Publication DateOctober 2008
Author(s)Janneke Ratcliffe, Lei Ding, Phillip Bush, Sarah Wolff
Client/FunderU.S. Department of the Treasury Community Development Financial Institutions Fund under contract with Abt Associates
CDFIs provide a range of financing products to low-income and minority borrowers with mortgage lending making up approximately one-fourth of all of this activity. In this capacity, CDFIs play an important role in promoting homeownership opportunities for borrowers and communities that have been historically denied access to mainstream sources of credit and that have increasingly been targeted by high-priced or predatory loans. The CDFI Common Data Project (CDP) estimates CDFIs originated 15,109 mortgages in 2005. However, little is known about how CDFI home loans fit within the greater landscape of mortgage finance. We undertook this analysis to attain a fuller understanding of how CDFIs fit within the mortgage market in general.
Our findings show that though CDFI mortgage lending is a very small segment of all mortgage lending, loans perform well compared to both subprime and FHA lending. We conclude that initiatives which would increase the scope and scale of CDFI mortgage finance are good investments.
We find that many CDFIs use gap financing mortgage products (non-first lien loans). This suggests that CDFIs are complementing and partnering with mainstream financial institutions to maximize their impact with limited resources. These loans, often take the riskiest positions for the smallest rewards. For CDFIs to sustainably continue filling this gap ongoing subsidy will be required.
Our research shows CDFIs creating innovative, new programs in foreclosure prevention, intervention and recovery. Furthermore, CDFI products illustrate methods to prudently assess and take risk in niche markets. This strategy can be advanced through dissemination of best practices and additional thoughtful and robust research on the market and performance of CDFI mortgages.