What if I offered you a mortgage with no down payment, no closing costs and no fees? And let's throw in a below-market fixed interest rate — that's a guarantee the interest rate rate won't rise and fall with the market — and you'll have a fixed monthly payment (on the principal and interest, that is; things like property taxes might vary over the years) for as long as you have the loan. I'll even make you this offer if you have less-than-perfect credit and if you have a low income. Interested? Who wouldn't be? Skeptical? Naturally so, especially after the financial crisis that happened in the wake of the 2008 housing bust.
OK, busted. I actually can't offer you this deal, but a nonprofit agency known as the Neighborhood Assistance Corporation of America (NACA) can. And it does — to thousands of Americans each year. The group, founded by CEO Bruce Marks in 1998, initially stepped into the spotlight with its aggressive and confrontational role against the predatory lending practices of big-name banks. On the Senate floor in 1999, for example, former Sen. Phil Gramm called Marks an "extortionist" because of his relentless tactics [source: Appelbaum]. Since then, NACA has also attracted attention for its own lending practices. It lends to individuals most banks would see as a risk — borrowers with little money in savings, blemished credit histories, lots of debt and even those facing foreclosure. NACA primarily aims to help people with low to moderate incomes, but there are no income limits on participation.
Big-name banks typically see lending to low- to moderate-income borrowers as a gamble, but NACA doesn't. Rather, Marks and team see it as an investment in the future. The idea is that it borrowers are provided with good rates and education about buying a home, then neighborhoods will stabilize as owners become invested in their community. NACA is more than a mortgage business — it's also a community advocacy program that encourages and organizes neighborhoods to fight for political and social change. Marks, who has been called a "junkyard dog" that won't let go once he's got a hold on something, often sinks those persistent teeth into lenders and financial institutions who discriminate against and exploit struggling borrowers with unaffordable, subprime loans [source: Swidey]. Subprime loans are typically offered to borrowers who are a bigger credit risk, and these loans carry a higher rate of interest compared to prime loans.
NACA Program Membership and Qualifications
In September 2014, 1,880 people lined up outside Apple's flagship Fifth Avenue location waiting to get their hands on the newest iPhone. That sounds like a pretty big crowd waiting around at 4 a.m., doesn't it? On the morning of the final day of NACA's first foreclosure-prevention "Save the Dream" event in 2008, in comparison, more than four times that — 8,000 people — waited to get into the group's free workshops and individual counseling sessions [sources: Little, Rothacker]. Attending an introductory workshop is mandatory before you're able to become a member of NACA and have access to the agency's services, which are free with membership.
There are three categories of membership. Members on the road to purchasing a home or exploring a refinance with NACA are called participating members. There are two types of home purchases available to them:
- The purchase of an existing home, which could be a single or multi-family home, a condo or co-op; this purchase also could be new construction.
- The purchase of a home needing rehab, with the intention of renovating and financing the repairs.
These members may be part of either NACA's Home Purchase Program, which helps potential homeowners with affordable loans to buy a home, or NACA's Home Save Program, which provides homeowners with restructured mortgage solutions to save them from defaulting on existing loans.
Members who purchased or refinanced a home through the agency are entitled to counseling and assistance throughout the life of their NACA loan; these are homeowner members. They participate in the Membership Assistance Program (MAP), NACA's post-purchase support program designed to provide counseling and short-term assistance (up to three months) if a NACA member has a financial emergency.
Lastly, there are community members. These NACA members support the organization's mission and participate in advocacy efforts, and they may or may not own a home or finance their home through NACA.
Counseling, processing, post-purchase assistance, and all of NACA's services are offered free to members, but membership dues are collected from those in the Purchase Program and from community members. The dues are folded into the borrower's mortgage payment and go on to fund MAP in addition to operation and administration costs.
To qualify for a NACA mortgage, you need to meet a few basic qualifications. First, you can't own any other property, so this isn't the way to finance your vacation home or a second property for rentals. The property must be located in a state where NACA provides its services (which aren't available in all 50 states), and you have to occupy the home for as long as you have the mortgage. The latter requirement reflects the organization's belief that people who own and occupy homes will have a greater stake in the success of their neighborhood. There's also a maximum purchase price for a home; this requirement helps to ensure the organization can focus on helping those who need it most. Most people participating in NACA are first-time homeowners, often those who wouldn't be able to buy a home without the agency's help.
Additionally, NACA-sponsored wealth-building home loans became available in 2014. These 15-year loans allow homebuyers to own their home faster, although this does mean monthly payments are typically larger than those for a NACA traditional 30-year loan.
And, finally, members must participate in community advocacy. All of NACA's members — 2 million and climbing — are expected to take part in a minimum of five advocacy activities annually, which could include joining demonstrations and rallies, advancing the agency's mission through neighborhood outreach or volunteering in a local NACA office.
NACA Requirements and Loan Process
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. Next comes an intake session with a NACA counselor. A NACA mortgage consultant continues to guide members through the qualification process, an application that includes a review of payment history, debt obligations, savings, documented income and budgeting. Counselors also conduct an affordability analysis, which determines how much house a borrower can honestly afford. Borrowers are not required to make a down payment, and interest rates are guaranteed to be below 4 percent [source Appelbaum].
NACA does not, however, consider credit scores as part of the application process. When it comes to credit scores, the bigger the better; 850 is a perfect credit score, and anything above 700 is a good credit rating. Most Americans score between 600 and 750, but NACA members typically score lower [source: Experian]. In 2009, it was reported that as many as 65 percent of NACA homeowners were high-risk borrowers, with credit scores below 620. Almost 50 percent of borrowers had poor credit, with scores lower than 580 [sources: Hogberg, Lamb]. And that's a problem for big-name banks that approve loans for homebuyers with good credit scores only. Before the housing market crash, big-name lenders wooed poor-credit borrowers with unfair subprime loans, but post-bust, the Federal Housing Finance Agency (FHFA) introduced financial reform laws under the Housing and Economic Recovery Act of 2008 (HERA) in an effort to slow down the number of foreclosures and mortgages in default.
Once members are NACA qualified, they attend a Purchase Workshop, where NACA counselors review how to search for a property (and what to do if it's a fixer-upper and needs rehab), in addition to how to submit a mortgage application or begin using MAP. Members may use an NACA buyer's agent to help with the search, or they can bring in their own NACA-approved real estate agent. And when the right home is found, this agent will negotiate the purchase price and the terms of the Purchase and Sale Agreement.
Part of the mortgage approval process includes approval for NACA Credit Access. This step verifies the member's financial situation hasn't changed and that the member continues to follow the requirements before NACA will approve the loan application. NACA, certified by the U.S. Department of Housing and Urban Development (HUD), functions as a middleman between borrower and lender [source: Andriotis].
Properties needing rehab are key to NACA's mission of stabilizing neighborhoods, and under its Home and Neighborhood Development (HAND) program, the agency works with members to make those repairs and renovations affordable either by having them completed by the seller or rolled into the mortgage.
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, called NACA Buy-Down. For each 1 percent of the mortgage that's 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.
Finally, a NACA counselor submits the new mortgage to the lender; the agency processes and underwrites mortgages and serves as the mortgage broker. The borrower secures the homeowner's insurance, and then it's time for closing. At closing, NACA members are responsible for escrow costs and pre-paid expenses, such as pre-paid insurance.
After closing, NACA members may take advantage of MAP's free counseling and financial assistance as needed for the life of the loan, including budgeting, forbearance and, when the time comes, home sale.
Members participating in the Home Save Process, NACA's foreclosure-prevention program, first determine an affordable solution based on the member's financial circumstance, with a MAP counselor; NACA itself doesn't restructure a member's loan, but instead submits the request and supporting documentation to the lender and then handles the negotiations.
NACA's Battles Against Predatory Lending
NACA's roots are in advocacy. In 1988, Bruce Marks, concerned that hotel workers didn't have the means to live in the city in which they worked because housing was too expensive, became involved with a hotel workers union in Boston. His mission? He pushed the union to include a housing benefit, a battle that involved changing federal law. From this successful fight, NACA, originally called the Union Neighborhood Assistance Corporation of America, was born.
These days, the nonprofit fights for affordable housing by battling big-name banks with predatory lending practices — lenders who exploit borrowers who can't really afford their loans. Both Marks and his organization have been willing to do whatever is needed to create change, which has included picketing the homes of bankers and the schools of their children, interrupting stockholder meetings and circulating details about a financial executive's (alleged) affair [source: Swidey].NACA's reasoning? That foreclosure brought on by predatory lending is painful and embarrassing for all the members of affected families, and CEOs should understand what that feels like. Because he targets lenders he's identified as greedy loan sharks, Marks is known as a "bank terrorist," and NACA prides itself on being these institutions' worst nightmare.
For example, NACA battled Fleet Bank and its subsidiary, Fleet Finance, for more than four years regarding its ties to predatory lenders. The agency staged demonstrations to turn the national media spotlight on Fleet, and when Marks testified before the U.S. House and Senate Banking Committees in 1993, he brought along more than 400 people who had lost their homes because of Fleet's practices. When the Federal Reserve refused to meet with members of NACA or hold hearings on predatory lending practices, NACA orchestrated stunts such as publicizing then-chairman Alan Greenspan's direct phone number.
In the end, NACA met with victory: Fleet agreed to invest $8.5 million in affordable lending to low- and moderate-income borrowers, to commit $140 million toward NACA's affordable home-ownership program, and to provide appropriate restitution to the borrowers and communities affected. Fleet's lending subsidiary, Fleet Finance, was shuttered [source: NACA].
Another high-profile public battle resulted in the overturning of a class-action settlement involving The Associates, which was, in the late '90s, the largest finance company in the United States. The lawsuit would have provided The Associates with immunity while providing as little as $50 to borrowers who had lost homes. Additionally, after a multi-year campaign — and a 14-hour meeting — The Associates eventually invested $100 million into NACA's mortgage program [source: NACA].
The advocacy agency also once targeted First Union CEO Edward Crutchfield in an effort to get the bank to work with NACA. In the end, First Union settled with NACA, committing $150 million to its loan program, but not before NACA organized a postcard protest: Members sent fliers and reports to Crutchfield's neighbors detailing his bank's unsavory practices [source: NACA].
NACA has also turned its energies to combatting subprime lending. The organization has partnered with big-name banks to support its affordable mortgages and to restructure loans for people at risk of losing their home because of a bad deal. In 2003, Citigroup committed $3 billion to the NACA mission, making NACA the first nonprofit mortgage broker — the middleman between the borrower and the lender [source: NACA]. And in 2014, NACA received $10 billion in funding from Bank of America, enabling the agency to lend under its own terms to about 50,000 homeowners through 2024 [source: Appelbaum]. NACA sees a future in which the agency also brokers other types of lending and financial products, such as car and student loans.
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, in addition to tying up the lending process with paperwork.
In the end, 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 (or save) their home.
Author's Note: How NACA Works
Whether you think the organization is an expert in smart savings or in extortion, you can't argue its popularity. Back in 2011, NACA counseled about 44,000 homeowners, and more than 22,000 mortgages were restructured in those nine months -- and it all was in accordance with HUD requirements.
More Great Links
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- Appelbaum, Binyamin. "A Nonprofit Lender Revives the Hopes of Subprime Borrowers." The New York Times. Feb. 25, 2014. (Feb. 15,2 015) http://www.nytimes.com/2014/02/26/business/a-nonprofit-lender-revives-the-hopes-of-subprime-borrowers.html
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- Neighborhood Assistance Corporation of America (NACA). "NACA Qualification Criteria." Ver. 13.2. (Feb. 15, 2015) https://www.naca.com/nacaweb/purchase/nacaQualificationGuideLines.pdf
- Rothacker, Rick. "Foreclosure-Prevention Roadshow Still Drawing Crowds Indicating Not All Is Well In The Housing Market." Reuters. Dec. 7, 2012. (Feb. 15, 2015) http://www.huffingtonpost.com/2012/12/07/foreclosure-prevention-roadshow_n_2262973.html
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