The Ford Foundation will give $51.8-million over the next five years in an attempt to help at least 35,000 low-income families buy homes.
The grant, which is expected to stimulate at least $2-billion in commercial loans to first-time homebuyers, is believed to be the largest foundation grant ever made to encourage homeownership. It will enable Self-Help, an economic-development group in Durham, N.C., to expand nationwide a program it has previously operated only in its home state.
“We believe that the possibility exists today to extend homeownership to moderate- and lower-income people and that there are barriers that foundation money can overcome,” says Susan Berresford, president of the Ford Foundation, in New York.
The Self-Help program, officials say, is intended to benefit households that earn enough money to make a monthly mortgage payment, but that cannot obtain an affordable home loan because of bad credit or insufficient savings to make a down payment. The foundation hopes that the loans will go mainly to members of minority groups, particularly black and Hispanic families, since their home-ownership rates are well below those of whites.
“If you work a full-time job and have enough income to pay for a modest home loan, somebody should be willing to take the risk to enable you to obtain a loan,” says Martin D. Eakes, president of Self-Help, which has received support from Ford for 14 years.
The program that the Ford money will support is an extension of the “Home Loan Secondary Market Program,” which Self-Help started in 1994. Through this program, the charity has purchased more than $100-million in home loans from banks.
“They’ve done it on a state level and they deserve the support to try to do it nationally,” Ms. Berresford says.
The bulk of the Ford money, $50-million, will be used by Self-Help in two ways. First, it will enable the organization to purchase home loans that banks have made to low-income customers. By buying those home loans, Self-Help will free up additional capital so that the banks can then lend more money to low-income households.
Second, the loans that Self-Help has purchased from the banks will then be re-sold to investors through Fannie Mae, the nation’s largest source of home-mortgage funds. Self-Help will use the Ford money to provide “credit enhancement,” minimizing the risk that Fannie Mae assumes in assisting homebuyers who would not normally meet their lending criteria. Under most circumstances, if a homebuyer cannot pay at least 20 per cent of the total purchase price up front, he or she must have some form of insurance to protect Fannie Mae against loss.
Bank of America, Banc One, Chase Manhattan, and NationsBank have agreed to participate in the program and will provide at least $50-million each year in home loans for low-income households. Negotiations are under way with other lenders as well.
If all goes according to plan, the $50-million given by Ford will continue to grow as time goes on. (The remaining $1.8-million is for administrative costs.) Mr. Eakes says that Self-Help expects the vast majority of the loans to be repaid, noting that 99 per cent of the group’s previous loans have been repaid. That money will be reinvested so that more and more home loans can be purchased.
“It will forever be dedicated, for as long as it lasts, to helping working families be part of this American journey by owning a first home,” Mr. Eakes says.