We established the House America division in 1992 to develop the homebuyer market that consists of low- and moderate-income households and minorities.
The division was created to serve as the focal point of the company's effort to help every potential homebuyer achieve his or her dream of homeownership. We initially adopted Fannie Mae's Community Homebuyer programs, with higher qualifying ratios and less cash required for a down payment than was normally allowed under standard conventional mortgages.
There were three main components of the House America program: education and counseling, flexible underwriting guidelines, and community outreach efforts.
We next committed to a total of $5 billion in financing under this House America program with Fannie Mae and Freddie Mac to fund these loans.
We have significantly broadened the array of products available to lower-income borrowers. We started out with the 95%, no cash reserve loans, we followed that with an option whereby 2% of the 5% down payment could be borrowed from a nonprofit group or it could be a gift from a family member. We also have undertaken the 97% program, principally available through Fannie Mae.
Our focus has changed recently as conditions have changed. The House America department has primarily become a product development and service department, wherein we service our three main production divisions. We continue to innovate and support the House America lower-income homebuyer products but have added some products.
We are involved in more than 60 mortgage revenue bond programs for first-time homebuyers in over 20 states. We've approved over 100 local community programs where local housing agencies provide soft second mortgages to help with down payments.
Our retail and wholesale branches have been very successful using these programs to qualify buyers.
On the service side, the House America counseling center is available to provide free education for our own and our customers' clients.
These products and services are often combined to provide a full lending package for borrowers. We don't create these products and services for any CRA or fair-lending reason. We promote these loan products and services because they help the production divisions produce new loans.
These products are developed to serve certain niche borrowers but also very profitable borrowers. These might be lower-income, first-time homebuyers in conjunction with lower fixed rates arranged by local government agencies, and home improvement lending products for central city and not-so-central city properties that need updating or remodeling.
I think our results have been pretty good. Our House America loan product, which was started in 1992, has topped over $2.7 billion in financing, providing homes for more than 32,000 lower-income and minority families.
In 1994 our overall lending improved dramatically. Our purchase loans to designated minority borrowers - African-American, American Indian, and Hispanic borrowers - increased 217% over 1993. Our purchase loans to borrowers with incomes below 80% of the median increased 117%. Our total loans, including purchase and refinance activity to designated minority borrowers, increased 63% even while our total loan production dropped 22%.
With regard to the Home Mortgage Disclosure Act, we found that we basically have eliminated any difference in denial rates between different minority groups and white borrowers.
Mr. Van Dellen is based in Pasadena, Calif. This article was adapted from a talk at a recent session of the Housing Roundtable in San Francisco.