NACA IS REINVENTING MORTGAGE LENDING
ELIMINATING BARRIERS TO AFFORDABLE HOMEOWNERSHIP
NACA provides over 30% of all the housing counseling in the country and is the most effective in providing affordable long-term homeownership for both homebuyers and homeowners. NACA’s transformative mortgage product, counseling services, and character-based underwriting provides a model for how fair mortgage lending can successfully be made a reality for working families and people of color on a large scale. For more information, please visit www.naca.com.
Affordable homeownership has historically been inaccessible to millions of people of color and disadvantaged Americans, but a transformation is now occurring. The non-profit Neighborhood Assistance Corporation of America (“NACA”) has created a model that is providing unprecedented affordable homeownership on a large scale, for those who have been prevented from accumulating wealth and achieving personal security and housing stability through homeownership.
NACA’s Purchase Program provides comprehensive counseling with the option to access NACA’s Best In America Mortgage with no down payment, no closing costs, no PMI, no fees, and a below market fixed rate. Lenders have committed $20 Billion so far, including $15 Billion from Bank of America. NACA is the most successful private sector initiative in providing affordable homeownership.
NACA has built an unprecedented, successful track record of over 75,000 successful homebuyers – 90% of whom are people of color – with an extremely low foreclosure rate of 0.00012183 (i.e., about one-hundredth of one percent). NACA is the largest HUD certified counseling organization in the country, providing over one-third of all the country’s counseling. With 47 offices nationwide and growing, and over three million members, NACA is creating a new national standard for affordable homeownership.
Barriers to Homeownership
NACA is the one bright light in reversing the history of racism and exclusion in providing affordable homeownership for people of color. NACA’s purchase program provides a solution to address the major barriers in the housing market that have resulted in historically low homeownership rates for African Americans and other minorities:
Barrier 1: Limited Savings
NACA Solution: No Down Payment & No Closing Costs
The NACA Mortgage overcomes the lack of savings barrier since there is no down payment, no closing costs, or fees (these are paid by the lender), and no required PMI. Working people who struggle to save money but are able to meet their living expenses can become homeowners through NACA with a mortgage payment that is often less than their rent. The similar no down payment VA mortgage provided the primary financing tool in building America’s suburbs after World War II, but racist government and bank policies prevalent at that time excluded African American borrowers.
Barrier 2: Unaffordable Terms
NACA Solution: Below Market Fixed Rate & Aggressive Buy-Down
Standard lending practices reward those who are better off or come from a tradition of homeownership with better access to affordable financing. These practices lead to the exclusion from homeownership or to predatory terms for many low to moderate-income (LMI) hard working people. To address this disparity, NACA provides a below-market fixed rate for either a 30-year or 15-year term where everyone who qualifies receives the exact same below market fixed rate and terms. As Forbes magazine noted, where other lenders charge different interest rates, “there is one exception, NACA, that charges the same rate regardless of the credit score.” NACA also provides a unique option to permanently buy-down the interest rate to virtually zero percent, which is not available with any other lender.
Barrier 3: Restrictive Underwriting based on Credit Score
NACA Solution: Character Based Lending without Consideration of Credit Score
NACA uses an alternative underwriting approach that does not consider one’s credit score. Every homebuyer goes through the same process and receives not only the same below market fixed interest rate, but also does not have to make a downpayment, and the lender pays all the closing costs. NACA Qualification involves comprehensive counseling and full-document underwriting to determine whether a borrower is ready for homeownership and can afford the approved monthly mortgage payment over the long-term. Borrowers complete realistic, verified budgets, to determine how they spend their money. This is an important financial learning experience that lays the foundation for improved personal financial management and stable homeownership.
NACA’s purchase program eliminates underwriting based on the standard risk-based pricing model used by the mortgage industry which does not account for homebuyers’ personal circumstances that are not reflective of their ability to make a mortgage payment. This industry-standard lending model takes into consideration only three factors: down payment, credit score, and debt ratios. These criteria are put into an algorithm that determines if the borrower is approved and the corresponding interest rate and terms. Instead, NACA’s underwriting uses “character-based lending” with compensating factors. This means that NACA counselors and underwriters consider the life realities and overall circumstances of LMI borrowers that do not neatly fit into the “standard” underwriting criteria.
While full-documentation of financial income and payments is required with NACA’s approach to underwriting, a borrower’s credit score is not considered. Instead, NACA reviews the borrower’s payment history as provided on their comprehensive credit report and considers only those payments that the borrower controls. Far too many people are locked out of homeownership due to unexpected medical expenses and other debts out of their control. NACA’s approach is designed to overcome these barriers since non-payment of these debts is not always a reflection of their readiness for homeownership.
To determine an affordable monthly mortgage payment, NACA uses the borrower’s current rent as a more realistic benchmark. Borrowers with a desired mortgage payment higher than their current rent must save the difference over a period of three to six months while maintaining a realistic budget. This “Payment Shock Savings” ensures that they can afford their new payment over the long-term. Further, NACA works with borrowers who are unable to meet their desired payment for as long as it takes to get them into financial readiness for homeownership.
Barrier 4: Racism & Biases
NACA Solution: Pre-Approval & Advocacy
The shameful legacy of slavery, with the continued racism and biases, is pervasive throughout the homebuying process. This is a fundamental barrier to affordable homeownership for African-Americans and other minorities. While NACA’s purchase program is open to everyone, the vast majority are people of color who historically have been locked out of this fundamental generator of wealth. The impact is at a crisis point after millions of homeowners who were overwhelmingly African American were foreclosed on during the recent mortgage crisis and lost billions of dollars in wealth.
While the NACA mortgage is outstanding, an essential transformation in addressing embedded racism lies in changing the sequence of the home buying process. The standard homebuying process – which begins with a real estate agent before moving to the seller and finally the lender – erects significant barriers to people of color and LMI homebuyers due to racism and bias. Real estate agents often refuse to work with buyers with lower credit scores, lower incomes, or minorities. Sellers will often not accept offers from these borrowers or may only consider them as a last resort. Lastly, lenders reject about half the applications from people of color and LMI borrowers.
NACA upends the traditional process by putting mortgage pre-approval first. To overcome these barriers in traditional home buying, NACA pre-approves borrowers for its “Best In America Mortgage” through counseling and budgeting that requires full documentation (i.e., paystubs, bank statements, tax returns, etc.). Once the borrower is NACA Qualified (i.e., pre-approved), virtually all applications submitted to the lender successfully close their mortgage where other lenders reject half the submitted bank applications. With this solid, document-based approval in hand, the borrower becomes the equivalent of a cash buyer and therefore a desired customer for real estate agents, sellers, and lenders.
Another NACA advantage are the relationships of NACA counselors, underwriters, and real estate agents to the communities they serve, most of whom are from the same backgrounds and circumstances with a commitment and drive to serve their communities. Their dedication and relationship to their Members makes it personal that they achieve this life changing purchase and ensures that Members are treated with respect and fairness in the process.
Where the benefits of NACA’s program and staff have not overcome all racist actions, NACA has mobilized its membership and will continue to do so to fight discrimination and predatory practices. NACA has been in the forefront of these fights and was the first to coin the term “Predatory Lending” in its first campaign in 1991 against lenders targeting the equity of Boston’s African American homeowners. With more than three million members nationwide and the resources to back up our campaigns, NACA is a force that is both respected in the homeownership arena and feared by predatory and discriminatory lenders.
NACA is the largest HUD certified non-profit counseling organization fighting for economic justice through its homeownership programs and community action. NACA provides about 30% of all the housing counseling in the country and is the most effective in providing affordable homeownership for both homebuyers and homeowners. During the mortgage crisis, NACA’s HomeSave program for homeowners with an unaffordable mortgage established the national standard in providing same day solutions for over 250,000 homeowners facing foreclosure during the “Save The Dream” events. NACA’s transformative mortgage product, counseling services, and underwriting provides a model for how fair mortgage lending can successfully be made a reality for working families and minorities on a large scale. This historic change in lending provides unprecedented opportunities for affordable, stable, and long-term homeownership.