Indianapolis, IN - Yolonda Feemster has 2 children, 2 jobs, and for the last 2½ years she’s hasn’t missed a single $700 payment while renting a small 3 bedroom house on the east side of town. Yet she could be paying $600 (including taxes and insurance) a month to own an even bigger home in the same neighborhood.
So why doesn’t she?
Nicholas Long, an aging military veteran, rents a small 3 bedroom house just a few miles from Miss Feemster. His rent is $725. His landlord has been trying for the last 4 months to help him buy the house he is now renting. In fact a VA loan would allow him to put no money down and pay around $550 a month. He has been making rent payments on time for many years and has hardly any negative credit item on his credit report.
So why would anyone pay $100 or more a month to rent a home than to own it?
The reason:
Both Yolonda and Nicholas, along with tens of thousands of other residents of Indianapolis, can’t qualify for a mortgage because they don’t have a credit score. It’s not that they have bad credit, but just that they have no credit score at all.
Both Yolonda and Nicholas have never had a credit card. They also both paid cash when buying their car. What about their rental history? Most landlords don’t report to the credit bureaus and in fact couldn’t report to the credit bureaus even if they wanted to. That means a stellar rental payment history is meaningless in the eyes of a mortgage company.
“I was always told that credit cards were bad, and when I heard that all of those rent payments weren’t even going to count, I was so disappointed,”
Brian Pittman, co-founder of The Community Redevelopment Corporation says, “There used to be a time when an actual human being would look at your personal situation and determine if you could pay off that loan. Now the human has been taken out of the equation entirely and everything is based on the almighty credit score. This situation has only been magnified by the current credit crunch.”
Brian goes on to describe how there are entire sections of cities such as Indianapolis where almost nobody can qualify for a mortgage. And that instead of the homeowners buying homes, there are outside investors, mostly from wealthy states like California, Hawaii, and New York who are buying up homes and then renting them out at a premium of $100 - $200 a month.
Says Brian, “The investors have the credit scores, yet they rely on the income generated by the renters in order to make their mortgage payments. These are the same renters that couldn’t get a loan with the bank. This process is turning our cities into renter towns. It’s not good for the citizens, and it’s not good for the cities themselves.”
Neighborhoods with low home ownership levels have increased crime, greater poverty levels, lower education levels, and lower home values.
After denying your loan most banks won’t even attempt to help you establish your credit. Because establishing and repairing credit can be a lengthy process, there is no financial incentive for them to do so. As a result many people such as Yolonda and Nicholas might go years before being able to buy that first home, while many others, frustrated with the system, end up becoming lifelong renters and thus are left with nothing to show for a lifetime of paying into the system.
There are a few non-profit organizations designed to help the credit challenged, such as INHP (Indiana Neighborhood Housing Project), but these only reach a small segment of the population and even so are overwhelmed with applicants. There is a 1 month delay for residents to sign up for credit counseling.
The Community Redevelopment Corporation or CRC has recently introduced a new program to help potential home buyers who find themselves in this situation. “A lot of people are buying foreclosures right now. What we’re doing different is that after we fix them up instead of selling to investors we sell exclusively to home owners.
“We personally interview all of our buyers and if the only reason they can’t qualify for a mortgage at this time is because they lack the credit history we sell them the property using a land contract”.
A land contract is a form of seller financing and allows you to sell a property and still maintain title. If the buyer defaults you can simply evict instead of going through a foreclosure. This allows the CRC to reduce its risk, and at the same time the home buyer to start paying down their mortgage immediately.
“As a private company we’re not out there to try to maximize profits. We exist to be profitable and to help hardworking Americans who deserve something better than what is out there. We work with our buyers to get their credit up so they can refinance with a traditional mortgage and lower their monthly payments,” says Brian.
The CRC also has mandatory financial literacy training, annual home inspections to ensure that the home is well maintained, and an emergency repair escrow account. If their clients refinance, in order to ensure that they don’t go into foreclosure the CRC offers temporary hardship loans of up to 6 months of house payments.
At a time when home sales are slow the CRC is experiencing a different problem. “We can get buyers all day, what we really need is the financial backing from banks and investors in order to purchase and rehabilitate more homes.”
Whether this approach will pay off in the long term remains to be seen, but for people like Yolonda and Nicholas it’s a welcome option. Says Yolonda, “As a renter you’re paying for someone else’s dream, it’s about time I started paying for mine”.
To find out more about INHP visit them in the web at http://inhp.org. To find out more about The Community Redevelopment Corporation visit them on the web at http://crchomes.com.
