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 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.

What Does It Mean To Be Poor?

What do you think of when you think of being “poor”? In his article “Working Poor,” Alexander Eichler talks about what it means to be poor.  If being poor is defined as living at or below the poverty line, then 15% of Americans- or about 46 million people- are poor. But if being poor is defined as living off a decent income but hardly any savings, then it is  nearly half the country. These are people that do not live below the poverty line, but they don’t have enough money saved to weather an emergency.

Jennifer Brooks, director of state and local policy at the Corporation for Enterprise Development, said, “The resources that people have- they are using up those resources. They’re living off their savings. They’re at the end of their rope.”

The Corporation for Enterprise Development released a report this week regarding liquid asset poverty households. According to the report, 43% of American households are liquid- asset poor. This means that if one of these households experiences a sudden loss of income, it would fall below the poverty line within three months.

The amount of people living asset poor underscores the effects of a struggling economy. Even though the Great Recession officially ended over 2 years ago, unemployment remains high and wages have remained stagnant.  However, you can receive a monthly paycheck and still be liquid asset poor.

David Rothstein of the nonprofit Policy Matters Ohio says that many people don’t realize how close they can be to one interruption to income or one interruption to health benefits. “They’re one paycheck away from being in debt.” Many Americans are not prepared for financial emergencies.

CFED suggests that while more intensive financial literacy is important in addressing this problem, it is also important to look at asset limits in public benefit programs. Some states restrict services like food assistance to households with few or no assets. Critics say that these policies deny help to many people in need. In a state with restrictive asset tests, a middle class family that faced a job loss would have to liquidate all of their assets and savings in order to qualify for benefits.

CFED suggests other measures that could help alleviate liquid asset poverty, such as strengthening consumer protections against payday lenders and making greater assistance available to first time homebuyers.

New Century IDA is proud to be involved in asset building by offering financial education and down payment assistance to first time home buyers in Forsyth County. What ideas do you have for eliminating asset poverty in our area?

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. 

IDA Success Stories: Laura Bond

Unfortunately, I became disabled in 1995 at 35 years of age, and was forced to live in a housing assistant living apartment. After living there for seven years, I qualified for a Section 8 voucher and was so happy and thankful to get out of that apartment setting and get my own place again.

I never imagined being a home owner. I took the classes IDA offered, and welcomed the education. I learned I can be a homeowner. Although I was on a tight budget I learned ways to budget my money, pay off debt, save for a downpayment [for my home], and that there is home warrantee insurance available if things should break down. I am overwelmed with joy at the thought of having my own house. I couldn't be more proud and thankful for the program.

Sincere thanks for helping me take the steps to have such a blessed future.

Thanks again, Laura Bond