Neighborhood Housing Services (NHS) of Minneapolis has developed the “Home Saver Program” to help local residents avoid predatory lending situations.

NHS of Minneapolis (formerly called Northside NHS) was founded in 1980 to promote reinvestment and homeownership in targeted neighborhoods. The agency offers NeighborWorks Full-Cycle Lending services including house rehabilitation, pre- and postpurchase education and counseling, purchase lending, and home-improvement financing. Some of its programs serve all of Minneapolis; others focus on 19 target neighborhoods.
 
Across the country, predatory lenders undermine homeownership and neighborhood stability by offering loans with costly, excessive fees; high interest rates; and unreasonable terms and conditions. In Minneapolis, predatory lenders frequently target cash-poor, equity-rich homeowners with “easy money” through refinancing.
 
In 2003, NHS of Minneapolis estimated that 83 percent of its loan subordination requests were from borrowers in the process of refinancing with an unfair subprime or predatory lender. Staff realized that local homeowners were in desperate need of affordable and fair lending options as well as basic predatory lending information. The Home Saver Program began as a counseling and education effort and quickly evolved into offering affordable lending options for higher-risk borrowers.

Education.  NHS of Minneapolis began by integrating predatory lending details into its homebuyer education and counseling program. NHS of Minneapolis counselors provide information to help at-risk borrowers recognize unfair lending practices. Staff also offer emergency counseling sessions for customers who are in the process of obtaining a loan, to make sure it is safe and affordable.

Expanded Financing Options.  To expand the number of safe loan options available for higher-risk borrowers, NHS of Minneapolis developed in-house alternatives with relaxed underwriting criteria. The agency became a mortgage broker in 2003 and now offers fair and affordable refinance loans that save borrowers between $400 and $500 a month. The agency also offers affordable home improvement loans.

Fix-Up Fund.  NHS of Minneapolis joined with the Minnesota Housing Finance Agency (MHFA) to provide affordable home improvement financing through its “Community Fix-Up Fund.” The Fix-Up Fund offers prime as well as responsible subprime lending options with affordable rates and flexible guidelines. Borrowers with low credit scores and employment challenges are still eligible for a loan, as long as their incomes are at or below 100 percent of the area median. NHS of Minneapolis staff originate these loans and work to make the monthly payments affordable. The loans are then funded and serviced by MHFA.

Lender Partners.  NHS of Minneapolis staff also reached out to local lenders to help them expand their affordable purchase and refinancing options, plus collaborated with several subprime lenders to offer “responsible” subprime loans. These loans may have higher interest rates but offer fixed rates instead of balloon payments, include limited or no prepayment penalties, and exclude predatory fees and points.
 
In addition to working with local lenders, NHS of Minneapolis also has linked with Freddie Mac’s national “Don’t Borrow Trouble” campaign to provide supplementary information and services.

Local Outreach.  To increase program outreach and marketing, NHS of Minneapolis began sending direct mailers every three months to households in lower-income neighborhoods. Staff also set up information tables at neighborhood events and at Minnesota Twins’ Heritage Games, plus advertised program services on the back of supermarket receipts.

Costs and Funding.  Program costs include staffing, computer software, marketing, and loan expenditures. The exact cost of the program is unknown, since all activities fold into the agency’s existing structure. Staffing is covered by the operating budget, while in-house loans are covered by the revolving loan fund.
 
The revolving loan fund receives contributions from NeighborWorks America, MHFA, the Family Housing Fund, and General Mills. Additional administrative support comes from NeighborWorks America, General Mills, the Family Housing Fund, US Bank, and Wells Fargo. Loan fees also contribute to program funding.

The Home Saver Program has helped NHS of Minnesota expand its business and offer affordable lending options to high-risk borrowers. In addition, staff are learning new skills and improving customer service.
 
Since the program began, staff have counseled nearly 1,000 people and educated more than 500. More than 250 anti-predatory lending loans have been made, which include refinances as well as home improvement loans. Most of these loans were for borrowers below 80 percent of the area median income.

• To successfully address the issue of foreclosure, NeighborWorks organizations must offer increased outreach and education on predatory lending. It is difficult for most nonprofit agencies to compete with predatory lenders’ extensive marketing, so staff must implement various affordable outreach strategies. Staff must also let their marketing strategies evolve with the issue and regularly develop up-to-date materials. Marketing materials should warn of potential dangers and describe viable alternatives.
   
• Although education and outreach are vital, they are usually not enough. Safe and fair financing alternatives are also needed to help victims recover from predatory situations and help others avoid dangerous loans.
   
• To expand financing options, NeighborWorks organizations must work directly with local lenders. Connect with conventional lenders who can provide affordable options and ask sub-prime lenders to use fair lending practices.
   
• Affordable loan options are not only needed for lower-income households, but for families with modest incomes as well. Eligibility factors should include a wide range of borrowers.
   
• Staff must be aware of local predatory tactics. Equity swindling is a serious issue in Minneapolis, which motivated NHS of Minneapolis to respond with affordable home improvement loans. The program needs to evolve as new predatory tactics emerge.
   
• Stable funding is needed to sustain the program. Reach out to all potential funders and gather support. Financially and logistically, it makes sense to expand existing services rather than create a new program.

Agency interview on 07-13-05 with: Rony Davis, Executive Director