Moving Up on the American Dream

Teamwork in the community

September 1, 1997

Real estate practitioners across the country are joining hands with community-based groups to take the American Dream of homeownership to urban and rural areas that were once considered last resorts.

They're also finding it profitable working with low- to moderate-income buyers.

And the Neighborhood Reinvestment Corp., a congressionally chartered public nonprofit corporation, is providing the local groups with training and technical assistance, helping them develop strategies and goals, and supplying a steady flow of potential homeowners.

NRC is the founder of a network of nearly 200 nonprofit organizations that help buyers--at the local level--get low-interest financing and reduced closing costs. (The overall name for the local networks is NeighborWorks, but some groups call themselves Neighborhood Enterprise or Neighborhood Housing Services.)

In fiscal year 1996, NRC says, it reached 15,994 low- and moderate-income families, which comes to $420.1 million in reinvestment in NeighborWorks neighborhoods.

Real estate pros, businesses, local government leaders, and financial institutions comprise NeighborWorks, and they're revitalizing blighted communities and helping buyers who once considered homeownership out of their reach.

Counseling Is Key to Success

A key component in the success of the NeighborWorks program is buyer counseling, says Kevin White, a salesperson with Cooper Stewart--Better Homes and Gardens, Salisbury, Md. "After counseling, buyers feel a lot more secure," White says. "And they’re not going into a situation that’s unfamiliar. They know the right questions to ask and what to expect."

White is a strong proponent of NeighborWorks and has counseled several buyers through his local group--the Salisbury Neighborhood Housing Services.

Critics of low-income buyer programs argue that homeownership is a tough responsibility and that pushing low-income families into homes is riddled with pitfalls. But many acknowledge that buyer counseling can mean the difference between success and failure for buyers.

"The killer about homeownership is that you need financial reserves to take care of day-to-day problems--roof repairs, plumbing, and broken air conditioners--that come up," says John Rygiol, a buyer's agent with Buyer's Broker, Seal Beach, Calif. "The average low-income buyer--who has had a tough time paying rent--is suddenly expected to have $500 to $1,000 for an emergency. When you push low-income buyers into homes with little or nothing down and then foreclose on the property, you're hurting them."

He says intensive counseling--for six months to one year--about finances and the responsibilities of homeownership, as well as requiring prospects to have some financial reserves, is what's needed to make low-income ownership work.

Funding Comes From Many Sources

Buyers who qualify are eligible for mortgage assistance through funding by NeighborWorks and for other financial services by Neighborhood Housing Services of America.

Financing for the NeighborWorks program comes from public sources--such as Community Development Block Grant and HOME funds from HUD and Federal Home Loan Bank Affordable Housing Program funds--as well as from such private sources as foundations, fund-raisers, and individual donors.

The other component in the financial puzzle is Neighborhood Housing Services of America, a private, nonprofit, tax-exempt corporation that provides financial services to the NeighborWorks network. NHSA administers a secondary market for local network programs--buying rehab loans and buying or originating first mortgages and short-term development loans--and returns funds to local lenders, who recycle them by originating more mortgages for the program. NRC also makes small grants to local NeighborWorks groups and provides grants to NHSA.

At the close of fiscal year 1996, the NHSA secondary market purchased loans totaling $198.6 million.

Each local NeighborWorks office operates according to its community's needs. For instance, one Montana program builds homes and buys and renovates dilapidated homes, and local real estate practitioners list and sell them to mostly low-income buyers. But a Maryland program--the group White works with--focuses instead on buyer counseling. And it has no income restrictions.

What most local offices have in common is the Full-Cycle Lending program, an approach developed by NRC that lets lenders, governmental agencies, and NeighborWorks groups provide opportunities to families who either don’t qualify for or don’t know how to get conventional mortgages.

This program literally sees prospects through the full buying process. It includes

  • Prepurchase homebuyer education--The local NeighborWorks offices teach buyers about the purchase process and how to clear up credit problems. They also help buyers find homes and often coordinate rehabilitation of the property.
  • Flexible loan products--Local lenders work with local NeighborWorks groups to create mortgage products that prospects can afford. Loans typically feature low downpayments and rehab funds, even when the total cost of renovation exceeds the value of the property. In addition, property insurance and mortgage insurance companies offer products that allow for high loan-to-value ratios. Lenders have the option of holding the loans or selling them in the secondary market.
  • Post-purchase counseling--The local groups train buyers in home maintenance and budgeting and offer early-intervention delinquency counseling so that defaults and foreclosures can be avoided.

For more information about how you can get involved in your local NeighborWorks program, call Neighborhood Reinvestment Corp., 202/376-2642, 800/438-5547 or visit the group's Web site,

Elyse Umlauf-Garneau is a Chicago-based freelance writer and former senior editor with REALTOR® Magazine.

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