Housing advocate seeing upswing: Mortgage market woes boost INHP participation

July 30, 2007

Al Smith of Chase Bank doesn't know Patricia Wells, but he is glad he was able to help the Indianapolis mother of five, if only indirectly.

Wells closed on the purchase of a house on East Washington Street three months ago, thanks in no small part to two programs of the Indianapolis Neighborhood Housing Partnership, a two-decade-old not-for-profit that has helped hundreds of families realize the American Dream of homeownership.

"I'm a single mother with five kids and I didn't think I could ever afford a home, and I wanted a big one," said Wells, 38. Now she is living in and applying some sweat equity to fixing up a 3,800-square-foot house with six bedrooms.

Over an 18-month period, Wells was able to clean up her credit while she took INHP classes on household budgeting, and received one-on-one pre-purchase and financial counseling on credit and the intricacies of getting a mortgage.

At the end of that time, she was able to qualify for a $71,000 loan through INHP that she used to buy her east-side home. And Wells also still receives postpurchase counseling.

INHP "has a tremendous impact on the housing community in Indianapolis. It's of critical importance," said Smith, who is president of Chase Bank in central Indiana, as well as one of the founding board members of INHP, dating back to its initial funding in 1988. "A lot of people can put people in homes. But can they keep people in homes? That's what the partnership works at doing."

Without INHP, Wells most likely would not have qualified for a mortgage unless she went to a subprime lender.

Market volatility has rocked the subprime housing market in the last year and that is probably one of the reasons INHP has seen a dramatic upswing in participation of its long-term program, said partnership board chairman Scott Thiems, executive vice president for community banking at Regions Bank in Indianapolis.

Subprime lenders are companies that make loans to buyers who have poor credit histories or, because of low incomes, are considered risky prospects. Most large banks, such as Regions and Chase, tend to shy away from the subprime lending market because of the risk, although most banks see the need for the subprime marketplace.

Many low-income home buyers have a hard time getting the money to purchase a house and are driven to the subprime market by the relative ease at which they can obtain capital. But there is a dark side to easy money. While subprime mortgages often have higher fees and rates, they also tend to feature adjustable rates that allow buyers to borrow money and keep monthly mortgage payments low for several years. However, in later years, the size of mortgage payments can rise dramatically, leaving the buyer trying to refinance or possibly defaulting on the original loan and facing foreclosure.

Either way, buyers can be left in a worse position than before they entered the housing market.

"Subprime loans are not necessarily predatory. Most are not," said INHP President Moira Carlstedt.

But the rate of default and foreclosures is much higher in that market segment.

Though figures vary depending on the source, Indiana has one of the highest rates of mortgage foreclosure in the country. In Marion County, more than 23,000 properties are somewhere in the foreclosure process, according to RealtyTrac, which publishes the country's largest and most comprehensive foreclosure database.

A goal of INHP is to help people avoid foreclosure. Some 79 percent of its participants are women, 59 percent are black, and 97 percent are low- and moderateincome families, Carlstedt said. All are required to have jobs so they can afford a mortgage.

INHP had 448 families in the program in June 2005, which increased 6.5 percent, to 477 families, by June 2006. The number of families jumped to 601 as of this June-a 26-percent increase from last year.

"These are working families and they don't want to be the next statistic," Carlst edt said. "These are people with real or perceived barriers to the [home-buying] market. But we create a market for these homeowners."

The partnership "is the best-kept secret in the [local] housing market today," said INHP board member Bruce Bryant, owner of Promotus Advertising. He is particularly concerned about the low level of black homeownership in the city.

Nationally, close to 70 percent of whites own homes and only 49 percent of blacks do. Locally, total homeownership is just over 59 percent, which is lower than other comparably sized Midwest cities, and only 24 percent of blacks own homes. White homeownership in Indianapolis is at roughly the national average.

With the help of 11 lenders in Marion County, the partnership has access to $28.5 million in private-sector credit it can use to help participants purchase or renovate homes, which is currently the case with Wells. Last year, it financed $23 million.

Carlstedt stressed that INHP's success rate is high because of its education program and one-on-one counseling.

She said 17.3 percent of Federal Housing Administration loans in central Indiana were delinquent, as of the end of last year, compared with only 13.3 percent of loans obtained with the help of INHP. And the partnership continues to help those families clear up those problems.

"Its education program and counseling support are what make [INHP] so unique," said Thiems of Regions Bank. "These are the things that are good for neighborhoods, and benefit the local economy and banks."
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