Homeownership: We can do more
MHP Homeownership Director Elliot Schmiedl on racial disparities in mortgage lending and why MHP's ONE Mortgage Program has decided to revise its credit score requirements to increase opportunity.
Program Impact
ONE Mortgage: Supporting a stronger Commonwealth
Prosperous families. Stable and secure neighborhoods. Sound, private-sector loans that get repaid. That’s what the ONE Mortgage program delivers.
ONE Mortgage is offered by participating Massachusetts banks and credit unions. Along with its predecessor, the SoftSecond Loan Program, it has helped more than 21,000 low- and moderate-income families buy their first home.
The program was developed in 1990 by the Massachusetts Housing Partnership in collaboration with the Massachusetts Bankers Association, the Massachusetts Affordable Housing Alliance, the City of Boston and the Commonwealth in response to a Federal Reserve Bank study that found widespread racial discrimination in mortgage lending in Boston.
The program is successful because it breaks down barriers that used to prevent creditworthy families from buying a home: inadequate consumer education, high interest rates and fees, excessive down payment requirements, compulsory mortgage insurance, and a bias against 2- and 3-family properties. Those are barriers that affected everyone trying to buy a home in Massachusetts, especially minority families and those living in historically underserved neighborhoods
The key features of the ONE Mortgage program include:
- 30-year, fixed-rate mortgages that are originated and held in portfolio by a Massachusetts bank or credit union
- Three percent minimum down payment (five percent for three-family properties)
- 0.3 percent (30 basis point) interest rate discount provided by the lender for the life of the loan
- Reduced monthly payments for qualified borrowers during the early years of homeownership through a state-funded interest rate buy-down
- No limit on home appreciation, with a portion of any net gains recaptured to repay the interest rate buy-down (if any) when borrowers sell or refinance out of the program
- No cost for private mortgage insurance because participating lenders retain credit risk and the program includes a cash-funded loan loss reserve
- Hundreds of dollars a month in combined savings compared to conventional home mortgage products
In addition, ONE Mortgage has the most rigorous homebuyer education standards in the industry and all homebuyers must complete an approved pre-purchase education class program prior to closing. Post-purchase support for homeowners is also provided through a statewide network. This combination of sound underwriting standards, local lenders that retain skin in the game, and strong homebuyer education has resulted in solid loan performance and a foreclosure rate that is less than the rate for “prime” loans eligible for sale to Fannie Mae and Freddie Mac.
Expanding access to safe, secure fixed-rate mortgages has many public benefits. By reaching homebuyers with a median household income of $55,900, ONE Mortgage makes it possible for thousands of working families to put down deeper roots in the Commonwealth. In contrast, creditworthy buyers who use other mortgage products often pay disproportionately high rates and mortgage insurance fees relative to the risk of default. The result is reduced buying power and a higher monthly debt burden that may increase the risk of default and foreclosure while stifling the creation of household wealth.
Despite decades of efforts to address mortgage lending discrimination, Massachusetts still has the 48th lowest homeownership rate for black households among the 50 states. Homeownership rates for households of color are 40 percent higher in the nation as a whole than in Massachusetts. ONE Mortgage is the only state housing program that was specifically created to address this gap. Nearly half of all ONE and SoftSecond borrowers are households of color, and that outcome is by design, since most borrowers learn about the program from homebuyer education provided by community based organizations.
“When you participate in ONE Mortgage, you are changing lives and communities for the better.”
Esther Maycock-Thorne
Board member, Past President
Massachusetts Affordable
Housing Alliance
Most ONE Mortgage and SoftSecond loans have also been made in urban neighborhoods that were historically underserved by conventional credit. Historically more than a third of all loans have been originated in the Commonwealth’s smaller gateway cities and another third in the City of Boston. In recent years lending has shifted more strongly toward gateways, which represented nearly half of all loans originated in FY16. Three out of every five gateway city homebuyers were renters who had previously lived in the same community.
Banks have an obligation under federal Community Reinvestment Act (CRA) to reinvest in the communities where they do business. Contrary to popular belief, CRA does not promote weak lending standards and it did not promote the kind of reckless subprime loans that triggered the national financial crisis. Yet despite this longstanding legal and moral obligation, banks in most parts of the country have not done nearly enough to extend mortgage credit on reasonable terms to low- and moderate-income borrowers within their service areas.
Massachusetts has been the major exception. Through the ONE Mortgage and SoftSecond programs, banks have put $3.5 billion in private sector capital into Massachusetts neighborhoods at lower rates and on more responsive credit terms than would otherwise be available. Ongoing bank commitments to the program exceed another $500 million, which includes not just major banks likes Citizens and Santander but also the state’s leading regional and community banks and local credit unions.
There is no other bank-financed mortgage program in the country that has achieved comparable community impact or loan performance, much less at this scale or over this long a period of time. ONE Mortgage loans are currently available at 40 Massachusetts banks and credit unions, with more joining every month.
For more information about how you can bring ONE Mortgage to your community, or to your lending institution, contact MHP Homeownership Director Elliot Schmiedl at eschmiedl@mhp.net or 857-317-8516.