Nothing could be further from the truth, especially not in Montana, where thousands of low-income families are responsible homeowners who make their house payments in full and on time. To see the recent financial turmoil laid at their feet is unfair to the homeowners and distressing for those of us who work in the field of homeownership.
In Montana, NeighborWorks organizations have made nearly 4,000 loans to low- and moderate-income families. These loans, second mortgages for down payment assistance, are the only possible way for families to become homeowners. A sample of NeighborWorks network-originated mortgages shows these loans have foreclosure rates significantly lower than other types of lending. The Mortgage Bankers Association indicates 4.26 percent of subprime loans began the foreclosure process in the second quarter this year. In contrast, the foreclosure start rate for loans within the NeighborWorks network was just 0.21 percent! The NeighborWorks performance is better than the conventional market, reported by the MBA at 0.61 percent for the same period.
Clients learn to make smart homebuying decisions, work within a budget, make timely payments and make needed repairs. To qualify for a second mortgage from these programs, the first mortgage has to be a prime, fixed rate mortgage. The double effect of good education and a good first mortgage spells success.
The CRA cannot be blamed for problems the mortgage and financial markets face today. CRA requires the same rules apply to people seeking mortgages in poor neighborhoods as those buying in other neighborhoods. The Federal Reserve Web site states, “the law makes it clear that an institution’s CRA activities should be undertaken in a safe and sound manner.” Low-income and minority markets can be served responsibly, without creating extraordinary risk for lenders.
CRA only applies to federally-regulated banks and thrifts whose deposits are insured by the Federal Deposit Insurance Corporation. Many of the loans originated were not regulated by the FDIC and were packaged into “private label securities” sold through Wall Street conduits and were not required to meet conventional Fannie Mae and Freddie Mac loan standards.
Montana lenders covered by the CRA are vigorous supporters of homebuyer education; contributing financially to homebuyer education programs and supplying speakers for homebuyer education classes. The current financial distress is a recent phenomenon created largely by institutions not subject to CRA requirements, not by 30 years careful lending to low-income borrowers.
Did low-income people take on bigger mortgages than they could handle? Yes, some did. We daily see individuals who were preyed upon and got into mortgage products without understanding the consequences. Were they driven by greed? No. They were simply driven by desire to own a home. Greed is what drove untold others who got caught up in the dark side of the housing bubble.
NeighborWorks offers foreclosure prevention services to families of any income. The folks we see, mostly not low-income, are generally in foreclosure because of a loss n an income, a spouse, or their health n or because they have an adjustable-rate loan that a lender sold them in order to make more money.
Please remember this when you hear that low-income and minority homebuyers and CRA have wrought the financial destruction we are experiencing: They are a very small part of a very big problem. As evidenced by NeighborWorks and its partners, a vast majority of low-income families honor their debts.
Low-income families live closer to the edge, so they are feeling the economic turmoil: job losses, employer layoffs, business shutdowns. That may cost some of them their homes, but that simply makes them victims of an economic downturn, like so many of the rest of us. Borrowers who have access to traditional mortgage products combined with quality pre-purchase homeownership planning and education do just fine.
Let’s not blame the victims.
Maureen Rude is the operations director of NeighborWorks Montana. She has nearly 20 years of experience in the state and national mortgage industry, and works with Missoula-area nonprofits as local partners.
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