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Changing Role Of
Nonprofits In The
Mortgage And
Housing Markets
Nonprofits In The
Mortgage And
Housing Markets
The traditional role of nonprofit organizations in
the housing and mortgage market was to
educate and counsel homeowners and potential
buyers. Many nonprofits have mortgage brokers
on staff who are HUD approved counselors.
These mortgage brokers also conduct
homebuyer education seminars with an
emphasis on real estate finance.
In the last 2 or 3 years we have seen nonprofits
expand into the areas of loan originations,
housing rehabilitation and real estate lease to
own programs. This growth has been a result of
the millions of foreclosures hitting the low and
moderate income communities. Revitalization of
the communities was necessary to combat the
blight of vacant and abandoned houses caused
by foreclosures.
Here are some additional ways in which the
nonprofits are helping their communities and at
the same time helping in the foreclosure crisis.
Relocation for foreclosed homeowners:
By being "plugged into" the local community
nonprofit organizations can provide support to
families that have gone through foreclosure.
They can help them find emergency shelter in
the short term. For the long term they can assist
with rental housing. The nonprofit might have
properties that they manage or own.
Purchase and rehabilitation loans:
Many nonprofit organizations have loan
originators on staff that are construction loan
specialists. They can make loans for purchase
and rehab projects. The rehab funds are held in
an escrow account and paid directly to the
contractors when the work is completed. The
specialist handles the whole project from
accepting bids from contractors, to making the
final payout.
Real estate brokerage:
Some nonprofit organizations have real estate
brokers on staff to either sell REO properties
that they’ve rehabbed, or contract with owners
of foreclosed properties to sell their properties.
This allows the nonprofit organization to earn
the commission on the sale, some of which may
be used for downpayment assistance or to
cover closing costs for the new homeowner.
This strategy can take advantage of the
availability of homebuyers who have been
counseled through the organization’s
homeownership program
Neighborhood clean-up:
We all realize that vacant and abandoned
houses are a magnet for crime. Drug dealers
and prostitutes use these properties as an
operational base. Nonprofit organizations are
leading the charge in cleaning up these houses.
On weekends you can see hundreds of
volunteers mowing lawns, removing graffitti and
boarding up broken windows and doors. Many
nonprofits have gone a step further and have
set up neighborhood watch programs.
Rental properties
Nonprofit organizations are also landlords. If a
foreclosed house is bought by a nonprofit and
subsequently the house is not sold, renting the
house is a good plan "B". The property owner
can steer the potential renter to some of the
HUD programs. For example, HUD helps low
income families with rental assistance through a
reduced rent program called Housing Choice
Voucher program. The benefits to the nonprofit,
the landlord, are a monthly check to offset the
mortgage payment, and a guaranteed payment.
It is hard to put a price tag on the value that a
nonprofit organization adds to the community
and to the housing market specifically.
the housing and mortgage market was to
educate and counsel homeowners and potential
buyers. Many nonprofits have mortgage brokers
on staff who are HUD approved counselors.
These mortgage brokers also conduct
homebuyer education seminars with an
emphasis on real estate finance.
In the last 2 or 3 years we have seen nonprofits
expand into the areas of loan originations,
housing rehabilitation and real estate lease to
own programs. This growth has been a result of
the millions of foreclosures hitting the low and
moderate income communities. Revitalization of
the communities was necessary to combat the
blight of vacant and abandoned houses caused
by foreclosures.
Here are some additional ways in which the
nonprofits are helping their communities and at
the same time helping in the foreclosure crisis.
Relocation for foreclosed homeowners:
By being "plugged into" the local community
nonprofit organizations can provide support to
families that have gone through foreclosure.
They can help them find emergency shelter in
the short term. For the long term they can assist
with rental housing. The nonprofit might have
properties that they manage or own.
Purchase and rehabilitation loans:
Many nonprofit organizations have loan
originators on staff that are construction loan
specialists. They can make loans for purchase
and rehab projects. The rehab funds are held in
an escrow account and paid directly to the
contractors when the work is completed. The
specialist handles the whole project from
accepting bids from contractors, to making the
final payout.
Real estate brokerage:
Some nonprofit organizations have real estate
brokers on staff to either sell REO properties
that they’ve rehabbed, or contract with owners
of foreclosed properties to sell their properties.
This allows the nonprofit organization to earn
the commission on the sale, some of which may
be used for downpayment assistance or to
cover closing costs for the new homeowner.
This strategy can take advantage of the
availability of homebuyers who have been
counseled through the organization’s
homeownership program
Neighborhood clean-up:
We all realize that vacant and abandoned
houses are a magnet for crime. Drug dealers
and prostitutes use these properties as an
operational base. Nonprofit organizations are
leading the charge in cleaning up these houses.
On weekends you can see hundreds of
volunteers mowing lawns, removing graffitti and
boarding up broken windows and doors. Many
nonprofits have gone a step further and have
set up neighborhood watch programs.
Rental properties
Nonprofit organizations are also landlords. If a
foreclosed house is bought by a nonprofit and
subsequently the house is not sold, renting the
house is a good plan "B". The property owner
can steer the potential renter to some of the
HUD programs. For example, HUD helps low
income families with rental assistance through a
reduced rent program called Housing Choice
Voucher program. The benefits to the nonprofit,
the landlord, are a monthly check to offset the
mortgage payment, and a guaranteed payment.
It is hard to put a price tag on the value that a
nonprofit organization adds to the community
and to the housing market specifically.
Nonprofit Buys
Foreclosed Houses
From Banks:
Homeowners Get to
Keep Homes
Foreclosed Houses
From Banks:
Homeowners Get to
Keep Homes
There is a trend that is taking traction in
communities across the nation. Nonprofit
mortgage brokers are buying thousands of
foreclosed homes from the banks. They are
buying at market value. Then they are reselling
to the homeowners. The end result is that the
homeowners keep their homes.
This is great news for the homeowners. They
couldn't get a deal done with their banks, but a
nonprofit was able to save the day? How come?
Why would the bank sell to the nonprofit and not
work out a deal with the homeowners? Some
experts in the mortgage industry believe that if
the banks work out a deal with the homeowners
it would send the wrong message to the millions
of borrowers that pay their loans on time. There
is some truth in this argument. If my neighbor
gets a principal reduction of 15%, why shouldn't
I get a similar deal?
To understand the strategy and how this is
accomplished we have to look at one nonprofit.
Boston Community Capital (BCC) is a nonprofit
mortgage broker in Boston, and their business
model is working perfectly.
First, community groups band together and fight
the bank over the foreclosures. At the same
time, BCC starts to negotiate a deal with the
bank. Second, Harvard Legal Aid, a community
legal service organization that serves low
income people, works on behalf of the
homeowners to prolong the foreclosure process.
BCC qualifies the homeowner before
approaching the bank with an offer. The
homeowner must be facing foreclosure and
must have a stable job. In addition, they must
demonstrate that they suffered a hardship such
as an illness or a decrease in work hours. Many
homeowners feel that the qualification process
is very stringent. However it seems to produce
results because 90 percent of the deals
presented to the banks are accepted and
closed.
BCC sells the property back to the homeowner
with a 30 year fixed rate mortgage. The
mortgage is 125% of the purchase price. A
unique feature of the transaction is that BCC
gets a portion of the profits when the house is
sold.
We have to take a look at the numbers to see
how this plan really works. If BCC purchased a
house from a bank for $200,000 they would
then resell to the homeowner and the
homeowner would carry a mortgage for
$250,000. Given a rate of 6% the monthly
mortgage payment is $1,798. The deal with the
bank was a mortgage of $300,000 at 6% the
monthly payments were $1,498, a savings of
$300. In this example there is no equity since
market value was $200,000 and the balance on
the mortgage was $300,000. In fairness to the
bank this would have been a difficult transaction
to close. The bank choose to take a loss of
$100,000.
This appears to be a simple process to deal the
foreclosure mess. However there are two
important issues. One, can a "for profit" entity
function like BCC. And two, what about the
$100,000 shortfall? Normally this would trigger
an IRS 1099 form asking the homeowner to
report this amount as income.
Overall the program is a success. It has rescued
over 90 families from foreclosure on the Boston
area as of December 2010.
communities across the nation. Nonprofit
mortgage brokers are buying thousands of
foreclosed homes from the banks. They are
buying at market value. Then they are reselling
to the homeowners. The end result is that the
homeowners keep their homes.
This is great news for the homeowners. They
couldn't get a deal done with their banks, but a
nonprofit was able to save the day? How come?
Why would the bank sell to the nonprofit and not
work out a deal with the homeowners? Some
experts in the mortgage industry believe that if
the banks work out a deal with the homeowners
it would send the wrong message to the millions
of borrowers that pay their loans on time. There
is some truth in this argument. If my neighbor
gets a principal reduction of 15%, why shouldn't
I get a similar deal?
To understand the strategy and how this is
accomplished we have to look at one nonprofit.
Boston Community Capital (BCC) is a nonprofit
mortgage broker in Boston, and their business
model is working perfectly.
First, community groups band together and fight
the bank over the foreclosures. At the same
time, BCC starts to negotiate a deal with the
bank. Second, Harvard Legal Aid, a community
legal service organization that serves low
income people, works on behalf of the
homeowners to prolong the foreclosure process.
BCC qualifies the homeowner before
approaching the bank with an offer. The
homeowner must be facing foreclosure and
must have a stable job. In addition, they must
demonstrate that they suffered a hardship such
as an illness or a decrease in work hours. Many
homeowners feel that the qualification process
is very stringent. However it seems to produce
results because 90 percent of the deals
presented to the banks are accepted and
closed.
BCC sells the property back to the homeowner
with a 30 year fixed rate mortgage. The
mortgage is 125% of the purchase price. A
unique feature of the transaction is that BCC
gets a portion of the profits when the house is
sold.
We have to take a look at the numbers to see
how this plan really works. If BCC purchased a
house from a bank for $200,000 they would
then resell to the homeowner and the
homeowner would carry a mortgage for
$250,000. Given a rate of 6% the monthly
mortgage payment is $1,798. The deal with the
bank was a mortgage of $300,000 at 6% the
monthly payments were $1,498, a savings of
$300. In this example there is no equity since
market value was $200,000 and the balance on
the mortgage was $300,000. In fairness to the
bank this would have been a difficult transaction
to close. The bank choose to take a loss of
$100,000.
This appears to be a simple process to deal the
foreclosure mess. However there are two
important issues. One, can a "for profit" entity
function like BCC. And two, what about the
$100,000 shortfall? Normally this would trigger
an IRS 1099 form asking the homeowner to
report this amount as income.
Overall the program is a success. It has rescued
over 90 families from foreclosure on the Boston
area as of December 2010.
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