Habitat for Humanity of Monroe County is building homes and smart homeowners
Local affiliate active in keeping its foreclosure rate low
By Dann Denny 331-4350 | firstname.lastname@example.org
Herald Times Online - heraldtimesonline.com
November 16, 2012
Since its inception in 1988, Habitat for Humanity of Monroe County has built 132 new homes for 118 families and 14 singles.
Only one of those homes has been foreclosed on, putting its foreclosure rate at 0.75 percent — less than half the 2 percent average foreclosure rate among all Habitat for Humanity International homes.
That statistic bestows a certain rock star status on the local affiliate, giving it the 12th lowest mortgage delinquency rate among the more than 120 Habitat affiliates in the country with 100 or more mortgages.
So what is its secret?
Kerry Thomson, director of Habitat for Humanity of Monroe County, said it starts with the selection process.
“While we are a ministry and have a heart, we also understand what it takes to be a successful homeowner,” she said. “Home ownership is not for everyone. What we seek to do is serve the lowest income segment of the population that can be successful homeowners.”
Thomson said people wishing to own a Habitat home must not only have a legitimate need for housing and be willing to put in at least 250 hours to help build their own home or another family’s home, but have the ability to pay the mortgage.
“When we look at a family we consider whether they have enough income to pay their interest-free mortgage with Habitat and still meet their basic needs, but not so much that they qualify for another program,” she said. “We’re looking for families that make 25 to 75 percent of the area’s median income.”
Thomson said Habitat looks at an applicant family’s credit score, but differently than a bank does.
“We have much less tolerance for consumer debt than we do other kinds of debt that are outside their control, such as medical debt they’ve accrued because they’re uninsured,” she said. “Banks tend to look at all debt equally.”
Thomson said Habitat also allows applicants to have a slightly higher debt-to-income ratio than most banks, but has in place some “hard stops” — meaning if you have more than a certain amount of consumer debt or have any judgments against you, Habitat will not approve your application.
“If a family has a lot of consumer debt due to spending problems, we will work with them on their budget and put them in touch with free community resources that can help them improve their financial situation and possibly qualify for a home down the road,” she said. “We have a number of families now in Habitat homes that applied three to four times before they finally got accepted.”
After a family moves into its Habitat home, they are required to attend four financial training classes taught by a local business owner.
“At the first class, they must write down their five-year dream, three-year dream, and what they want to see happen in the next year,” Thomson said. “Then we help them connect the dots, showing how money is one of the tools that can help them realize their dreams.”
For two weeks following that class, each family is required to write down every penny it spends. During the second class, the instructor helps the family members see whether those expenditures are moving them toward their dreams.
“One of our homeowners said in the first class that she was driving her daughter to school each morning and stopping at a convenience store to buy her breakfast,” Thomson said. “She said she thought she was showing her daughter how much she loved her by doing this, but the class instructor asked her if she could think of another way of showing her that love other than spending $4 a day on her breakfast.”
The homeowner decided that for two weeks she would fix her daughter breakfast at home. When she came to the next class, she was able to show the instructor she’d saved more than $50 on breakfast during that two-week span.
“She came to the class in tears, and it wasn’t just because she had saved the money,” Thomson said. “She said her daughter told her she felt more loved by her because she was taking the time to make her breakfast at home.”
During the third class, homeowners look at their credit report with the instructor, who asks them to take some concrete steps to trim spending and reduce debt.
“One family was paying $30 a month keeping some items in a mini storage unit, but the items were worth only $150,” Thomson said.
In the fourth class, homeowners talk about ways they can start saving money — for their next car, their children’s college education, or unexpected emergencies.
“The instructor talks to them about changing their mentality,” Thomson said. “A lot of them have spent years feeling they can’t do anything other than live from paycheck to paycheck. They’re shown how to live in a new way. If you ask current homeowners what has been the most transformative thing about Habitat, they will say it’s their new home. But they say the second most transformative thing is what they learned in the finance classes.”
Like a bank
When an applicant moves into a home, Habitat actually sells the house to the family, with the family signing an interest-free loan for a period that varies — depending on the family’s income when it moves in — from 15 to 25 years.
“Habitat moves from being a social service provider and builder to being the bank for the mortgage,” Thomson said. “We sell the house just like a bank would. The family comes to the closing table and signs off on the mortgage and gets the title and deed to the house. And we own the mortgage.”
For the past decade, Habitat has paid an outside company to receive the family’s mortgage payments, send them end-of-the-year tax statements and track their escrow accounts used to pay taxes and insurance.
“We also offer them the option of putting money into a second escrow account to be used for home maintenance,” Thomson said.
If a family sells its home on the open market or to Habitat, a required second mortgage on the home would become due immediately. The second mortgage, which is also owned by Habitat, is the difference between the cost of constructing the home and its current appraised value. It is forgivable only if the homeowner lives in the home for the duration of the term of the first mortgage.
“If we buy the house back, we don’t actually get cash for the second mortgage; we get the asset which is worth the value of that second mortgage plus the unpaid first,” Thomson said.
If a family leaves its Habitat home before it has paid off the mortgage, Habitat has the first right of refusal for 10 years.
“During that period, the homeowner, before selling it on the open market, must first offer to sell the home back to Habitat,” Thomson said. “We want to protect our investment, and don’t want the homes to be used for house flipping.”
Thomson said the group usually buys the house back and resells it to approved Habitat applicants.
If a Habitat home is foreclosed on, the home is sold at a sheriff’s sale.
“We could buy the house back or not,” Thomson said. “We would make that determination like any bank would, based on the condition of the home and whether the bidding was high enough to allow us to cover all our expenses in the home. If not, we need to protect our investment and keep the house.”
When it experienced its first foreclosure last month, Habitat was outbid for the home, which was bought by an outside party. That made Habitat some money, which it used to invest in another Habitat house.
“It was a sad day because we never want to foreclose on any property, but in my heart of hearts we tried as hard as we could with that family,” Thomson said. “We’d been working with the family for a long time ... but when they refused to pay their mortgage over a long period of time, we were left with no choice but to foreclose.”
Habitat for Humanity of Monroe County facts and figures
• Has 12 full-time equivalents plus five part-time employees, three Americorps volunteers, two SPEA interns, two Bloomington High School North interns, and one IU Kelley School of Business intern.
• Of the 132 families and individuals who have bought Habitat homes, 10 have paid off their mortgages in full.
• Eleven Habitat families or individuals are no longer in their homes. Nine have moved into other homes, one has passed away and one has lost the home to foreclosure.
• The past three years, Habitat has built an average of 12.3 homes per year.
New homeowner Angie Hall, left, smiles at her youngest daughter, Sierra LaComb, 13, as she helps work by putting caulking around the moldings in their home during a build in the Cedar Chase subdivision in May. Habitat for Humanity homeowners in Monroe County get financial training and work at least 250 hours to help build their own home or another family’s home. Chris Howell | Herald-Times
Kerry Thomson, executive director of Habitat for Humanity of Monroe County, fields questions on one of her two radios during a recent building blitz of five homes in a week. Chris Howell | Herald-Times
Copyright: HeraldTimesOnline.com 2012