There has been a lot of media attention on the first time buyer, moveup buyer, and luxury buyer driving the current record-setting market. But another type of buyer, overlooked until now, is starting to gain the spotlight - those with low incomes.

Low-income buyers are being viewed by the government and the private sector as the possible solution for several social problems. When people rent, or live in low income or federal housing, they don't tend to take ownership of their surroundings, nor do they participate as much in their communities.

Low-income buyers could be the key to turning troubled neighborhoods around. With an economic stake in their homes, they are more likely to maintain their homes with care and pride, take more interest in social issues that affect their neighbors and themselves, and earn equity as a means of savings.

For most low-income families, the immediate barrier to home ownership is perception. There is a myth that pervades - buying a home requires cash for a down payment and good credit, two things most low-income families don't have. Many low-income families have no idea that there are numerous programs, from the private sector, the non-profit sector, and the government to help them achieve the dream of home ownership, and often with little or no money down.

Education is the first step, then comes community and lender involvement, and finally making affordable housing available to buy.

Irene Mabry, Real Times' Agent of the Year, 1998, spends much of her days conducting home buying seminars among the poor and the homeless of Baltimore. Working with such groups as the Association of Community Organizations for Reform Now (ACORN,) Tri-Churches Housing, and government organizations such as the Social Security Administration and the Baltimore Housing Authority, Mabry gives home buying and debt reduction seminars, making herself available to answer questions and start new customers on the road to credit repair, saving money, and ultimately, home ownership.

Mabry points out that the home buying process is typically much slower for the low-income buyer. Many of her customers have credit problems and must adjust to a new budget and credit repair strategies before they can get in a position to buy a home, a process that can take as long as a year or two years. Even then, many can't make the down payment without grants provided by one of the non-profit organization or churches with which she works. In addition to teaching low-income buyers about the buying process, she also spends an equal amount of time fund-raising for grants for her non-profit partners and gift monies for her clients.

On the national level, Fannie Mae has made a number of home-buying classes available, benefiting more than 300,000 families, according to Julie Gould, vice president of housing impact for Fannie Mae in Washington, D.C.

Fannie Mae has teamed with mortgage companies in key markets such as GE Captial Mortgage Insurance Corp. in Raleigh, N.C.

"In return for educating consumers about homeownership, we felt we could be more flexible in terms of underwriting guidelines," said Mark Goldhaber, vice president of affordable housing for GE Capital, in a Los Angeles Times report.

"The home buyer's classes are designed to teach homeowners not to overextend themselves and not to purchase a home with hidden problems. So far, our portfolio of these loans has been profitable and has proven that education does work. We continue to find that the earlier in the home-buying process the home buyer gets counseling, the more effective it is."

Over $3.3 billion have been sold to low and moderate-income buyers in the Los Angeles area, confirms Barbara Sandoval, deputy director of the Los Angeles Partnership office of Fannie Mae.

Classes typically cover such steps as qualifying for a loan, affordability, budgeting and credit reports. Class participants also learn how the loan process works, including definition of terms such as appraisal, escrow, underwriting, title and closing.

The Consumer Credit Counseling Service, a nationwide nonprofit agency that provides debt counseling, credit report assistance and debt counseling has teamed with Chase Manhattan Mortgage Corporation to provide free home-buying sessions throughout the U.S. Comparing notes, the credit counseling service and mortgage company see education classes as instrumental in preventing or reducing the risk of foreclosures.

Despite these efforts, many low-income housing advocates believe that more can be done.

The Greenlining Institute has petitioned Federal Reserve chairman Alan Greenspan to encourage more mortgage lending in inner-city neighborhoods. A possible solution, as advocated by the Institute's general counsel Robert Gnaizda is the shared-equity mortage, which would divide the cost of a mortgage between low-income buyers and investment funds.

It isn't enough to educate consumers, lenders must also be ready to participate. Low income families are still kept from taking advantage of most conventional loan packages, mostly through discriminatory practices that may include such elimination factors as race and ethnic origin, as stated in HUD's State of the Cities 1998 report. Despite those kinds of discriminatory practices, initiatives are growing for low income families to obtain financing for housing.

Groups such as Urban Housing Group LLCin Orange County, California are trying to level the playing field for low income buyers. UHG offers low to moderately-low income families the opportunity to purchase quality, refurbished homes for just 1% down. Working through area non profit organizations which provide "gift" funds to qualified families, the UHG brings the final piece of the puzzle together - decent homes to purchase.

UHG is a start-up organization that has been working for the last two years as a consultant to non-profit organizations that participate in HUD's Single Family Direct Sales Program.

Mark Alvarez, spokesperson, says that UHG recognized a need for "quality, affordable housing in many communities that are not designated by HUD as a revitalization area," so the company began their own program, 1% Down Payment Program, to qualifying, low to modertately-low income families.

According to Alvarez, loan discrimination, a major barrier to low income familiesdoes occur, but with UHG's program, in the reverse. In order to provide CHFA/FHA loans at rates as low as 5.75% interest rate, UHG utilizes the Nehemiah program, a non profit organization, to gift funds of up to 5% of the sales price of the home to qualifying buyers. Used together, CHFA stipulates, according to Countrywide Mortgage, one of the program's lenders, borrowers incomes can not exceed 80% to 90% of average median income adjusted for family size in order to be consistent with the objective of providing the opportunity for homeownship among low to moderately-low income families

Low-income households also now have an opportunity to obtain 30-year fixed rate loans at 5.75 percent to buy homes in a rural part of Washington state as a result of an initiative of the Washington State Housing Finance Commission and PaineWebber to foster rural development. The commission and PaineWebber created the CRA Taxable Single-Family Bond Program, which has approximately $5.3 million in low interest mortgage money for qualified individuals and families.

One community has another solution, offering incentives to higher income borrowers to take serious looks at economically depressed areas. In December, 1998, Prince George County added $27.2 million to its Single Family Bond Program, which offers 30-year fixed-rate mortgages as low as 5.9 percent, for qualified applicants who agree to purchase a home in 12 financially depressed communities around Washington.

The program has broadened its range of eligible participants by aloowing family incomes up to $86,760 from $37,000 annually. If a buyer does not have the cash to cover closing costs or the down payment, the interest rate may rise to 6.85 percent.

Although the general economic outlook remains favorable, a downturn could make it harder for low-income families to obtain financing outside of charitable or government-sponsored programs. As loan money dries up, "B," "C," and "D" paper lenders tend to disappear.

Published: January 22, 1999

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