Self-Help CU's Effort Helps Low-Income Realize the American Dream

DURHAM, N.C. – Quietly and little recognized by even the credit union industry, an effort sponsored by the $115 million Self-Help Credit Union, based in Durham, North Carolina, has helped make thousands of mortgages available to low-income people across the country in the last five years. In doing so, the effort also managed to significantly improve the mortgage market for low-income people and introduced dozens of financial institutions to serving lower income home borrowers. Known informally as the Self-Help initiative, the effort used money leveraged through the credit union’s Venture Fund to create what amounted to a secondary market for lower income mortgages, allowing the lenders to make more mortgage money at lower rates available to many more low-income borrowers. The Venture Fund is a financial arm of Self-Help and allows the credit union to reach out to help people who would otherwise not be eligible to be Self-Help members. The Venture Fund is also a non-profit institution in its own right that is able to approach different Foundations and other sources of funds independently of the credit union, according to Malcolm White, Communications Director for Self-Help. White explained that although the program which drew to a close in late October was five years old, it actually had its roots further back in the 1990′s. In that part of the decade, White explained, Self-Help began to run across banks which had offered some mortgages to lower income borrowers as part of their responsibility under Community Reinvestment Act regulations but which had decided they could not offer any more. In response Self-Help offered to buy the low-income mortgages from these lenders on the condition that the banks used the money from the sale to fund more low-income mortgages. Several banks accepted the arrangement, and a new process was born whereby Self-Help’s Venture Fund served as a secondary market of sorts for some lower income mortgages. After doing this for several years, Self-Help’s efforts drew the attention of some major institutions such as the Ford Foundation and Fannie Mae, which in 1998 committed to throwing some of their funding into the project over the next five years. The result was the program leveraged $2 billion to help allow thousands of lower income borrowers to own their own homes. According to the Venture Fund, the program helped about 30,000 borrowers get access to mortgages, 14,500 of them in the state of North Carolina. According to Self-Help, 28% of the North Carolina borrowers were African-American, 43% of the loans went to women-headed households, 51% of the mortgages benefited rural families, and 69% of the borrowers were classified as very low-income households (62% of their area median income). “For too long, many Americans were shut out of the economic mainstream,” said Self-Help CEO Martin Eakes. “This initiative helps low-income and minority families build wealth and economic opportunity through owning their homes. I commend Fannie Mae and the Ford Foundation for their vision in helping make homeownership a reality for nearly 30,000 families across the nation through this initiative.” The Venture Fund also used some of the money it leveraged from the major supporters to research and establish a mechanism that will make greater numbers of lower income mortgages acceptable to the secondary mortgage markets. This has helped Fannie Mae stay with the project even past its official end, White said. Fannie Mae has committed to purchase an additional $2.5 billion in loans acquired by Self-Help over the next five years to serve an additional 35,000 families. But as good as those results have been for low-income borrowers, White said Self-Help has been particularly proud of how the program has managed to bring more data on the real risks of lower income mortgage borrowers. The Ford Foundation commissioned a multi-year study by the University of North Carolina to assess the ability of low-income and minority borrowers to repay their mortgages and to identify the financial and social impacts of homeownership on the borrower’s households. The UNC study found that participating lenders experienced a 0.7% foreclosure rate during the first five years of the initiative, below the national foreclosure rate of 1.1% at the end of the second quarter of 2003, as calculated by the Mortgage Bankers Association, Self-Help said. More than 80% of the borrowers were never delinquent with a mortgage payment, and 12% were never more than 30 days late. The study results also indicate that the purchase of a home has been a successful investment for these families. The value of the homeowners’ equity in their homes – the current value of the home minus the unpaid mortgage balance – increased by $20,619 on average during this same period. White said the program has changed the way many lenders interact with lower income borrowers, since one of the conditions of the program is that the lenders have to service the loans for a period of time. The lenders learn two things -overall the lower income borrowers are good risks and they may need extra attention and help at certain times. “Part of working with this population means recognizing their economic vulnerability,” White explained. “A big medical bill might not send a prime borrower into trouble with their mortgage, but it might with a lower income borrower,” he said. [email protected]