Tight Credit May Hamper Efforts to Stabilize Communities Post-Foreclosure

Nonprofit community development corporations working to stabilize communities in the wake of the national foreclosure crisis share a deepening apprehension that tight mortgage credit standards will hamper their ability to sell newly rehabilitated, formerly foreclosed properties, according to a snapshot survey conducted at a recent meeting during the NeighborWorks Training Institute in Philadelphia.

Twenty-four nonprofits accounting for as much as $740 million in Neighborhood Stabilization Program funds attended the one-day seminar and many said that without more rational mortgage underwriting standards from the nation’s lenders, homes that could be put back into productive, long-term ownership status may sit vacant.

“The concern is real and it is across the board,” said Thomas P. Deyo, deputy director of National Initiatives and Applied Research at NeighborWorks America. “A handful of nonprofits have forged effective relationships with local and regional first mortgage lenders, but the majority of nonprofit real estate businesses that are in these communities never anticipated that the credit market would be so tough for their homebuyers.”

Many of the nonprofits attending the seminar also have homeownership education programs and have worked with homebuyers to ensure that they understand the mortgage process and the responsibilities of homeownership. Based on a review of the homeowners who have fallen into foreclosure the past few years and are receiving foreclosure prevention counseling, only a small minority ever had homeownership education or counseling.

“The fact is that homebuyers who go through these programs are excellent mortgage risks,” said Patrick Morrissy, executive director, Housing and Neighborhood Development Services, Inc., in Orange, N.J. “We want these homes sold to a buyer who can keep the home for the long-term, but mortgage financing – while not impossible -- has become increasingly difficult for low- and moderate-income homebuyers to obtain.”

Deyo noted that mortgage rates are at an all-time low and home prices around the country have largely stabilized, creating an excellent environment to foster long-term, sustainable homeownership.

“Lenders are right to be prudent with credit to avoid the kind of crisis from which the housing market now is emerging,” said Deyo. “But the pendulum has swung a bit too far, and to make revitalized neighborhoods a reality, it has to swing a little bit back the other way.”