For more than 20 years, Self-Help's lending and advocacy efforts have assisted low-income families, minorities, women, and rural residents—people traditionally underserved by for-profit lenders. "We are looking for ways to help low-wealth families buy and stay in their homes and to do so in ways that also make business sense for lenders," comments David Buchholz, coordinator of Lender Partnerships at the Self-Help Ventures Fund in Durham, North Carolina. The ventures fund is a financial affiliate of the nonprofit Center for Community Self-Help, one of the nation's leading community development financial institutions. Self-Help's initiatives, including an innovative secondary market program and a partnership with the Latino Community Credit Union, are benefiting individuals and communities in North Carolina and nationwide.

Unique secondary market program expands affordable homeownership. Self-Help's secondary market program provides affordable homeownership opportunities for low-income families and, at the same time, minimizes risk to banks that agree to offer them nonconforming conventional mortgages. Through a 5-year partnership with the Ford Foundation and Fannie Mae, Self-Help has expanded its secondary market initiative to 43 states and expects to generate $2 billion in affordable home loans by 2003.

Under this program, commercial banks offer mortgages, typically with low downpayments and other flexible guidelines, to low-income individuals who have been unable to obtain conventional financing. With the Ford Foundation's backing, Self-Help purchases these mortgages from commercial banks and then immediately resells them to Fannie Mae with the promise that it will cover the cost of most defaulted loans. In return, the banks commit to relend the money to an equivalent number of lower income homebuyers. Ford Foundation funds help Self-Help provide credit enhancements, or coverage of the expected level of risk, for the loans purchased from commercial banks. In addition, Self-Help is working with banks to develop customized loan products that they can offer to lower income applicants without having to hold the loans in the banks' own portfolio.

Self-Help's premise is that lenders can adopt more flexible underwriting and still keep their losses to a minimum. "We are demonstrating to the market, including Freddie Mac and Fannie Mae, that pushing the envelope to make loans to low- and moderate-income families can be done in ways that are both profitable and prudent," Buchholz adds.

Mortgage lenders finding new markets among low-income buyers. In the past 12 to 24 months, the number of mortgage loans available to low- and moderate-income families has expanded—a trend that Buchholz attributes to two forces. First, the large number of bank mergers and acquisitions has increased pressure on banks to comply with the Community Reinvestment Act (CRA), and much of the CRA test rests on a bank's proportion of lending to low-wealth families. Second, more sophisticated lenders recognize that the affordable and minority markets represent important growth areas. Just as shopping-center developers and national franchises have discovered new markets in inner-city neighborhoods, mortgage bankers, facing a saturated market among White suburbanites, are seeking a new supply of prospective homebuyers among low- and moderate-income families. Furthermore, bankers are discovering that loans to underserved individuals can be profitable, provided that lenders can manage their risks and be assured of a secondary market outlet for these loans. That is where Self-Help can step in, with innovative loan packages and secondary market programs that help conventional lenders push the conventional envelope.

Homeownership builds assets for low-income families. Self-Help is committed to increasing homeownership. It helps stabilize neighborhoods and offers a way for low-income families to begin building assets that enable them to send their children to college, start businesses, or weather financial crises. Despite the advantages of buying a home, Self-Help acknowledges that not everyone is ready at the same time for homeownership. Families need to develop credit histories or clear up credit problems before becoming good candidates for ownership.

Good pre- and postpurchase counseling can help minimize defaults, according to Buchholz. Prospective buyers must know what is involved in buying a home and maintaining it when repair issues and costs, job layoffs, or other issues arise. For example, good counseling can educate prospective buyers on the importance of telling their lenders as soon as possible about financial problems or job layoffs. Buchholz adds that many low-income homeowners postpone communicating with the bank out of fear of immediate foreclosure. In fact, mortgage lenders are becoming more proactive to prevent foreclosures. Some are calling borrowers after the first late payment to work out a different payment plan.

Self-Help's flexible direct mortgage loans. "We would not want to see someone not be able buy a house because he has a $300 medical bill that is 10 years old," says Roberta Norfleet, a regional director at Self-Help Credit Union. "While this medical liability might disqualify someone from securing a conventional mortgage, Self-Help has developed more flexible underwriting criteria; we look at the whole picture."

To design more flexible standards, Self-Help reviewed 100 mortgage applications to assess the impact of different factors, such as unpaid bills or credit history, on qualifying for loans. For example, if Self-Help allowed prospective homebuyers to have certain medical debts, how many families would qualify for loans without posing unacceptable risks? In fact, the credit union's housing loan losses total less than 1 percent, a figure on par with conventional lenders.

Self-Help Credit Union also partners with North Carolina municipalities to expand homeownership. Communities with downpayment or closing-costs assistance—typically funded with HUD's Community Development Block Grant and HOME programs—refer prospective homebuyers to Self-Help for mortgage loans. Also, public housing authorities are beginning to send interested Temporary Assistance for Needy Families clients with individual development accounts (IDAs) to Self-Help. Norfleet expects business from IDA clients to increase because individuals with IDAs typically require 3 years to be ready for homeownership.

The Latino Community Credit Union. Committed to expanding services to the growing Latino population in North Carolina, Self-Help hired 10 bilingual loan officers and lent $3.5 million to more than 40 Latino families and businesses. Self-Help also worked closely with three organizations, El Centro Hispano, the North Carolina State Employees Credit Union, and the North Carolina Minority Support Center, to organize La Cooperativa Comunitaria Latina de Crédito—the Latino Community Credit Union (LCCU). Opening in June 2000, LCCU is the first Latino financial institution in North Carolina and the second in the Southeast. John Herrera, vice-president for Latino/Hispanic affairs at Self-Help and chairman of the board at LCCU, emphasizes that LCCU has a bilingual staff and provides checking and savings accounts, access to ATMs, loans, wire transfers to Latin America, and other services typically unavailable at conventional local banks. According to Herrera, many Latino immigrants face cultural and language barriers and have never before opened checking or savings accounts, but LCCU is reversing this trend. During its first year, LCCU in Durham grew from 500 to 2,000 members, and the new branch in Charlotte that opened in October 2001 already has 300 members.

Alejandra Okie-Holt, LCCU director of community education, says that LCCU's financial programs have helped recent immigrants. Many Latinos have no credit history or do not think that homeownership is an option for them. Therefore, LCCU developed a credit-building program that offers secured 1-year loans of $500 to $1,000. When a member pays back the loan, LCCU notifies other financial institutions that this individual has established a credit history. Adopting flexible underwriting standards, LCCU considers the member's alternate credit history, such as rent and utility bills and other factors that conventional lenders do not consider.

Although LCCU does not currently offer mortgage loans, Okie-Holt reports that the state's Latino community has a strong interest in homeownership. A recent LCCU survey found that 77 percent of respondents want to buy homes in the future, and 80 percent are interested in attending homeownership classes. LCCU is referring a growing number of clients to Self-Help and other financial institutions when they are ready to buy homes.

For more information, contact: Community Center for Self-Help, 301 West Main Street, P.O. Box 3619, Durham, NC 27702, (919) 956-4400, e-mail: info@self-help.org, Web: www.self-help.org; or Latino Credit Union, 201 West Main Street, Durham, NC 27701, (919) 530-8800, e-mail: info@cooperativalatina.org, Web: www.cooperativalatina.org.