The Role of CDFIs in Addressing the Subprime Mortgage Market: A Case Analysis of New England by Carla Dickstein, Coastal Enterprises, Laura Buxbaum, Hannah Thomas and Kimberly McLaughlin

This report addresses the role that CDFIs play in expanding access to mortgage financing for underserved borrowers and in responding to the foreclosure crisis. The study focuses specifically on CDFIs in the New England region and relies primarily on interviews with 17 CDFIs and other industry stakeholders. Dickstein and her co-authors find that CDFIs primarily provide gap financing to make homeownership more affordable and rely on existing mortgage products from mainstream lenders to provide the bulk of the financing. Some CDFIs are attempting to expand their role as a conduit for primary mortgages by acting as mortgage brokers, but the authors observe that this role does not seem to expand greatly the range of loan products available to the target communities. They conclude that CDFIs cannot expand their lending role without greater access to capital that can be used to take on more risk or to subsidize borrowers.

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An Analysis of Successful Mortgage Lending Strategies in Six Cities by Neil Mayer and Kenneth Temkin.

This report examines two hypotheses: 1) CDFIs have a greater concentration of their home purchase loans in low-income and minority neighborhoods than mainstream lenders; and 2) CDFIs increase lending to underserved borrowers by demonstrating the profitability of these loans to mainstream lenders—what they refer to as a “demonstration effect.” They explore these issues by developing cases studies of large CDFIs in five market areas that rely on interviews with key staff and analysis of CIIS and other data on CDFI lending activities compared to mainstream lenders as reported by Home Mortgage Disclosure Act (HMDA) data. They confirm that CDFIs do have a higher share of their lending devoted to lower-income and minority borrowers and neighborhoods than mainstream lenders. Their case studies suggest that CDFIs are able to serve these markets by providing low-interest rate subordinate debt to improve the affordability of owning a home and by providing housing counseling to help borrowers through the purchase process.

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 Download: Tables B-1 through B-5 (.pdf)
 Download: Tables B-6 through B-9 (.pdf)
 Download: Tables B-10 through B-13 (.pdf)
 Download: Tables B-14 through B-17 (.pdf)
 Download: Tables B-18 through B-21 (.pdf)
 Download: Tables B-22 through B-26 (.pdf)

The Role of CDFIs in Home Ownership Finance by Sarah Wolff, Self Help and Janneke Ratcliffe, UNC.

This report addresses three questions: 1.What is the role of CDFIs in the residential mortgage market, which they explore by comparing data on mortgage lending by CDFIs as reported to CIIS with the broader mortgage market as captured by HMDA data; 2.Are homebuyers assisted by CDFIs successful in sustaining homeownership, which they examine using data on mortgage delinquency rates reported in CIIS and from First American Title; and 3.How are CDFIs responding to the current mortgage crisis, which they investigate through brief case studies of nine CDFIs. The authors find that CDFI lending activity is more concentrated than mainstream lending activity among low-income, minority, and low-credit score households. They find that the scale of CDFI activity in the residential market is very small relative to the overall market. Most CDFI loans are junior liens bearing below market interest rates, rather than loans made independent of mainstream financial institutions.

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