Setting the Record Straight: Part 5

This is the last blog in our 5 part blog series, in which we set the record straight on affordable housing.

Theory 5: Homeownership should be restricted to those who can put 20 percent down.

Even though studies have shown that, on the average, owning a home is less expensive than renting, it is difficult for the working poor to accumulate enough money for a dow payment. Michael Sherraden writes that, “One of the constraints on homeownership as a wealth building vehicle for low- to moderate- income households is institutional barriers to credit… Liquidity constraints, stemming from the uncertainty of lenders, prevent the extension of credit even when the working poor might be a good risk.”

Since the mortgage lending crisis began in 2007, down payment requirements have come under scrutiny. In May of 2011, the FDIC and Federal Reserve even proposed a 20% down payment requirement. While this remains unsettled, down payment requirements have remained part of the debate over mortgage finance. Within this debate is the belief that all of the down payment money must come from the borrower himself.

However, loans in the Community Advantage Portfolio do not fit into this new prototype. “A down payment of 1 to 3% of the home price is not uncommon, nor is a minimum borrower contribution of $500.”  Furthermore, a substantial amount of CAP’s borrowers had help meeting their down payment requirements and closing costs.

Using data from 2003 to 2011, Allison Freeman and Janneke Ratcliffe found that “having received assistance toward one’s down payment and closing costs has no significant effect whatsoever on CAP homeowners’ mortgage performance.”

For a closer look at the study, click here.

In conclusion, this five part blog series has used information from the UNC Center for Community Capital to refute claims about homeownership for lower- income families. These findings are particularly interesting because they have held true through recent market turmoil. Michael Sherraden argues that, “Homeownership is an important component of a long- term asset building strategy: the accumulation of small amounts of savings in an IDA can be put toward a home, which in turn can allow owners to send children to college, start small businesses, or pass along wealth to the next generation.”

New Century IDA is proud to be a part of the asset uilding movement by helping low- to moderate- income working families in Forsyth County become first time homeowners!

This home was purchased by a New Century IDA graduate in 2009.

Setting the Record Straight: Part 3

This is the third blog in a series in which we refute common misconceptions about homeownership.


Theory 3: Lower- income homeowners erode their equity gains through excessive borrowing.

Another criticism of homeownership as an investment is that lower income homeowners might diminish their wealth gains through excessive borrowing. For low- and moderate- income households to recognize the benefit of accruing equity, they must not borrow that money back for other uses. Allison Freeman and Janneke Ratcliffe from UNC’s Center for Community Capital used data from the Community Advantage Program (CAP) to determine whether or not low- and moderate- income homeowners increase their levels of borrowing because of the accumulation of home equity.

Freeman and Desmarais found that home equity of more than $150,000 corresponds to an average increase of $1,000 in credit card debt. However, “the accumulation of equity over time shows a smaller relationship to the accumulation of credit card debt.” Notable borrowing against the home occurred only when equity levels exceeded $100,00 and never reached a scale that would decimate equity based wealth.

The study concluded that while there appears to be some association between the accumulation of large amounts of equity (more than $150,000) and increased debt, “there is no evidence that debt accumulation by CAP homeowners offsets the wealth- building effect of home equity.”

For more information on this study, click here.

Setting the Record Straight: Part 2

This is the second blog in a series in which we refute common misconceptions about homeownership.


Theory 2: Homeownership crowds out other investments, while renting allows households to diversify their investments.

There is speculation that homeownership leaves some households with under-diversified and, therefore, riskier portfolios. If this is true, it would be particularly concerning for lower- income households who invest a greater portion of their net worth in housing.

Allison Freeman and Janneke Ratcliffe from UNC’s Center for Community Capital put this theory to the test. They used data from homeowners that participated in the Community Advantage Program (CAP) to determine whether or not they restricted their investments in other financial instruments as a result of having their investment concentrated in their home.

They found that when renters were given the same equity amounts as a matched set of homeowners in 2008, the simulated effect on their investment portfolios was a shift of less than one cent. They found no evidence that investments or savings suffer from having funds tied up in homeownership. Freeman and Ratcliffe concluded that affordable homeownership, “serves as an effective means for promoting stable wealth- building for low to moderate income households through the forced- savings mechanism of equity accumulation.”

For more information on this study from the UNC Center for Community Capital, click here.

This home was purchased by a New Century IDA graduate in 2007.

North Carolina Foreclosure Prevention Fund

If you haven’t heard of the North Carolina Foreclosure Prevention Fund, keep reading! This just may be a program that could help you or someone you know.

The N.C. Foreclosure Prevention Fund is offered by the N.C. Housing Finance Agency. It helps North Carolina homeowners who are struggling to pay their mortgage because of job loss or temporary financial hardship that occurred January 1, 2008 or later.

The N.C. Foreclosure Prevention Fund offers zero-interest, deferred loans up to $24,000 to cover your mortgage and related expenses for up to 24 months. If you live in one of North Carolina’s counties with the highest unemployment, you may even be eligible for up to $36,000 over 36 months.

To be eligible you must meet the following criteria:

• Need assistance with payments for your principal residence, which must be located in North Carolina
• Have satisfactory mortgage payment history prior to your financial hardship
• Demonstrate an ability to resume your mortgage payment once assistance ends
• Be a legal resident of the United States

If this sounds like a program that you could benefit from, fill out the eligibility form to find out if you qualify. If you are deemed eligible, you can either apply online or contact  a housing counselor in your area.

If you qualify for a loan from the N.C. Foreclosure Prevention Fund, the N.C. Housing Finance Agency will make your mortgage payment directly to your loan provider or bank. You will be expected to resume making your own mortgage payment once assistance ends.

The great news is that you will pay no interest on your loan. If you remain in your home for at least 10 years, the loan will be forgiven and you owe nothing!

For more information about how to access this program in Forsyth County, contact Consumer Credit Counseling Services of Forsyth County at 336.896.1191.

Watch the video below for more information on how the mortgage payment program works.

An Interview with IDA Partner Sylvia Neely

What does the Housing Authority do for this community?

The Housing Authority of Winston-Salem’s (HAWS) mission is to create and maintain sustainable communities through partnership to benefit the residents of Winston-Salem. The vision of  HAWS is to create a self-sustaining affordable housing and real estate development organization.  The Section 8 Housing Choice Voucher Program is a subsidy assisted housing program that provides adequate, affordable, viable, quality housing, and community supportive services emphasizing self-sufficiency for low and moderate income families. 

What is your role with the organization?

My position at the Housing Authority of Winston-Salem is the Family Self-Sufficiency  (FSS) Coordinator.  My role is to coordinate resources and services for Section 8 Housing Choice Voucher Program families through the public and private sector to enable assisted families to achieve economic self-sufficiency.  The objective of the FSS Program is to reduce the dependency of low income families that are receiving public assistance such as welfare assistance, Section 8, or any other local rent or homeownership program.

The FSS Coordinator will try to provide the resources and services that are listed in the program family’s Individual Training and Service Plans by linking them to resources, services, and economic opportunities that will lead to employment, economic self-sufficiency and homeownership.  A Program Coordinating Committee is formed by the FSS Coordinator to obtain commitments from service providers who will perform the hand-on services to the FSS participating families.  The FSS Coordinator will monitor the progress of the participant’s plan, and establish an escrow account for them once they have obtained an increase in earned income while trying to complete all other goals listed in their Individual Training and Service Plan.   It is the FSS Coordinator’s responsibility to see that the family is paid the balance in the FSS escrow account upon successfully completing their Contract of Participation. 

Why did you become a part of the IDA Program?

Since 75% of the Section 8 FSS participants have a final goal of purchasing a home through the Section 8 HCV program or purchase homes on their own without Section 8 subsidy, HAWS has partnered with the New Century Individual Development Accounts Program to assistant in providing pre-post homeownership training, financial economics, and down payment assistance to our participants.  I highly recommend this program, even though it is optional for them to enroll in the IDA program.

How have you personally seen this program benefit people and the community?

I have personally seen the IDA Program benefit people and the community by providing a match of $3,000 or $2,000 to the client’s $1,000 saved out of pocket. It is required that the IDA clients save at least $1,500 in which it allows them to have some money left in reserve since most lenders require homeownership applicants to have money left in reserve, and they are not using all of their money for down payment.   Also, it benefits the low and moderate income community in purchasing a home, since most of them have a limited amount of income, and wouldn’t qualify on their own to purchase a home since they would have to come up with at least 3% - 5% in down payment assistance. The program also benefits clients in budgeting and credit repair.  The coaches, are beneficial in keeping clients on track of becoming mortgage ready.   If it wasn’t for the IDA program there will be less homeowners in the community.

The Housing Authority of Winston-Salem’s (HAWS) mission is to create and maintain sustainable communities through partnership to benefit the residents of Winston-Salem. The vision of  HAWS is to create a self-sustaining affordable housing and real estate development organization.  The Section 8 Housing Choice Voucher Program is a subsidy assisted housing program that provides adequate, affordable, viable, quality housing, and community supportive services emphasizing self-sufficiency for low and moderate income families.