Twin Cities Habitat for Humanity

While the subprime market continues to crumble, Twin Cities Habitat for Humanity is seeing record low delinquencies for its even riskier homeowners.

The nation's housing situation seems to get more grim with each passing month. Record numbers of Minnesotans have lost their homes to foreclosures. The number of homeowners behind on their mortgage payments also is at an all-time high, and expected to increase. Low-income borrowers have been hit especially hard, as low adjustable-rate loans that helped make payments affordable during the housing boom now are rising.

Against that backdrop, Twin Cities Habitat for Humanity is experiencing its lowest number of delinquencies in a decade.

"It's really good news," Twin Cities Habitat spokeswoman Sharon Rolenc said. "We're still trying to figure out what's behind it. We wish we had an easy answer."

About 6.4 percent of Habitat homeowners in the Twin Cities are 30 days or more behind on house payments, according to the organization, which doesn't keep nationwide figures. That's a significant drop from last year's delinquency rate, and nearly cuts in half the high of 12 percent set in 2004.

Comparisons with the traditional mortgage market are difficult because of the unique way in which Habitat for Humanity operates. The nonprofit, Christian-ministry organization provides interest-free mortgages to the working poor. But it requires families to spend at least 300 hours helping to build their homes and to take classes on financial planning and homeownership basics before signing on the bottom line.

Habitat acts as the bank, funding mortgages through private donations and then using payments from the loans to help build more homes.

"What I hope is that it isn't a statistical anomaly," said Robert White, the vice president and chief financial officer for Twin Cities Habitat for Humanity. "I don't see any major shifts in our criteria or our selection process. I attribute it more to a continual improvement in our training, our origination process, how we screen our families and how we work with them."

In the Twin Cities, the average Habitat family has an income of $28,500 and a household of six members. To date, about 560 families in the seven-county area have taken out loans worth $40 million, according to White.

Habitat considers its loans "sub-subprime," because it offers home loans to people who earn less than traditional lenders typically will take on, even for subprime customers. Subprime refers to loans given to high-risk borrowers who have high debt levels and poor or uneven credit histories.

To be eligible for a Habitat home, families must make from 30 to 50 percent of the Twin Cities area median income. For a family of four, that means $23,550 to $39,250.

White said Habitat's delinquency rate usually tracks "on the low side" of subprime loans. But he was surprised to see that Habitat's current delinquencies are falling at a time when subprime delinquencies are rising. Compared with Habitat's 6.4 percent delinquency rate, about 17 percent of Twin Cities homeowners with subprime loans are more than 60 days behind in payments, according to First American LoanPerformance. About 1 percent of conventional, or prime, loans are delinquent.

Habitat officials suspect many factors are in play. In recent years, Habitat homes have become more geographically dispersed, spreading beyond the urban core. The organization also offers post-purchase counseling for those who need it or want it. But many who work in the affordable housing arena suspect education plays a big role.

The Minnesota Housing Finance Agency, a state agency offering below-market loans to first-time homeowners who need affordable housing, places great emphasis on counseling, education and foreclosure prevention measures, spokeswoman Megan Ryan said. She has a hunch those same factors are crucial to Habitat's success in a difficult housing industry. Of the agency's 17,000 loans, about 3.05 percent are past due, Ryan said. Less than 1 percent are in foreclosure, roughly the same as the past two years.

Likewise, Habitat has held steady on foreclosures recently, hovering between 1.5 and 2 percent. Meanwhile, total foreclosures in Minneapolis and St. Paul have shot up 82 percent from a year ago, according to RealtyTrac.

Richard Todd of the Federal Reserve in Minneapolis said there's high interest among researchers to understand the connection between financial education and financial success in such areas as credit card debt or homeownership. "It's stubbornly difficult to track the connection from education to behavior change ... ," Todd said. "What we do know is that motivation matters."

Mike and Angie Wurm were definitely motivated. Back in 1996, the Wurms and their three children were renting a small apartment and living paycheck to paycheck off of Mike's $17,000-a-year salary. After moving into a $107,000 Habitat home in Columbia Heights, Angie set up a budget. Mike started taking classes after work.

His new skills brought pay raises and better jobs. The couple was able to refinish their basement and add an office and a bedroom. In 2003, the Wurms sold their Habitat home for a profit, and used the equity to buy a five-bedroom home on 5½ acres in Ham Lake.

The Wurms now are embarking on a new chapter. It's a story Habitat officials believe could someday ring true for more of its homeowners, if delinquencies remain low.

Mike, 36, recently landed a promotion and a six-figure paycheck that will require the family to move to Detroit. Their Ham Lake home is listed at $425,000.

"It wasn't ever fun to be poor like that," said Angie Wurm, 38. "And it was never easy. Now we have a savings account that actually has money in it."

By Jackie Crosby
StarTribune

July 6, 2007