How NACA Works

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Introduction to How NACA Works

What if I offered you a mortgage with no down payment, no closing costs and no fees? Let's throw in a fixed interest rate that won't rise and fall with the market and peg it at below market rates (4.875% at press time). I'll even make you this offer if you have less-than-perfect credit and a low income. Are you interested?

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people standing in front of a house with a sold sign

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NACA is making homeownership a reality for many people who might otherwise not be able to afford a home. See more real estate images.

Maybe you're interested but think it sounds too good to be true. You're wondering why I'm selling fairy tales when the evening news shows ordinary people fighting foreclosure, bankruptcy and economic uncertainty in the wake of subprime mortgages.

Well, it's true. I can't offer you this deal. But a nonprofit agency known as the Neighborhood Assistance Corporation of America (NACA) can and does offer this mortgage deal to thousands of people each year. While there are no income limits for using NACA, the group has garnered attention for lending to people that most banks would see as a risk -- people with little money in savings, an imperfect credit rating or a pile of debt.

NACA doesn't see this as a gamble, but rather as an investment in the future. The idea is if working people are provided with good rates and education about buying a home, then neighborhoods will stabilize as owners become invested in safe streets and good schools. But NACA is more than a mortgage business. It's also a community advocacy program that tries to organize neighborhoods that will fight for political and social change.

NACA's roots are in activism, and the organization's Web site proudly proclaims that its advocacy style is aggressive and confrontational. The CEO, Bruce Marks, is known as a "junkyard dog" that won't let go once he's got a hold on something [source: Swidey]. NACA often sinks those persistent teeth into lenders and financial institutions that discriminate against and exploit working people with unaffordable loans. The result is usually a big-name bank committing money that NACA uses to provide its affordable mortgages. Or, in the case of a high-profile 2007 agreement, the group won the right to refinance mortgages made unaffordable by bad subprime loans.

Are you wondering how to get one of these affordable mortgages? Are you still wondering what the catch is? On the next page, we'll look at NACA's program requirements and see how it can offer such unbelievable rates.

NACA Program Requirements

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NACA helps members place the pieces to homeownership.

NACA primarily aims to help people with low to moderate incomes, but there are no income limits on participation. There is, however, a maximum purchase price for a home, and it can't be exceeded by any private funds in addition to the mortgage. You can go to NACA's Web site and plug in your zip code to learn what the maximum price is for your area. This requirement helps to ensure that the organization can focus on helping those who need it most. Most people participating in NACA are first-time homeowners, often people who wouldn't be able to buy a home without the agency's help.

The people participating in NACA's programs are called members, and they fall into three membership categories:

Participating members are on the road to purchasing a home or exploring a refinance with NACA.
Homeowner members have purchased or refinanced through the agency. These members are still entitled to counseling and assistance throughout the life of their NACA loan.
Community members support the organization's mission and participate in advocacy efforts, although they may not own a home.

Membership comes with dues. Currently, participating members and community members pay $20 annually for services, while homeowner members pay $50 a month for five to 10 years. This fee is folded into the mortgage payment, and it funds the Membership Assistance Program, which is what homeowners turn to after the ink is dry on the mortgage. We'll talk more about this feature later, when we walk through the steps of buying a home with NACA.

To qualify for a NACA mortgage, you can't own any other property, so this isn't the way to your vacation home or a second property for rentals. You must also occupy the home for as long as you have the mortgage; NACA takes out a lien on the property as an enforcement measure. This reflects the organization's belief that people who own and occupy homes will have a greater stake in the success of their neighborhood and will lead the way in stabilizing lower-income neighborhoods.

Participation is one of the most unusual requirements of the NACA program. If you have bought a home before, chances are the last time you saw your mortgage broker was at the closing. Not so with NACA. Each year, members must complete five actions that further NACA's goals. These actions could include everything from stuffing envelopes to storming a shareholders meeting with the possibility of arrest.

If you're trying to decide if NACA is right for you, you can go to a workshop free of charge. Workshops, held regularly in the areas with NACA offices, are required four-hour seminars that teach participants about the group's mission and what they'll need to do to buy a house. After you attend the workshop and pay your dues, you can continue down the path to a NACA mortgage. We'll look at the other steps on the way to a new home on the next page.

�Where does NACA get the money?
NACA's operational budget comes from mortgage brokerage fees, real estate brokerage commissions and member dues [source: NACA]. The group gets a fee of about $2,000 per loan, which is paid by the lender [source: Huscock].

The money to provide the loans comes from partnerships with other lending institutions. Bank of America and Citigroup are two of the organization's biggest partners�. NACA has about $10 billion in commitments from banks to write loans, according to its Web site. The organization provides the screening and counseling, and the bank provides the money.�

NACA Mortgages: Qualification and Househunting

The NACA workshop is just the first step in a several-month counseling and qualification process aimed at helping prospective homeowners financially prepare for owning a home and cleaning up their credit, if necessary. A NACA mortgage consultant guides members through this process.

Before meeting with the mortgage consultant the first time, members should gather the information that will help their consultant to determine how much they can afford to spend on a house, including monthly budgets, pay stubs and bank statements. The consultant plugs this info into NACA-Lynx, the paperless, Web-based system that tracks the criteria that members must meet to become qualified.

� iStockphoto.com/Christine Balderas
Bad credit? NACA will help you address financial hiccups.

The mortgage consultant uses character lending to determine what members can afford and what they will need to do to pay for the house over time. Character lending focuses on more than a credit score number; it addresses problems like bad credit so that they are no longer an issue with the bank. The mortgage consultant also will help a member to figure out the difference between a current rent payment and a future mortgage payment and to budget appropriately. The consultant will point out other costs, too, such as homeowners' insurance and inspection fees, and assist the member in planning for them. Once members are cleared by their consultants as NACA Qualified, they can start househunting.

NACA members can buy condos, co-ops or one- to four-family residences. As we mentioned previously, there is a maximum purchase price that varies by region and accounts for urban and rural differences. There's also an individual maximum price, dependent upon how much the individual can pay each month; in this way, the organization tries to prevent people from buying homes they can't afford. Members may use one of NACA's buyer's agents to help with the search, or they can bring in their own NACA-approved real estate agent.

When a member finds a house, the agent helps to negotiate the purchase and sale contract, the document that binds the buyer and the seller. Then, because the organization wants to ensure that the house remains affordable, members must use an approved home inspector to identify necessary repairs and potential problems. The seller or the buyer can complete the repairs. If the buyer takes them on, he can choose to finance the repairs through the mortgage.

If the house needs more than a few repairs and is more accurately called a fixer-upper, NACA will work with members on the renovations. NACA's Home and Neighborhood Development (HAND) department monitors the renovations, and their expense is added to the cost of the mortgage. If the renovations are so extensive that the home is unlivable, NACA will defer mortgage payments for six months while the work is done. NACA will also reduce the interest rate by 0.375 percent if the owner takes on the renovations [source: NACA], which is another way for the organization to invest in neighborhoods that might need some work.

Find out what members still have to do before moving into home sweet home.

Other Affordable Housing Options
The Federal Housing Administration has been offering loans with low interest rates and small down payments to people with low to moderate incomes since 1934. FHA insures the loan against default; borrowers pay a mortgage insurance premium to provide these funds. There are also state-level programs aimed at providing affordable housing for people with low to moderate incomes, as well as some bank-specific programs. In addition, a few other organizations combine NACA's efforts to provide homeowner education, foreclosure assistance and community revitalization:

Associates of Community Organizations for Reform Now, or ACORN
NeighborWorks America
HomeFree-USA

You can learn more about these programs by visiting their Web sites.

Almost Done: Buying a House with NACA

Arguably one of the best things about buying a home through NACA is the below-market interest rate, which members must lock in before they purchase their home. Before submitting the mortgage application, NACA members can further reduce the interest rate by putting additional funds down. For each 1 percent of the mortgage that is paid up front, the member receives a 0.25 percent reduction in the interest rate [source: NACA]. There's no limit -- you could buy down the interest to zero percent.

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Congratulations! You bought
a home!

Next, members apply for NACA Credit Access, which involves updating financial documents by submitting any updated W-2s, paystubs and bank statements. This step is basically another check that the member is financially ready to buy a home. Most of the issues that are being screened for here are things that should have been resolved during the initial process of becoming qualified with NACA. Members can apply for NACA Credit Access as they secure the mortgage loan from a participating lender. NACA partners with banks that provide the loans; NACA Credit Access is the stamp of approval that makes it very likely that the lender will approve the loan.

When everything's approved, there's a traditional house closing at a NACA office. The buyer pays no closing costs and leaves with the keys to his or her new home. The process to buying a home with NACA can be long, but if members stick with the program, they eventually become homeowners.

Involvement with NACA doesn't end with move-in, though. NACA supports homeowners through the life of their loan with the Membership Assistance Program, which we mentioned earlier. Counselors help members deal with the costs of being a homeowner and reconfigure budgets to address spending issues. If someone does fall on hard times, he or she can apply for help through the Neighborhood Stabilization Fund. The fund provides up to three months of mortgage payments, provided the member makes some sort of matching contribution [source: NACA].

NACA also organizes its members into Neighborhood Stabilization Committees (NSC), another investment in neighborhoods. The goal of these committees is to create local activists that will address issues such as violence, drug activity, abandoned property and the school system in the area and help revitalize communities.

How do NACA mortgages compare?
NACA does not make its performance data public, so there's little evidence as to whether these homeowners are successful in taking advantage of the opportunity given to them by NACA. Some suspect that the lack of data suggests that NACA is hiding some bad numbers, but NACA CEO Bruce Marks argues that these indicators don't matter [source: Talcott].

In 2007, though, Marks released a few numbers to the Boston Globe. About 1.15 percent of NACA mortgages were marked as "seriously delinquent" (meant to denote a payment that's at least 90 days late) while the national rate was 2.95 percent at the time. This national rate composes both subprime loans, which had a rate of 11.38 percent serious delinquency, and prime loans, which had a rate of 1.31 percent [source: Swidey]. At the same time, NACA noted that about 6.3 percent of NACA members had used the Neighborhood Stabilization Fund [source: Swidey].

To learn about NACA's other advocacy efforts and why the CEO is referred to as a "bank terrorist," go on to the next page.

NACA's Battles Against Predatory Lending

NACA's roots are in advocacy. In 1988, future NACA CEO Bruce Marks became involved with a union of hotel workers in Boston. Marks was concerned that hotel workers didn't have the chance to live in the city in which they worked because housing was so expensive, and he pushed the union to include a housing benefit in their terms. This involved changing federal law. From this successful fight, NACA was born.

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NACA targeted Fleet Bank for predatory lending.

The grassroots organization fights for affordable housing for all people by battling big-name banks with predatory lending practices. Predatory lending means exploiting those who can't afford a loan by providing loans with low rates that ultimately become unaffordable. Marks has become known as a "bank terrorist" for how he targets these people he's identified as greedy loan sharks.

The group prides itself on being these institutions' worst nightmare and has proven willing to do whatever it takes to create change. In some instances, NACA has shown up at the schools of bankers' children to picket and harass the children [source: Swidey]. Protestors have interrupted stockholder meetings with megaphones and distributed flyers with information about a CEO's alleged affair [source: Swidey]. NACA argues that foreclosure brought on by predatory lending is painful and embarrassing for all the members of affected families and that CEOs should understand what that feels like.

NACA battled Fleet Bank and its subsidiary, Fleet Finance, for more than four years regarding its ties to underground predatory lenders. NACA staged demonstrations to bring national media attention to Fleet. In 1993, Marks testified before the U.S. House and Senate Banking Committees and brought along more than 400 people who had lost their homes due to Fleet's practices. When the Federal Reserve refused to meet with members of NACA and hold hearings about predatory lending, NACA orchestrated stunts such as publicizing then-chairman Alan Greenspan's direct phone number [source: NACA]. Fleet eventually met with NACA and agreed to invest billions of dollars in affordable lending, including a large amount for NACA, and provide restitution to the borrowers.

NACA's other public battles have included:

Overturning a class-action settlement involving The Associates, which was then the largest finance company in the United States. The lawsuit would have provided Associates with immunity while providing only fifty dollars to borrowers who had lost homes. The Associates eventually invested in NACA's mortgage program.
Targeting First Union's CEO Edward Crutchfield to get the bank to work with NACA. NACA referred to Crutchfield as "Fast Eddie" for the way he passed by working people to get to high-income customers. NACA sent postcards and reports to Crutchfield's neighbors detailing his bank's practices. [source: NACA]

Bankers have come to fear Marks and his horde of NACA protestors, outfitted in yellow shirts, who could wreak havoc on everything from an awards ceremony to a quiet night at home. Critics have accused Marks of targeting banks just to get money for NACA, saying that once he has a sizable check, he agrees to leave banks alone [source: Talcott].

Currently, NACA is fighting subprime lending. The organization has committed funds to its Home Save Program to refinance loans for people at risk of losing their home due to a bad deal. The organization has also signed agreements, most notably with Countrywide Financial, to rewrite loans and restructure borrowers' monthly payments to an affordable level [source: Appelbaum].

NACA asks everyone to get involved in the fight by taking part in Predator Watch. An online form on the agency's Web site is available for citizens to report a bank that engages in predatory actions, such as putting a false income on a loan application, changing the loan terms at the last minute or concealing unexpected fees.

Whatever you think of NACA's tactics, the organization does garner the funds that provide affordable mortgages for people who wouldn't otherwise be able to buy a home. To learn more about NACA and home buying, check out the links on the next page.

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