Vanita Kalra SelfHelp Foreclosure LeasePurchase Program Foreclosure Nonprofit Response

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Vanita KalraSelf-Help Foreclosure
Lease-Purchase ProgramForeclosure Nonprofit
Response OpportunitiesHAND LuncheonOctober
23, 2008
www.self-help.org
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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)

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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 borrowers Area Median
  Income (AMI)
• 40 minority
• 42 female heads of household

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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

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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

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Lease-Purchase Pilot Structure
Lease-Purchase
Demolition
Acquisition Rehab Capital
Lease -Purchase Mortgage
Local Bank
Self-Help
Fannie Mae
Local Non-profit Developer
Bulk Purchase REOs
Loan Servicers
Sell mortgage w/ credit enhancement
SECM Purchase
Open Market Purchases
Purchase Mortgage
Long-term affordable rentals
Resale
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Lease-Purchase Critical Issues
Wealth-Building Asset
Vacant REO
Neighborhood Property Selection
Program/Asset Management
Tenant Assumption Beyond
Acquisition/Rehab

• 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

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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

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Charlotte Foreclosure Distribution
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Peachtree Hills Foreclosure Distribution
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Peachtree Hills Ownership
Red Investor-owned Black Owner-occupied Blue
HOA-owned common space Green vacant lots
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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
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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.

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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

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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.