No place like home

With today’s uncertain mortgage industry and increasing foreclosure rates, local governments are looking for ways to contend with the struggling housing markets in their communities. Because first-time homebuyers are the most vulnerable customers in the market and are prone to make poor purchasing decisions, some local governments are developing first-time homebuyer programs to assist them while protecting and strengthening their communities.

First-time homebuyer programs are designed to provide affordable ownership opportunities to low- and moderate-income residents, who often seek housing that is beyond their means and fall prey to highly competitive mortgage lenders and real estate agents touting interest-only loans and adjustable rate mortgages. First-time homebuyer programs can advise novices how to make responsible purchasing decisions.

A first-time homebuyer program also can help local governments protect residents and neighborhoods, and can be a cornerstone for redevelopment. For example, a program can help low-income households compete with investors who may become absentee landlords, which is crucial in areas that have a large number of foreclosed properties or a high rate of foreclosure as a result of the current mortgage crisis.

To develop a successful program, local governments should set guidelines that determine when a resident is ready to purchase a home, such as the ability to invest a minimum of 3 percent of the purchase price or being considered a low-risk borrower. Most programs require buyers to attend training on the buying process and offer loans or grants to help pay closing costs and add to the required down payment. Programs may include post-purchase counseling to answer questions and offer instruction on how to maintain a home. In addition, a first-time homebuyer program staff member can guide participants through the buying process, acting as a “voice of reason” to help prevent buyers from making bad decisions.

Local governments should involve mortgage lenders when creating their programs by forming a committee to review program proposals and changes. Instead of working with individuals or agencies that only seek profit, local officials should partner with federally chartered commercial banks, who may receive Community Reinvestment Act credits for helping to develop a program and for lending to low- and moderate-income first-time homebuyers. Many banks have their own programs that offer special interest rates or terms that coincide with the mission of a first-time homebuyer program.

Burlington County, N.J., has operated a first-time homebuyer program since 1999. The program arose from a popular home improvement loan program. As housing prices increased throughout the 1990s, residents asked if the loans could be used to help them purchase a home. The county would not allow its funding to be used to help buyers make bad decisions; and officials thought the limited amount of funding available would be best used to only assist buyers who were ready to purchase a home. Since the program’s inception, it has assisted 228 first-time homebuyers, and none have lost their homes to foreclosure.

The author is the coordinator for the Burlington County, N.J., Housing and Community Development Program.