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Chapel Hill, N.C.As the nation works to restore a vibrant housing market, a new book by researchers at the University of North Carolina at Chapel Hill tells what really caused the foreclosure crisis and how to rebuild a safe and sustainable U.S. housing finance system.

“Our study of 46,000 low-income families who received home loans and managed to repay them during the worst housing crisis in our nation’s history proves that we know how to make sound loans to creditworthy working families,” said Roberto G. Quercia, director of the UNC Center for Community Capital and co-author of the new book, Regaining the Dream: How to Renew the Promise of Homeownership for America’s Working Families (published by Brookings Institution Press). Quercia wrote the book with center senior research associate Allison Freeman and executive director Janneke Ratcliffe.

“It is critical that we understand what went wrong. Otherwise, misguided strategies, such as requiring a 20 percent down payment, threaten to undermine recovery by shutting out huge segments of potential homeowners unnecessarily,” he said. “Fortunately, we have 46,000 families and a decade of research to show us how to do it right.”

Policymakers and regulators face critical decisions to implement The Dodd-Frank Wall Street Reform and Consumer Protection Act of July 2010 and determine the future role and structure of Fannie Mae and Freddie Mac. The book provides historical background, facts and data to inform decision-makers of how both can be used to create a more resilient housing finance system that ensures broad access to mortgage credit while minimizing risk.

Regaining the Dream documents the experience of thousands of low-income families who obtained traditional 30-year, fixed-rate home loans in the decade leading up to the foreclosure crisis through a demonstration program, called the Community Advantage Program (CAP).

Ninety-five percent of those borrowers made their payments successfully, despite the Great Recession, and experienced median home equity growth of $23,000.

They had been unable to obtain home loans from traditional lenders because of their low incomes and assets:

  • CAP borrowers had median annual household incomes of $30,792.
  • 70 percent had down payments of less than 5 percent.
  • 90 percent did not meet at least one of three traditional criteria (loan-to-value ratio of 90 percent or less, debt-to-income ratio of 38 percent or less, credit score of 640 or above).

Their successful repayment experience was based on several key elements, researchers said:

  • Sound mortgage products – CAP borrowers obtained fixed-rate mortgages with fair terms.
  • Sensible underwriting and servicing – Lenders carefully underwrote the loans to ensure they could be repaid and proactively worked with distressed borrowers to keep them in their homes when possible.
  • Access to credit – A N.C.-based nonprofit community development lender, Self-Help Ventures Fund, teamed with Fannie Mae and banks across the country to provide a secondary market for the CAP loans. That enabled the supply of capital to be replenished so that banks could make more traditional, fixed-rate loans to low-wealth families.

“The experience of CAP borrowers during the crisis clearly demonstrates the viability of sound affordable home lending,” said The Ford Foundation directors Frank F. DeGiovanni (Financial Assets Unit) and George McCarthy (Metropolitan Opportunity Unit) in the book’s Foreward. Ford provided $50 million in risk capital for the project to demonstrate how the mortgage lending industry could extend the benefits of home ownership more broadly.

“The track record of CAP borrowers also shows that there is good business to be pursued in underserved markets,” they said. “The Community Advantage Program is a model upon which to base sound and equitable lending policy.”

The UNC Center for Community Capital is the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. Part of the College of Arts and Sciences at the University of North Carolina at Chapel Hill, the center offers data and analysis that helps policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people more effectively. For more information, visit or call (919) 843-2140.

Topics(s): Affordable Homeownership, Default, Bankruptcy, & Foreclosure, Mortgage Finance
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