As the primary means of long-term wealth accumulation and financial security for most American families, homeownership promotes neighborhood stability and civic involvement. Home-ownership opportunities, however, remain beyond the reach of many low- and moderate-income (LMI) households. While the homeownership rate for minority households has increased, it continues to lag far behind the national average.

Successful Lending Industry Strategies, a new two-part study from HUD's Office of Policy Development and Research, finds that successful LMI/minority mortgage lending requires a broad range of actions. Volume I: Successful Strategies analyzes mortgage lending practices and marketing strategies used to attract, qualify, and retain LMI/minority applicants. Volume II: Case Studies provides an in depth look at 11 lenders, including the rationale for and evolution of their strategies, implementation, and effectiveness.

As lenders expand mortgage availability to underserved markets, researchers found that several common themes emerge. Institutions with successful LMI/minority lending initiatives create a management environment in which fair lending is an integral part of their mission -- not just an effort to fulfill fair lending requirements. Effective management strategies include:

• Creating and reviewing quantitative goals for LMI/minority lending.

• Clearly defining the role of Community Reinvestment Act officers and affordable lending staff.

• Establishing a compensation structure that encourages staff to make LMI/minority mortgage loans.

• Providing training and professional development beyond legal mandates.

Successful strategies must identify and develop the community networks that encourage LMI/minority households to apply for mortgages. The following actions are useful:

• Tailoring advertising to reach specific underserved households.

• Collaborating with local real estate professionals and nonprofit groups that have close ties to targeted communities.

• Establishing homeownership counseling programs.

• Fostering racial and ethnic diversity within the lending institution.

According to the study, many successful affordable housing lenders rely on a wide variety of backup funds, and some have developed entirely new mortgage products that challenge long-held notions of what is bankable. These lenders can provide flexible underwriting criteria, such as accepting alternative credit records. They can also scrutinize credit record reporting and credit scoring for errors, institute multiple review procedures for denied applicants, and begin self-testing in the underwriting and preapplication phase.

Although affordable mortgage lending can be nearly as safe as conventional lending, the loans usually require more attentive servicing. LMI/minority borrowers are especially vulnerable to financial difficulties and may be hesitant to discuss their problems with lending institutions because of discomfort or previous discrimination. Lenders must tackle these issues head-on by building ongoing relations with borrowers through postpurchase counseling, careful monitoring, quick response to missed payments, and flexibility in dealing with delinquencies.

HUD USER offers both volumes of Successful Lending Industry Strategies. Order a copy of this report for only $5 using the order form.