender-partners in each campaign community have played a range of key roles in helping new home-owners achieve the American dream. Among the new homeowners are Yolanda in Chicago and Mary in New York City.

In Chicago, Yolanda, a single mother, was renting in a two-unit building when the landlord decided to sell and gave her the first opportunity to purchase the building with both units. She had been planning to purchase a home anyway and was interested, but her building needed improvements in both its mechanical systems and interiors. The landlord's asking price was $29,000; Yolanda earned slightly more than $22,000 as a dietary aide in a hospital in the neighborhood.

Yolanda heard about NHS through her block club and applied for financing through NHS's Chicago Family Housing Fund, which provides acquisition-rehab financing. NHS originated a mortgage loan application with Yolanda and introduced her to the NHS Full-Cycle Home Ownership process. She received homebuyer education through a combination of classes and individual sessions with NHS's homebuying counselors. She also was required to attend a separate class that provided training in managing her rental unit.

The project costs (acquisition, rehab, closing and soft costs) came to $69,000. Under "Family Plus," a pilot program that NHS of Chicago developed with Freddie Mac, Yolanda needed a 3 percent down payment from her own funds. In fact, Yolanda's savings of more than $3,000 both covered the down payment and still provided a small reserve.

As financing, Yolanda received a first mortgage of $55,200 at 8.55 percent for 30 years and a second mortgage of $11,700 at 5 percent for 15 years. Both loans were provided by NHS of Chicago's own licensed, nonprofit mortgage company, Neighborhood Lending Services Inc.

For the rehab work, NHS provided a full range of services. An NHS construction specialist worked with Yolanda on developing a scope of work. NHS then wrote detailed specifications and managed a competitive bid process for Yolanda. Once she had selected a contractor's proposal, the loan package was presented to NHS's loan committee and approved.

After closing, the NHS construction specialist monitored the rehab project as it progressed, and the general contractor was paid in stages as work was completed. Yolanda remained in the building throughout the rehab, but the rental unit was vacant for three months while work was being done.

On completing the renovation, Yolanda rented the second unit to a low- to moderate-income family that is paying $450 a month for a three-bedroom apartment. The appraised value of the property after rehab is $85,000.

A New York story

In New York City, Mary, a single, school teacher in her mid-50s, decided a few years ago to buy a home. Earning $53,000 a year, she financed the $160,000 purchase price for a three-unit building in Harlem through a 203(k) mortgage with a broker.

The project, however, was underbudgeted and fell through. With an uninhabitable building on her hands, Mary wound up having to pay both rent and mortgage payments.

Then she heard about NHS of New York City through a friend in her community, and met with an NHS loan officer. The as-is appraisal on the building was $156,000. The after-rehab value is estimated at $225,000.

Construction totaled $118,000, plus contingency and soft costs. The substantial rehab work included new heating, electrical and plumbing systems.

Drawing on a special, NeighborWorks rehab mortgage product, Citibank agreed to hold a $96,000 first mortgage, at a 7.625 percent fixed rate for 30 years, and NHS of New York City holds a $101,300 fixed-rate second, at 6.5 percent for 15 years.

While these new homeowners are in Chicago and New York, thousands of others like them in other campaign communities across the country are also achieving the American dream.

In Kalamazoo, Michigan, for instance, when Matt and Chris read about Kalamazoo Neighborhood Housing Services in their apartment community's newsletter, they hoped it would be the answer to their prayers. At the time, they were living in a 700-square foot apartment with a toddler, a disabled five-year-old and a dog and cat. The family knew they needed more space.

After attending the NHS's home-counseling classes and working to eliminate their debts, they were delighted to discover they were eligible for a new NHS loan product from the Michigan State Housing Development Authority (MSHDA).

The family obtained a $38,400 first-mortgage loan from the NHS for the purchase of a $51,400 home, and MSHDA's First-Home Program provided a $9,600 forgivable second mortgage plus a $2,800 grant.

Far from Kalamazoo, in Laredo, Texas, Pedro and Ruby were surprised to learn they had more money in their pockets after they bought their new home than they did when they were apartment dwellers.

They, like 27 percent of new homeowners in the campaign, find that owning is less costly than renting. "This is so much better than renting," Ruby says.

Married for seven years, Pedro and Ruby's newly built three-bedroom single-family home cost $67,000, which they purchased using gift money from a relative as a down payment. With a closing-cost loan of $2,200 from Laredo-Webb Neighborhood Housing Services, their monthly payment now totals $412, $88 less than their former apartment rental payment.

Full-cycle lending

The campaign has been able to serve buyers like Yolanda in Chicago and Mary in New York effectively through mutually supportive partnerships among local NeighborWorks organizations, local government, lenders and insurers. Together they provide a combination of pre- and postpurchase homeowner education, affordable lending products and property insurance. The combination of partnerships and services is called Full-Cycle Lending.

Full-Cycle Lending has drawn rave reviews from NHS lender-partners. Lenders in New York City and Chicago, for example, set the tone.

Partners in New York

In addition to GreenPoint Bank and Citibank New York, NHS of New York City is also partners with Marine Midland Bank, among others. Lender-partners typically have had long-standing relationships with the NHS even before the NeighborWorks Campaign for Home Ownership.

GreenPoint, Citibank and Marine Midland, for example, help sponsor The NHS Homeownership Center, which provides one-stop homebuyer education and pre- and postpurchase counseling. Citibank and Marine Midland also participate in NHS's CASH II (Closing Assistance Support for Homeowners) program, which can lend qualified homebuyers up to $15,000 for as long as eight years at affordable rates for down-payment and mortgage-closing costs.

Elizabeth Garza, vice president and community lending team sales manager, Citibank New York, says, "You want an educated consumer, and NHS of New York City can provide that whole educational background. Through the partnership with NHS, we get a file that's perfectly put together; we can make more loans; it's an incredible value."

Says GreenPoint Bank's Bluver, "The impact of Full-Cycle Lending has been extraordinary. If you partner with a borrower from the beginning and then stay with the borrower into the postpurchase period, the success rate for affordable-housing products rises exponentially." In addition to his position with GreenPoint, Bluver also is on the board of NHS of New York City.

Leisha Kendall, community reinvestment product manager, Marine Midland Bank, underscores the point: "By providing educational resources to low-income borrowers, Full-Cycle Lending is reaching an untapped market of borrowers. It's been helpful and beneficial. It's good business."

Partners in Chicago

In addition to The First National Bank of Chicago, NHS of Chicago also partners with Bell Federal Bank and Harris Trust & Savings Bank, The Northern Trust Standard Federal, as well as with other lenders. Many of the lender relationships date to the early days of NHS of Chicago in the 1970s.

In Chicago, "what distinguishes Full-Cycle Lending is its emphasis on homeownership, as opposed to only acquisition-rehab," Ley says. "It completes the tools you need to approach urban lending."

Adds Carl Pietraszewski, vice president and community reinvestment officer, Bell Federal Bank, "NHS has done an outstanding job with homeowner counseling. They get potential homeowners to see NHS first, before going out and looking at a home. They combine prepurchase, postpurchase, default and foreclosure-intervention counseling; and they do it in both English and Spanish. NHS is a premier counseling agency in the city."

Tom Gobby, senior vice president and manager of community relations, LaSalle Bank FSB, adds still another perspective, "If, as a borrower, you understand and know what you have to do, you are way ahead of the game. NHS will take a borrower by the hand and virtually live with them to get them through the hurdles of a mortgage."

In its development, Full-Cycle Lending was strongly influenced by a services-and-loan-product package offered by Neighborhood Housing Services of New York City. In NHS's experience, only a very comprehensive approach would meet the range of needs among low- and moderate-income families taking on homeownership.

Effective homeowner education and counseling trains campaign buyers and potential buyers in their obligations and responsibilities as borrowers and homeowners as well as in their opportunities. Some of the training can be classroom-based, but hands-on experience has proved important also. For many participants, sustaining inspiration and commitment are as crucial as acquiring nuts-and-bolts skills.

Innovative loan products

Affordable loan products have assisted low- and moderate-income buyers with down-payment and closing costs and also with the costs of rehabilitating available homes in NeighborWorks communities. Key FHA programs, for example, have been redesigned to facilitate purchase-rehab borrowing, and Fannie Mae and Freddie Mac have helped create a special campaign-related loan product that lenders can sell, reducing the need for portfolio lending.

Less than 21 percent of the total amount lent through the campaign, for example, was a standard bank product, reflecting the burgeoning growth in new products. In most cases, partnership lenders needed to tailor loans to NeighborWorks clients.

Some of the loan tailoring reflected the significant housing rehab needed in more than 40 percent of the homes sold. Often, total purchase and rehab costs exceeded market value. Frequently, lower-interest amortizing second mortgages, "soft" nonamortizing seconds, grants and very high loan-to-value lending were necessary. NeighborWorks organizations provided the special resources to make these deals happen.

In New York, for example, Citibank partners with NHS of New York City to offer a NeighborWorks rehab mortgage - used, for instance, in financing Mary's home - that rolls the first mortgage and rehab costs into a single loan, with the homebuyer borrowing an amount based on the post-rehab value of the home.

"Citibank had been looking for a way to do this kind of lending," Garza says. "The city is filled with older housing that needs rehab, and NHS has rehab and construction-lending expertise. Now we can offer a product that the market needs and that we don't have the expertise to do on our own."

NeighborWorks rehab mortgages are salable on the secondary market, and Citibank plans on rolling out the product nationwide anywhere a local NeighborWorks organization is available.

Marine Midland Bank has developed two special products. One, Marine 97, focuses on borrowers with incomes less than 100 percent of the HUD median and allows down payments of as low as 2 percent, with the remaining down payment coming from a variety of sources. The other, New York Neighbors, allows down payments of as little as 5 percent on two- to four-family buildings and permits borrowers to allocate up to 75 percent of indicated rental income to reduce principal, interest, taxes and insurance. This allows borrowers to qualify with significantly lower mortgage payments.

In Chicago, many of NHS's lender-partners joined with other lenders in creating the Chicago Family Housing Fund, a first- and second-mortgage pool, primarily aimed at financing purchase-rehabs of one- to four-unit buildings in low- and moderate-income neighborhoods. Yolanda, for instance, applied for her financing through the fund.

Lenders can participate in a first-mortgage pool, a second-mortgage pool or both. First mortgages are priced according to the Fannie Mae 60-day rate plus 50 basis points (at the time of commitment), and participating lenders receive that Fannie Mae rate as their rate of return. Second mortgages are originated at 5 percent with a 15-year term, and participating lenders receive a 4.5 percent return. Each lender has a pro rata share of each mortgage originated by NHS in each pool and funds those loans accordingly on a monthly basis.

Each first mortgage is originated at 80 percent of either the total project cost or the improved appraised value (whichever is lower). The balance is funded by the second mortgage and the borrower's own funds. Under this structure, mortgage insurance is not required. When the rehab is completed, the first mortgages are purchased from NHS by the participating lenders, servicing released. NHS services the second-mortgage portfolio until paid in full.

The fund is NHS's "defining product," says Wesley Ley of First Chicago. "It shows how much banks and NHS need one another."

Bell Federal's Pietraszewski, for example, says its fund commitments now get snapped up instead of lingering 18 months as they used to. "We leveraged 44 new homeowner loans for $4 million in just eight months," he says.

Separately, the "Family Plus" underwriting guidelines developed by NHS of Chicago and Freddie Mac provide for a smaller down-payment requirement in purchasing two-, three- or four-unit homes. Additionally, greater weight is given to the rental income the homeowner will receive, thus opening the window of [TABULAR DATA OMITTED] affordability to a larger population than otherwise, with less income from other sources. All buyers using these guidelines must receive both homebuyer and landlord training, and every property must be inspected by an NHS construction specialist, regardless of whether rehab is required.

Through its local government-partner, NHS of Chicago also can draw on deferred, forgivable financing from federal funds distributed by the city of Chicago's housing department. These funds can be used to pay closing costs, add to a borrower's down payment or help pay for the "appraisal gap" when the costs of acquisition and rehab exceed the improved value of the property. These funds are used in 10 percent of NHS' loan originations, at an average amount of $9,700 per property.

Simultaneously, the hazard insurance industry is doing more and has improved the affordability and accessibility of insurance in low-income neighborhoods. Access to a standard insurance product has lifted the confidence of both homeowners and lenders.
NeighborWorks[R] Campaign for Home Ownership Communities


Neighborhood of Affordable Housing Boston, MA
Nuestra Comunidad Development Corp. Boston, MA
Twin Cities CDC Fitchburg, MA
Haverhill Neighborhoods Inc. Haverhill, MA
Manchester NHS Manchester, NH
French Hill NHS of Nashua Nashua, NH
NHS of New Britain New Britain CT
NHS of New Haven New Haven CT
NHS of Norwalk Norwalk, CT
Springfield NHS Springfield, MA
NHS of Waterbury Waterbury, CT
Rutland West NHS West Rutland, VT
Woonsocket Neighborhood Development Corp. Woonsocket, RI
West Side NHS Buffalo, NY
Broadway-Fillmore NHS Buffalo, NY
Kensington-Bailey NHS Buffalo, NY
Black Rock-Riverside NHS Buffalo, NY
Servicio de Viviendas Vencinales de Carolina Carolina, PR
Housing Resources of Columbia County Hudson, NY
Ithaca NHS Ithaca, NY
NHS of New York City New York, NY
Ponce NHS Ponce, PR
NHS of Rochester Rochester, NY
Rural Opportunities Inc. Rochester, NY
Rural Revitalization Corp. Salamanca, NY
Syracuse NHS Syracuse, NY
Troy Rehabilitation and Improvement Program Troy, NY
Utica NHS Utica, NY
Allentown NHS Allentown, PA
NHS of Baltimore Baltimore, MD
CommunityWorks in West Virginia Big Chimney, WV
Cumberland NHS Cumberland, MD
Philadelphia NHS Philadelphia, PA
Pittsburgh NHS Pittsburgh, PA
NHS of Reading Reading, PA
Richmond NHS Richmond, VA
Salisbury NHS Salisbury, MD
Scranton NHS Scranton, PA
NHS of Trenton Trenton, NJ
Birmingham NHS Birmingham, AL
Clearwater NHS Clearwater, FL
Neighborhood Housing and Development
Corp. of Gainesville Gainesville, FL
Miami-Dade NHS Miami, FL
NHS of Savannah Savannah, GA
Community Service Programs of West Alabama Tuscaloosa, AL
Housing Partnership Inc. West Palm Beach, FL
Neighborhoods Inc. of Battle Creek Battle Creek, MI
Chattanooga Neighborhood Enterprise Chattanooga, TN
NHS of Cincinnati Cincinnati, OH
Columbus NHS Columbus, OH
Project Renew Fort Wayne, IN
Hamilton NHS Hamilton, OH
Kalamazoo NHS Kalamazoo, MI
Lafayette NHS Lafayette, IN
NHS of Louisville Louisville, KY
NHS of Massillon Massillon, OH
NHS of Saginaw Saginaw, MI
NHS of Toledo Toledo, OH
NHS of Beloit Beloit, WI
NHS of Chicago Chicago, IL
NHS of Duluth Duluth, MN
NHS of Green Bay Green Bay, WI
Kankakee NHS Kankakee, IL
NHS of Kenosha Kenosha, WI
NHS of Lincoln Lincoln, NE
NHS of Milwaukee Milwaukee, WI
Northside NHS Minneapolis, MN
Southside NHS of Minneapolis Minneapolis, MN
NHS of Richland County Richland Center, WI
NHS of St. Joseph St. Joseph, MO
NHS of St. Louis St. Louis, MO
Community NHS St. Paul, MN
Dayton's Bluff NHS St. Paul, MN
NHS of Lake County Waukegan, IL
NHS of Albuquerque Albuquerque, NM
Boise NHS Boise, ID
NHS of Great Fails Great Falls, MT
Tierra Del Sol Housing Corp. Las Cruces, NM
NHS of Phoenix Phoenix, AZ
Pocatello NHS Pocatello, ID
NHS of Pueblo Pueblo, CO
Salt Lake City NHS Salt Lake City, UT
NHS of Santa Fe Santa Fe, NM
Navajo Partnership for Housing St. Michaels, AZ
Colorado Rural Housing Development Corp. Westminster, CO
Aberdeen NHS Aberdeen, WA
Anchorage NHS Anchorage, AK
Corvallis NHS Corvallis, OR
Fairbanks NHS Fairbanks, AK
Inglewood NHS Inglewood, CA
La Habra NHS La Habra, CA
Los Angeles NHS Los Angeles, CA
Neighborhood Partnership of Montclair Montclair, CA
Pasadena NHS Pasadena, CA
Sacramento NHS Sacramento, CA
NHS of the inland Empire San Bernardino, CA
San Diego NHS San Diego, CA
Vallejo NHS Vallejo, CA
NHS of Fort Worth Fort Worth, TX
Fifth Ward Community Redevelopment Corp. Houston, TX
Laredo-Webb NHS Laredo, TX
NHS of Midland Midland, TX
Amigos del Valle Mission, TX
NHS of New Orleans New Orleans, LA
NHS of Oklahoma City Oklahoma City, OK
NHS of San Antonio San Antonio, TX
NHS of Tulsa Tulsa, OK
Waco NHS Waco, TX

Lessons from the campaign

Neighborhood Reinvestment and its partners in the campaign already are drawing key lessons:

* Nonprofits play a critical value-added role in the homeownership development process.

NeighborWorks organizations are front-line resources in targeted neighborhoods throughout the country, listening to and working with residents on revitalization efforts.

Homeownership retention had long been so much a part of what NeighborWorks organizations already were doing that it was only a small step conceptually from that to attracting new buyers and expanding the reach of homeownership.

In the process, NeighborWorks organizations, through their ongoing efforts and newly established HomeBuyers Clubs, developed special relationships with prospective purchasers, which later could be translated into special outreach relationships with interested lenders.

"Say I have a mortgage on a single house in a block of 10, but five of them are vacant," says First Chicago's Wesley Ley. "My collateral may not be very sound, and there's not much of a market to pursue.

"With intermediation from NHS of Chicago, it can put five of the vacant houses back on the market, put owners in them and shore up my collateral. If that's self-serving, then so be it. That is simply good business.

"It's too critical to everyone, including neighborhood residents, not to approach this with the level of commitment, dedication and intellect that we do together."

* Homeownership for underserved demographic markets is both possible and desirable.

One of the great promises of the campaign was that NeighborWorks communities offered a broader market for homeownership than was generally acknowledged before the campaign started. If this proved true, it would mean great new opportunities for expanding services - and hence revenue - for the housing-finance industry. Otherwise, the industry was serving a nearly saturated homeownership market.

December 1996 figures show the campaign has made good on its promise. Campaign buyers are distinctly different from typical U.S. buyers, offering the industry a largely untapped new homebuyer market.

For instance, families earning between $15,000 and $25,000 represent 17 percent of all households served by the campaign. In the overall population, only half these families own homes, making it the largest potential pool of owners in the country.

* Durable and innovative partnerships are key to success.

NeighborWorks organizations rely heavily on their local partnerships in the public and private sectors.

Citibank New York, for example, views NHS of New York City as a "strategic partner," according to Elizabeth Garza, because of NHS's presence in a number of New York neighborhoods, the skill and experience of its staff and its access to national resources through Neighborhood Reinvestment.

"Working with NHS is smarter on our part," Garza says, "because Citibank can have a great effect on the community. There's a whole set of affordable mortgages especially tailored to borrowers who have gone through the NHS homebuyer-education process."

"It's a win-win situation for everybody," says Howard Bluver of GreenPoint Bank. "You get more people involved, you make a difference in the community, neighborhoods don't deteriorate, property values don't go down."

At Marine Midland, Leisha Kendall says, "The key factor here is that the campaign has established itself as a collaboration. Lenders are concerned about risk, and partnering clearly serves to lessen the risk.

"What sets the campaign apart is the combination of partners in the entire process. They have established the standard and set attainable goals. They can provide information about results. These are critical elements in providing opportunities for homeowners."

In Chicago, says Wesley Ley of First Chicago,"we provide NHS direct funding to go do things that have to be done," such as moving quickly to acquire a key neighborhood property. "Given its structure, NHS can do things we don't have the ability to do, and it can do them more efficiently, more economically and more successfully."

Tom Gobby of LaSalle says, "Of all the rehab programs that are working in Chicago now - and there are a lot of them - NHS is the only one that is a success, as measured by its production and its neighborhoods. They don't give up; they just do what has to be done."

Adds Carl Pietraszewski of Bell Federal, "The history's there. Just go out in the communities where we've made loans. You can see that you're actually doing some good. We can make a difference."

The campaign drew on those local relationships and enhanced them with the addition of special national and regional partnerships with government and the lending and insurance industries. In addition, innovative partnerships developed through the campaign moved beyond this traditional base and connected with other organizations, such as the real estate community, employers, state housing finance agencies, churches, schools and other nonprofits.

* Long-term successful homeownership strategies require the Full-Cycle Lending approach.

Since its introduction, Full-Cycle Lending has gained broad support among financial institutions and the local government sector, as well as among other NeighborWorks organizations. The support has grown as each player has recognized the value in a systematic approach to overcoming barriers traditionally associated with attaining homeownership for lower-income families.

The lending industry, for example, is placing heavy emphasis in community-development lending on prepurchase counseling and homebuyer education to hold down default and delinquency rates. Further work is underway on counseling standards and funding sources.

Full-Cycle Lending, in fact, was cited for a "best-practices" award at the 1996 United Nations Habitat II conference at Istanbul. In addition, it has received a semifinalist award from the "Innovations in American Government" program sponsored by the Ford Foundation and the Kennedy School of Government at Harvard University.

* Lower-income families are good credit risks. Performance on these loans compares favorably with other conventional loans.

One measure of the effectiveness of prepurchase counseling and homebuyer education is the low delinquency rate for campaign homebuyers.

NeighborWorks postpurchase counseling and foreclosure intervention have received less attention so far, but will require strong systems and a high profile to begin working with clients at the first sign of financial trouble, or even anticipate trouble and work to head it off.

Also important is home-maintenance training, which helps new owners build their own personal capacity for minor repairs or supervising a contractor.

Revitalizing communities

Meantime, expanding homeownership has unleashed new levels of energy in revitalizing NeighborWorks communities. New homeowners are improving the overall appearance of their neighborhoods and stimulating new resident leadership.

With aggressive, concentrated lending, a stagnant market can be moved and property values can rise. The concentration of resources and intervention techniques needed to move a market may appear risky at first but is the safer and sounder approach over time.

As an illustration, eight years ago, housing in Chicago's Roseland neighborhood was financed almost exclusively by FHA-insured loans. Now, after rehabbing almost 100 vacant buildings, financing is split almost evenly between FHA-insured and conventional lenders. The investment climate has changed completely. In addition, 34 new houses are being built in Roseland.

Property values have risen too. In turn, they have raised local tax revenue, meaning more money for education, public safety, infrastructure and other services provided by local municipalities.

"Over time," says Tom Gobby of LaSalle, "the neighborhood really takes on a new character. It's beautiful."

And this level of revitalization has happened not just in cities like Chicago and New York.

In Montana, for example, Neighborhood Housing Services of Great Falls so turned around two once-devastated target areas, home to some of the city's lowest-income residents, that the number of vacant buildings dropped from 350 to 40; the vacancy rate dropped from 16 percent to 2 percent; median property values increased 34 percent; and property tax revenue increased 18.4 percent. NHS housing units completed over five years added enough to the tax base to pay a year's schooling for 58 children or a year's salary for seven police officers.

In Alaska, Anchorage Neighborhood Housing Services, working in a target area where the poverty rate is higher and the homeownership rate lower than the city's, saw median property values increase 76.9 percent and tax revenue rise 112.3 percent. NHS revitalization activities boosted the tax base enough to school 175 children or pay nine police officers for a year.

Elsewhere, similar reports have come from cities as different as Lafayette, Indiana; Salt Lake City; Santa Fe; and New Haven, Connecticut.

They are remarkable evidence of one of the major lessons from the NeighborWorks Campaign for Home Ownership: Homeownership, in fact, can drive community revitalization.

For residents, ownership means new-found stability, control over housing costs, elevated social status and pride. For many it is their first real equity-building asset.

For neighborhoods, homeownership means residents become stakeholders who care about their communities and are interested in affecting their quality of life. It means parents who fight for better schools, who advocate for better police protection, who form block clubs and volunteer with youth organizations.

Looking ahead

At this point in the campaign, Neighborhood Reinvestment is working to maintain the campaign's focus on homeownership and to increase the capacity and effectiveness of NeighborWorks organizations across the country.

Already, a number of local NeighborWorks organizations have emerged as their area's leading homeownership counseling provider or affordable-housing developer and lender.

Now we face the challenges of continuing the process: building sustainable capacity, capitalizing on the strengths of our partners and expanding postpurchase counseling.

The first years of the campaign have shown that the capital markets can indeed work for all Americans. Now we must continue working with our public and private partners to bring investment to their communities.

Bruce Gottschall, executive director, Neighborhood Housing Services of Chicago, and Francine Justa, executive director, Neighborhood Housing Services of New York City, are cochairs of the NeighborWorks Campaign for Home Ownership.
COPYRIGHT 1997 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Cover Report: Affordable Housing/ Fair Lending; Neighborhood Reinvestment Corp.'s network of organizations
Author:Gottschall, Bruce; Justa, Francine
Publication:Mortgage Banking
Date:Sep 1, 1997
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