Ford Foundation Grant of $50 Million Will Generate $2 Billion in Affordable Mortgages For 35,000 Low-Wealth Home Buyers
Unprecedented Financial Partnership Among Ford Foundation, Fannie Mae and Self-Help To Benefit Home Buyers Nationwide
In a partnership to make $2 billion in affordable mortgages available to 35,000 minority and low-wealth home buyers nationwide, the Ford Foundation joined forces today with Self-Help, a North Carolina-based nonprofit community development organization, and Fannie Mae (FNM/NYSE), the nation's largest source of home mortgage funds. The Ford Foundation's $50 million grant to Self-Help is the single largest commitment to homeownership made by a philanthropic institution.
Fannie Mae's Chairman and Chief Executive Officer, James A. Johnson and Martin Eakes, CEO of Self-Help, joined Ford Foundation President Susan V. Berresford at the Foundation's headquarters to announce that the Ford Foundation will make a $50 million grant (plus an additional $1.8 million for operating expenses) to expand Self-Help's Home Loan Secondary Market Program nationwide. This is the largest grant that Ford, one of the nation's largest philanthropic institutions, will make in 1998.
Self-Help, a leading community development lender, started its Home Loan Secondary Market Program in 1994 to provide an alternative source of capital for banks and borrowers in North Carolina. To date, it has purchased over $100 million in affordable loans from the state's major commercial banks. Based on its success in North Carolina and the new commitment from Fannie Mae, Self-Help will be able to leverage the Ford grant 40 times over, generating affordable mortgages for 35,000 low-income home buyers over the next five years.
The $50 million in equity from the Ford Foundation will enable Self-Help to provide a credit enhancement to the loans it purchases. Self-Help will expand homeownership opportunities for low-wealth households by acquiring $400 million in loans from select national and regional banks each year for five years. Self-Help will concentrate on special, targeted products designed to expand homeownership opportunities for people who require lower down payments and more flexible underwriting standards, and have difficulty meeting conventional lending standards because of inadequate savings or weaker credit.
Fannie Mae has made a commitment to purchase and/or securitize the total $2 billion in loans Self-Help will acquire. The combined effort will in turn help lenders such as BankAmerica Mortgage, Chase Manhattan, and NationsBank which have expanded outreach and developed special products to increase their services to low-wealth borrowers as part of their efforts under the Community Reinvestment Act (CRA), by enabling them to make additional loans.
"This is an important example of the power of partnership and philanthropy's use of resources to make things happen on a large scale," said Ford President Susan Berresford. "This grant will be leveraged into affordable mortgage financing for thousands of families, giving them a chance to truly share in the American dream. This effort has the great potential to start a cycle of investment that will not only benefit homeowners with less savings and income, but also their neighborhoods and communities. It could expand business for banks as well."
Fannie Mae's commitment will include loans that do not meet traditional underwriting standards. As a result, the company will increase the availability of affordable home financing to borrowers who earn less than 80 percent of their area's median income. This effort will also enable the company to measure and better understand the risk associated with non-traditional mortgages.
"What we're doing today has never been done before," said James A. Johnson of Fannie Mae. "We are combining the strengths of three very different organizations -- a philanthropy, a community development organization, and a large mortgage investor -- in a unique arrangement to benefit American home buyers. "This initiative will have enormous implications for community lending in America."
"Homeownership is one of the primary means for building family wealth and economic security," said Martin Eakes of Self-Help. "The program should particularly benefit minority families, given the significant disparities between white and minority homeownership. We have learned in our work in North Carolina that there are a lot of hardworking, bill paying low-income and low-wealth people who may not meet conventional mortgage standards but have income sufficient to support monthly home loan payments. We're excited about the impact this program will have in strengthening families and our communities."
The initiative takes place as the nation has reached record levels of homeownership. But homeownership levels for minorities and low-wealth families still lag behind those of whites and the general population by a considerable margin. According to State of the Nation's Housing (1997), a report issued by the Joint Center for Housing Studies at Harvard, more than 86 percent of middle and upper- income families own their home, compared with 50 percent of low and moderate- income families (those with incomes below 80 percent of U.S. median income). And 72 percent of white families own their homes, while 45 percent of African American families own their homes; the rate for Hispanic families is 44 percent.
The Ford Foundation will also provide funding for a multi-year study of the program, which will analyze the types of families that are able to become homeowners and the communities in which they live. The study will also track the performance of the mortgages as reflected in repayment histories, delinquency rates and the level of defaults. The three members of this partnership hope that results from the study will inform lending policy related to low-wealth households.
Participating lenders in this program include Bank One, BankAmerica Mortgage, the Chase Manhattan Corporation, NationsBank, and Norwest Mortgage. Home buyers interested in this program can call 1-800-7FANNIE (1-800-732-6643) for more information.
The Ford Foundation, established in 1936, is a private, nonprofit institution that serves as a resource for innovative people and institutions worldwide. Its goals are to strengthen democratic values, reduce poverty and injustice, promote international cooperation and advance human achievement. A national and international philanthropy with an endowment of $10 billion, the Foundation has granted more than $9 billion to some 9,000 institutions and over 100,000 individuals worldwide. The Foundation maintains headquarters in New York City, an office in Russia, and offices in countries in Africa and the Middle East, Asia, and Latin America. More information about the Ford Foundation can be found on the Internet at http://www.fordfound.org.
Self-Help, one of the nation's leading community development financial institutions, consists of the nonprofit Center for Community Self-Help and two financing affiliates, Self-Help Credit Union and Self-Help Ventures Fund. Since 1984, Self-Help has provided $240 million in financing to help low-wealth North Carolinians buy homes, build businesses, and strengthen community resources. More information about Self-Help can be found on the Internet at www.self-help.org.
Fannie Mae is a congressionally chartered shareholder-owned company and the nation's largest source of funds for home mortgages. It has committed to provide $1 trillion in targeted lending for ten million homes by the end of the decade. The targeted lending will serve low and moderate income families, minorities, new immigrants, residents of central cities and other undeserved areas, and people who have special housing needs. More information about Fannie Mae can be found on the Internet at www.fanniemae.com.
Remarks by Susan V. Berresford at the press conference
Good Morning. I am pleased to welcome everyone on behalf of the Ford Foundation and on behalf of a new partnership we are here to discuss today. Our new partnership includes Self Help, an innovative community development financial institution in North Carolina, and Fannie Mae, the nation's major source of home mortgage financing, and the Ford Foundation.
Financial assets are crucial to the economic well-being of families. They provide a cushion against unexpected expenses or crises, thereby helping to increase family stability. Financial assets also promote upward mobility, enabling household members to invest in their future in a variety of ways -- pursuing education or advanced training, starting a small business, or purchasing a home.
The importance of assets leads the Ford Foundation to develop new strategies that assist low-income people to build assets. One of our earliest efforts, announced in April of 1997, involves support for a major national demonstration of Individual Development Accounts. These are savings accounts where the savings of low-income people are matched by contributions from public and private sources. IDA funds can be withdrawn only for uses that build assets for the household, such as purchase of a home, continuing education, or starting a business.
Promoting increased levels of homeownership among low-income households represents another promising approach to asset building because ownership of a home is the single largest financial asset for most in the U.S. Unfortunately, substantial disparities in homeownership exist among income, racial, and ethnic groups. For example, more than 86 percent of middle-and upper-income families (those with incomes greater than 150 percent of U.S. median income) own their home, compared to 50 percent of low- and moderate-income families (those with incomes below 80 percent of U.S. median income). The disparity in homeownership among racial and ethnic groups is equally striking. Seventy-two percent of white households own their home, compared to 45 percent of African Americans and 44 percent of Hispanic Americans.
A major barrier to expanding homeownership among low-income and minority households is their low level of financial assets. While the average U.S. household has a net worth of $43,000, low-income households have a median net worth of $5,000. African Americans and Hispanic households have less than one-tenth the assets of white households. This means that many who are reliable monthly rent payers often lack the required down payment for a home or have spotty credit records, stemming from their inability to pay unexpected expenses in a timely fashion. This is the problem our partnership aims to address in a 5 year demonstration which we hope will develop the data base for a new lending policy.
We are very pleased to announce an important partnership between the Ford Foundation, the North Carolina-based Center for Community Self-Help, a long-time Foundation grantee and one of the nation's premier community development financial institutions, and Fannie Mae, the dominant force in housing finance in the United States. Under the terms of the partnership, commercial banks would make loans to low-income households, particularly minority households, who have not been able to obtain a mortgage. Self-Help would purchase up to $2 billion of these low-down payment mortgages from commercial banks over a five-year period and re-sell them immediately to Fannie Mae. Ford Foundation funds enable Self-Help to provide a credit enhancement, or coverage of the expected level of risk, for the loans it purchases from commercial banks. Approximately 35,000 households will be involved in the first five years.
Martin Eakes and Jim Johnson will explain the nature of the partnership in more detail. Before I turn to them, though, let me tell you why I think that this partnership is so innovative. It harnesses the unique strengths of three important institutions to achieve an important social goal- expanding homeownership for households now blocked from achieving this important aspiration - that would be out of the reach of each institution acting independently.
Since its founding in 1980, Self-Help's mission has been to create ownership opportunities for disadvantaged North Carolinians. To date, it has enabled nearly 3,000 North Carolina low-income families to become homeowners, and developed expertise in lending to families that other institutions considered poor credit risks. But the Center has realized that, acting alone, it lacked the funds to make a large dent in the demand for homeownership among low-wealth households unable to qualify for conventional loans.
Fannie Mae, on the other hand, has played a crucial role in expanding homeownership in this country by attracting capital that otherwise would not have been invested in housing. It has made important strides in developing low- and moderate-income loan products and in funding small experiments with flexible underwriting standards. But Fannie Mae recently concluded that there were significant changes going on in the Self Help North Carolina program that deserved to be tested on a national scale.
This is where the Ford Foundation steps in. We have agreed to provide a grant of nearly $52 million to Self-Help to guarantee the performance of the $2 billion of mortgages that Fannie is prepared to purchase. This is a philanthropic use of risk capital that foundations are uniquely suited to play in our society. In this case, a very sizable grant helps cover the risks involved in testing new lending practices that could build the assets of disadvantaged people. And the grant creates a partnership between the for-profit and nonprofit sectors to promote homeownership.
The payoff for this partnership can be huge if over the five years we study the programs results and find that certain categories of low-wealth families can manage monthly mortgage payments, we can help to open up lending policy across the nation to enable thousands of others to own a home.
Let me now turn to Martin and Jim to describe this pathbreaking partnership more fully.
The Ford Foundation is an independent, nonprofit grant-making organization. For more than half a century it has been a resource for innovative people and institutions worldwide, guided by its goals of strengthening democratic values, reducing poverty and injustice, promoting international cooperation and advancing human achievement. With headquarters in New York, the foundation has offices in Africa, the Middle East, Asia, Latin America, and Russia.