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


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

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