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Self-Help Foreclosure Lease-Purchase Program - NeighborWorks ...

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  • 1. Vanita Kalra Self-Help Foreclosure Lease-Purchase Program February 18, 2009 www.self-help.org
  • 2. What is Self-Help?
    • Self-Help is a nonprofit Community Development Financial Institution (CDFI) that was formed in 1980
    • Mission: to provide economic opportunity and wealth-building strategies for low income families
    • Direct Services
      • Assets of $1 billion
      • Home lending (in NC and Washington DC MSA)
      • Lending to small businesses and nonprofits
      • Real estate development
      • Nonpartisan policy research on abusive financial services (Center for Responsible Lending)
    • Secondary Market (nationwide)
  • 3. Secondary Market Overview
    • Loan Originations:
    • Roughly $4.5 billion in purchased loans
    • 48 states via partnership with major banks
    • Over 49,600 loans
    • Borrower Profile:
    • Average Income is 64% of borrower’s Area Median Income (AMI)
    • 40% minority
    • 42% female heads of household
  • 4. 4
  • 5. Lease-Purchase Program Goals
    • Neighborhood Goals
      • Minimize cost of foreclosures and vacant homes
      • Turn foreclosures into wealth building assets for low-income families and communities
    • Household Goals
      • Provide path to homeownership for first-time homebuyers and credit-impaired homeowners
    • Program Path
      • Test multiple pilots then pursue scalability
  • 6. Lease-Purchase Mortgage Product
    • Variation on Self-Help/Fannie Program (30-yr fixed)
    • Initial borrower is local nonprofit partner
    • Self-Help recourse in place of individual qualification
    • Target for tenant to purchase home and assume loan within 5 years
      • Tenant lease payments cover mortgage and operating expense during rental period (and will not exceed FMR)
      • Tenants screened for affordability at origination (38/41 DTI)
      • Affordability and credit capacity evaluated at assumption
        • 620 FICO
      • Credit and homeownership counseling required
  • 7. Lease-Purchase Pilot Structure Local Bank Self-Help Fannie Mae Sell mortgage w/ credit enhancement SECM Purchase Lease -Purchase Mortgage Purchase Mortgage Acquisition Rehab Capital Local Non-profit Developer Lease-Purchase Long-term affordable rentals Resale Loan Servicers Bulk Purchase REOs Open Market Purchases Demolition
  • 8. Lease-Purchase Critical Issues Vacant REO Wealth-Building Asset
    • Find location where economics work (or subsidy is there) and capacity exists
    • Price/market stability
    • Volume/efficiency
    • Selectivity
    • Acquisition strategy (bulk vs. retail)
    • Capacity
    • Financing
    • Costs
    • Broad skill set (counseling, asset & prop mgmt.)
    • Value proposition for nonprofit
    • Counterparty risk
    • Value proposition for tenant
    • Qualifying tenants
    • Turnover capacity of nonprofit
    • Lacking L-P loan performance
    Neighborhood & Property Selection Acquisition/Rehab Program/Asset Management Tenant Assumption & Beyond
  • 9. Pilot in Peachtree Hills, Charlotte
    • Reverse recent neighborhood deterioration
    • Occupy vacant foreclosed properties
    • Acquisition and rehab of up to 25 vacated properties
    • Begin sales & leasing by early fall 2008
    • Up to five-year lease-purchase period, though targeting three-year lease period
    • Monthly one-on-one counseling and budgeting
    • Financial literacy workshops throughout program
  • 10. Charlotte – Foreclosure Distribution
  • 11. Peachtree Hills – Foreclosure Distribution
  • 12. Peachtree Hills – Ownership Red – Investor-owned Black – Owner-occupied Blue – HOA-owned common space Green – vacant lots
  • 13. Homes are still in decent shape Expected repairs are relatively minor with a few major upgrades and replacements Neighborhood completed approximately five years ago Needed improvements to landscaping and common areas Homeowners Association exists but is struggling
  • 14. Sales & Lease Price Ranges
    • Home prices will average $80,000, previously sold for $150,000.
    • Average mortgage payment will be approx. $650/mo
    • Average lease payment will be around $850 a month for 3bd/2bth
      • Homeownership fund will be available to participants who successfully complete the program
      • If tenants do not assume mortgage, homeownership fund will be available to the nonprofit for unit turnover, etc.
  • 15. Supportive Services
    • Homebuyer counseling services
    • Neighborhood liaison/organizing and work with HOA
    • Community policing
    • Code enforcement
    • Infrastructure improvements
    • Landscaping upgrades
    • Attention to solid waste and general clean up
    • Funds to support rehab of homes and future homebuyer down payment assistance
  • 16. Conclusion
    • 2 million foreclosures in the next year
    • $350 billion of lost equity in surrounding homes
    • One option is to match vacant properties with families that can lease-purchase, but are not qualified to purchase today.