February 14, 2011
W11-2: Community based organizations have been providing mortgage loans in low-to-moderate income and minority communities on a small scale since the 1970s. These include community or economic development organizations, loan funds, and not-for-profit homeownership centers. Organizations offer different types of products: some offer subsidized, below market mortgages, others offer entirely market-rate. Many offer only subordinate loans, for purchase or home rehabilitation, while a smaller number offer first mortgages for home purchase. In general, these organizations seem to do a good job delivering mortgages to low-income communities; underwriting processes are often more flexible and personal than mainstream lenders, and almost always involve counseling and education. Default rates tend to be below the market average. Research on the relative performance of prime and subprime loans made to similar borrowers, generally those who had problematic credit histories or low incomes, has confirmed the wisdom of this model; borrowers targeted by subprime lenders are not inherently problematic; rather, the nature of the loan products was key to the subprime mortgage crisis...
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