Local Lender/Borrower Relationships


Some low-wealth borrowers do not meet traditional lending requirements because of a lower-than-allowed credit score, and traditional mortgage lenders understandably require potential borrowers to become “credit worthy” before they are considered for a mortgage. While a low credit score can indicate an unacceptable level of risk for a lender, it may also be reflective of a credit shortfall caused by collateral challenges due to the potential borrower being inadequately housed. While these are the potential homeowners that have the most to gain from the obligations of service by depository institutions, this gap between a buyer’s existing credit profile and a traditional lender’s ability assess risk based on the particular circumstances of that buyer is most often insurmountable.

Opportunity & Response

“Housing First” not-for-profits (NFPs) that work locally in the communities they serve have a better ability to consider the extenuating or mitigating circumstances of a specific borrower. For example, a mortgage candidate may have a low credit score because they are unbanked or underbanked. Local NFPs have the unique capacity to work with individuals on a case-by-case basis to first get them into secure housing and then spend time “seasoning up” the homeowner’s credit and financial literacy such that they can be transitioned to a more conventional mortgage product. There is a clear opportunity here for traditional lenders to partner with these NFPs strategically to develop a type of “step-up” program in which the NFP assumes the initial housing risk but leverages resources already developed by the lender to provide the necessary homeowner education and counseling to maintain lower than average delinquency rates.