Mortgages

The Lenders Who Are Giving Borrowers a Second Chance

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giving borrowers a second chanceBrenda Woods did not want to move and leave the garden she had tended for some 40 years. But the roof on the manufactured home that she and her husband Larry had shared all those years was falling in, and their bank would not give them a loan to buy a replacement home.

Brenda is still tending her garden, though, thanks to a loan the couple received from the New Hampshire Community Loan Fund, a Community Development Financial Institution (CDFI). It allowed the Woods to replace their home with a new, safe and affordable energy-efficient manufactured home.

Nearly 700 families were able to finance homes through the Community Loan Fund, which won a $5.5 million award from the Wells Fargo NEXT Awards for Opportunity Finance for expansion of an innovative financing program for manufactured housing mortgage loans. The NEXT Awards recognize innovative CDFIs that responsibly serve low-income and low-wealth people and communities.

Brenda and Larry WoodsCommunity Development Financial Institutions, which include banks, credit unions, loan and venture funds, are making loans where others may fear to tread. “We are looking for those loan opportunities that are most likely to play a transformational role in someone’s life, especially someone low income and low wealth,” says Mark Pinsky President and CEO of Opportunity Finance Network, a national network of CDFIs.

How CDFIs Help Borrowers

  1. Flexible loan amounts. Ask your bank for a $2,000 loan and the teller may hand you a credit card application, but personal loans through CDFIs often range from $2,000 to $20,000, though the loan amount “can go as low as $500,” Pinsky says. Small loans like those are typically not attractive to larger financial institutions, who may not find them profitable enough.
  2. Credit leniency. While borrowers should expect a credit check, a poor credit score shouldn’t stop a borrower from exploring this option. “Virtually all the folks we see have low credit scores. Sometimes it’s a foreclosure, increasingly often it’s due to large medical bills,” Pinsky notes. And unlike traditional loans, consumers with poor or slim credit histories may find that their creditworthiness can be judged in part by how they have handled utility bills or rent – transactions that usually don’t appear on credit reports.
  3. Willingness to take a risk. All of the institutions that make these loans serve low-income consumers and communities, and as a result may be able to extend credit to those who don’t meet the minimum income requirements of other lenders or those who traditional financing institutions consider “risky.”
  4. Support beyond the loan. Those who get these loans find they often also get a good deal of support and borrower education (called “technical assistance”) to make sure they understand the terms of their loans and can hopefully pay them back successfully. “We might pull their credit report and show them how they can improve their credit score,” Pinsky explains.
  5. Better loan terms. The interest rates and terms for these loans may be better than what the same borrowers may receive if they were to use expensive payday lenders or traditional lenders that finance borrowers with bad credit. Loan repayment terms may be more flexible as well.

CDFIs may fund personal, auto, housing and/or small business loans. Opportunity Finance Network (OFN) maintains a directory of CDFIs at OpportunityFinance.net.

The approach appears to be working for both those who get the loans and those who make them. OFN reports that members have extended more than $30 billion in financing, with cumulative net charge-off rates of less than 1.7%.

As for the Woods family, they are thrilled with their CDFI loan. “It was very easy; a smooth process,” says Larry. “These things do take time but it was reasonable.”

They even had an extra reason to celebrate. Their loan was approved on Brenda’s birthday.

Image: top, VStock; bottom, courtesy of the Woods

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  • Steve Varnum

    Gerri, thank you for telling the story of the Woods and for calling attention to the New Hampshire Community Loan Fund’s mortgage program for manufactured homes. The NEXT Award-winning innovation was that our Welcome Home Loans were the first fixed-rate, long-term mortgage loans for manufactured homes offered anywhere in the U.S. Most manufactured homes (sometimes called mobile homes) are financed through personal property loans, with high interest rates and other terms unfavorable to borrowers. We believe in preserving this important housing option by making real mortgages available to homeowners and home buyers in resident-owned communities or on their own land in New Hampshire.
    – Steve Varnum, NH Community Loan Fund

    • Gerri Detweiler

      Thanks Steve. You’re right – there aren’t often a lot of good options for borrowers with manufactured homes and that sounds like an excellent program!

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