Homeowner Wannabes Make It, With a Little Help from Some Friends
Like many people on a tight budget, Rick Kremer Jr. didn't exactly seem like a dream candidate for a mortgage when he walked into a Connecticut bank last year.His pay as a security officer wasn't great. He was single. And, as a first-time mortgage seeker, he had only vague notions about closing costs, escrow accounts, appraisals, home inspections and other esoterica of the real-estate business.But when Kremer walked out he had hope: The banker told him to check out something called the HOME program operated by a neighborhood organization called HART -- Hartford Areas Rally Together.HOME educates lower-income people about home ownership and provides financial incentives that can make the difference between a mortgage and no mortgage.Kremer is now the proud owner of a two-family house in Hartford's multiethnic Barry Square neighborhood. He wonders what might have happened to his dream of home ownership had HOME -- Home Ownership Made Easy -- not been around."I might not have been able to buy a house at all," said Kremer, 29. "That's a distinct possibility."Around the country, more and more community groups like HART are building bridges with lending institutions, real estate agents, and lawyers to bring new life to old buildings and needy families.In the end, many of the new homeowners often find themselves paying out less monthly on their mortgage than they had in rent, or very little more.The community groups involved not only offer counseling to families of modest means but also arrange for their clients to get breaks on things like mortgage rates, down payments, points, attorneys fees, appraisals and income-to-expense ratios (how much a person must earn in order to qualify for a loan). And they bargain with lenders to recognize nontraditional creditworthiness indicators like monthly rent payments.With HART's help, Kremer was able to get a mortgage at two percent below the bank's normal rate, and the bank allowed him to spend up to 45 percent of his monthly income on the mortgage -- almost double the conventional standard. In addition, his attorney's fees were about $200 under the going rate because he used a HOME-linked law firm.Nationally, one of the leaders in this home ownership effort is the Association of Community Organizations for Reform Now, better known as ACORN."People come in for counseling and assess where they are in terms of being able to buy a home," said Kenn Kern, who teaches home buyers' classes for the Washington office of ACORN. "Then, they take a class, where they learn what they need to know in order to get through the process." They get a certificate for attending the class, and because these graduates are viewed as better risks, certain banks offer certificate holders a one percent reduction in interest rate.Much of this activity goes back to 1988, when ACORN invented what became known as "housing fairs" bringing homeowner wannabes together with home mortgage lenders. The main purpose, as Kern recalled, was "to create a little noise and show them (the lenders) that there was an opportunity here for them to take advantage of."Now, according to Kern, who heads ACORN's housing office in Washington, his organization runs fairs in 26 cities, attracting thousands of people every year. Other community groups are trying a similar approach on a smaller scale.The Neighborhood Reinvestment Corporation in Washington is another major player nationally. It is a supporting partner of the NeighborWorks Campaign for Home Ownership, a nationwide coalition of nonprofit groups that launched a campaign in 1993 to create 10,000 low- and moderate-income homeowners and counsel 75,000 potential buyers.In the campaign's first three years, 6,529 families became homeowners, with investments in their homes totaling $415 million by the end of 1995, according to the reinvestment corporation.Of those families, 97 percent were first-time home buyers; 70 percent had incomes less than $30,000; 61 percent were minority households; and 41 percent were female-headed households.But one of the most significant statistics, according to Steve Tuminaro, policy director of the Neighborhood Reinvestment Corp., is that home ownership has proved either less costly or only a little more costly than renting for many of the homeowners assisted."Conventional wisdom is saying these folks can't afford a home, and yet 41 percent are now paying less or the same for a home as they were previously paying for rent," he observed.[EDITORS: STORY COULD END HERE.] Another barrier traditionally facing many lower-income home buyers has been the credit question. Frequently, they have no history of payments on a credit card or auto loan that a bank can rely on as evidence of creditworthiness."For our clients, that's not part of their world," said Kern of ACORN. "What is part of their world is an electric bill, a water bill, a light bill and a monthly (rent) payment."Now, working with groups like ACORN, many banks are beginning to recognize "nontraditional" sources of credit for mortgage applicants, including one major indicator of creditworthiness historically ignored: rent payments.According to Marc Draisen, president of the Massachusetts Association of Community Development Corporations in Boston, banks are acknowledging, "If a low-income family has been successfully paying rent for 10 years, they should be able to get a mortgage with an equal monthly payment."Indeed, that notion is being born out statistically. Fleet Bank reports a lower-than-average delinquency rate among approximately 100 HART-sponsored mortgages, valued at $7.2 million, issued over the past seven years.Tuminaro said NeighborWorks defaults are at about 1.8 or 1.9 percent, slightly below a national average of around two percent.The rates of delinquency -- people falling behind on their loan payments -- are somewhat higher than average, he added, but virtually all delinquency problems have been resolved before default.Proponents of these programs view home ownership as a critical key to renewing communities."The lenders and the real estate communities realize that, if we're going to tackle some of the other problems -- for example, high crime and homelessness -- it takes all of our effort," said Kern, referring to real estate firms and banks, as well as to groups like ACORN.Now that the winds of change are shifting, some advocates caution, ironically, against going overboard."We want to make sure that this isn't carried too far," said Draisen. "Just as we believe that creditworthy families who are prepared for home ownership should have every opportunity to become homeowners, we also recognize that it is important not to push people into home ownership before they're ready."One thing is certain: There are true believers in the ranks of those who have been served, such as Kremer, who likes to spread the word about HART's program -- even if it might not be to his benefit."I talk to anybody about it who I think would be interested in buying a house," said Kremer. "I was actually talking to my tenants about it, and I think they might be taking the classes."SIDEBAR ONECommunity Groups Make a Banker's Life Easier Traditionally wary of investing in depressed areas, some banks are discovering that aspiring homeowners who come recommended by community organizations can be among their best customers.For one thing, the neighborhood groups do much of the bank work -- such as helping applicants collect the necessary paperwork, say those involved.Also, applicants coming through neighborhood organizations have been unofficially screened as qualified for a loan."I think many of those lenders kind of invite the involvement of community-based groups because you're able to bring a reasonably completed application package to them instead of people coming in with data on the back of an envelope," said Steve Tuminaro of the Neighborhood Reinvestment Corporation."It becomes profitable when they can look and say, well, a good percentage of these are going to go to approved loans," he said.In 1989, Fleet Bank struck a partnership with Hartford Areas Rally Together, a community organization. "We were looking for ways to have a better penetration of the urban market here in Hartford (Connecticut)," recalled Fleet spokesman Michael Zbailey.The bank now provides mortgages at two percent below conventional rate to participants in HART's program."They're pretty educated consumers when they get to the point of actually acquiring a house," said Zbailey. "And that's worked very, very well, not just for them, but for us too."Gustav Spohn has over 20 years of reporting experience. He is currently U.S. correspondent for Church Times in London and was a national correspondent for Religion News Service. His articles have appeared in the New York Times, the Washington Post, the Chicago Tribune, and the St. Petersburg Times, among other publications.