Partners (Second Quarter 2004)

Spotlight on the District

An impaired or insufficient credit history is a common stumbling block for low- and moderate- income borrowers attempting to buy a home. Thanks to the “Get On Track” (GOT) program, prospective Mississippi homebuyers with impaired credit now have a new option: they can lease the home of their choice for a pre-determined period and work in the meantime to repair credit or establish a qualifying credit score for homeownership.

Mississippi’s Get On Track program

The GOT program, a partnership with the Mississippi Home Corporation (MHC), Freddie Mac, Consumer Credit Counseling Services (CCCS) of New Orleans and local lenders, targets prospective homebuyers with incomes up to 140 percent of area or state median income, whichever is higher. The prospective homeowner works through a local lender and CCCS to determine how much they would qualify to borrow with a credit score of 620. CCCS then helps the client map out a credit repair program for the 39-month lease period. The next step for the applicant is to work with a builder or realtor to select a home to purchase at the end of the lease period.

MHC then purchases the home at closing and leases it back to the prospective homebuyer for a term of 39 months, at which point the program participant can assume the outstanding Freddie Mac loan for a one percent assumption fee. The homebuyer also enjoys the benefit of any appreciation through a forgivable grant from MHC. To assist in the initial loan closing, 7.5 percent of down payment and closing cost assistance is included to avoid depletion of the client’s cash flow. The seller may also contribute up to 3 percent.

The loan initially extended to MHC is a 7/1 adjustable-rate mortgage with a 30-year amortization and a current rate of 6.425 percent. Because the lease payment includes rental insurance and other management fees, it is usually about 10 percent higher than the actual mortgage payment. MHC closed 34 loans totaling $2,505,418 between the time of its inception in July 2002 through May 2004. Twenty loans totaling $1,800,000 are currently in the pipeline.

One deterrent to the program is processing time, which has averaged about 102 days, slowed down by the time required for prospective homebuyers to complete credit counseling and establish a workout plan with their creditors. Currently one lender with two branch offices handles loans throughout the state. Loans are eventually sold to Freddie Mac. The program was funded through a bond issue and is set to expire on December 31, 2004. MHC is evaluating the future of GOT, which addresses a significant barrier to homeownership.

For more information, visit MHC’s web site at or call Charles L. “Chuck” Morris, SVP at (601) 718-4624 or Francisco Lara, AVP at (601) 718-4653.

Individual Development Accounts (IDAs) are matched savings accounts that encourage low-income families to save money, gain financial skills and build wealth through the purchase of assets. Two years ago, in partnership with the Louisiana Department of Social Services, the IDA Collaborative of Louisiana (IDACL) embarked on an ambitious effort to help at least 500 low-income families qualified for benefits from Temporary Assistance for Needy Families (TANF) purchase a home, expand a business or further a post-secondary education.

At its closing deadline of June 30, 2004, the TANF IDA program reports impressive results: 1,796 households have received credit counseling; 1,101 have enrolled in an IDA program; 1,029 have completed financial education classes, and 895 have completed asset-specific training. To date, 616 participants have purchased assets, including over 343 homebuyers.

Collaborative partners help leverage resources
Growing to this scale required more than just the program’s $2 million in funding and the State’s progressiveness. Over 42 statewide “service providers,” under the oversight and guidance of the Tulane/Xavier National Center for the Urban Community, provided one-on-one intensive credit counseling, case management and coaching, homebuyer training, and financial literacy classes.

Felicia Bazille, a graduate of the IDACL program, was able to purchase a home in New Orleans.

Eight financial institutions made savings accounts and mortgages available, as well as offered bank expertise and guidance to the Advisory Board. Several foundations supported the program with operating and matching grants. The program has also reached far and wide both geographically and culturally: graduates come from as far as Lake Charles, La., and the Delta region; they are from both urban and rural communities; they represent diverse populations, including participants from the Vietnamese and faith-based communities.

Working with such diverse partners brings its own challenges: data management and reporting can be an administrative nightmare. To address this issue, Tulane invested its own resources to create a web-based enrollment, tracking and invoicing program. It not only provides necessary forms, but also serves as a source of critical program summary reports for the media, service providers and other interested parties. The state-of-the art system helps IDACL to administer programs efficiently and effectively.

Program meets its goals
The TANF IDA program accomplished what it set out to do: provide an infrastructure for IDAs throughout the state and build the capacity of its partners; demonstrate that IDAs can help low-income workers purchase long-term assets; and bring together various organizations and initiatives to leverage resources for the working poor. Like many other IDA programs across the nation, its next challenge is to ensure the long-term survival of IDA initiatives through policy advocacy, fund development and refinement of its partnerships and programs.

For more information on the IDACL, visit the website at

This article was written by Nancy Montoya, Regional Community Development Manager in the Atlanta Fed’s New Orleans Branch.

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