CFED A Lifetime Of Assets Building Families, Communities and Economies Phoenix September, 20, 2006 We are rebuilding

Presenter: Marty Kooistra Vice President of Collaborations and Strategic Alliances

Key Focus Points: How effective is homeownership at creating wealth among those with little resources? How does the Habitat for Humanity (HFH) model of homeownership work? What are some of the more critical program requirements to support the HFH model?

Homeownership the American Dream

Homeownership, The American Dream Indeed, for many households, the largest and most important asset is the home they own. Homeownership is one of the cornerstones of wealth building and is generally associated with a range of socially desirable outcomes, including good schools, less crime, and neighborhood stability. For these and other reasons, increasing the rate of home ownership has been a long-standing national priority. Strong private and public support for home ownership has helped to push the national homeownership rate to 67.8 percent in the third quarter of *Remarks by Vice Chairman Roger W. Ferguson, Jr.* *Before the African American Chamber of Commerce of Western Pennsylvania, Pittsburgh, Pennsylvania November 12, 2002*

Benefits of Homeownership The benefits of homeownership are truly remarkable. Homeownership provides a broad range of benefits to individual homeowners and to society as a whole. Many children of homeowners did better in school and are more successful in life. Homeownership acts as a powerful economic stimulus, benefiting the individual homeowner and the national economy. Homeownership benefits neighborhoods, providing economic and social capital. Homeowners are more likely to participate in local organizations. Homeownership in distressed communities raises neighborhood property value by a significant amount, and homeowners state that they are more satisfied with their living situation than renters. Just think of the benefits to children. Children of homeowners score better on academic tests, graduate at higher rates, have fewer behavioral problems, and enjoy a better social environment. Children of homeowners are more likely to become homeowners, adding to the paradigm of wealth creation. Statements Made By Congresswoman Maxine Waters Celebrating National Homeownership Week June 27, 2006

Homeownership and Wealth Creation High levels of homeownership in general bring significant economic benefits to families and to society. However, efforts to promote homeownership among low-income families, who often do not share in all the economic benefits, should include provisions to preserve homeownership, say the authors of a study released today by the Research Institute for Housing America (RIHA). Examining existing research on homeownership, George McCarthy, Shannon Van Zandt, and William Rohe of the Center for Urban and Regional Studies at the University of North Carolina at Chapel Hill conclude that while "there is considerable, although not irrefutable, evidence that homeownership is associated with housing and financial security … research on the impacts of homeownership also suggests that these benefits may not accrue to all homeowners. Excerpts From News Release Announcing Results Of Study

History of Habitat for Humanity Historical Roots At Koinonia Farm Near Americus Georgia Formally Began in 1976 With Millard And Linda Fuller As Founders Gained Recognition When Former President Carter Started Volunteering Grew Rapidly In The 90s, Completed First 100,000 Homes in 25 Years. 30 Years Old And Completed Over 200,000 Homes Building In Over 80 Countries Around The World

How It Works Through volunteer labor and donations of money and materials, Habitat builds and rehabilitates simple, decent houses with the help of the homeowner (partner) families. Habitat houses are sold to partner families at no profit, financed with affordable loans. The homeowners' monthly mortgage payments are used to build still more Habitat houses. Habitat is not a giveaway program. In addition to a down payment and the monthly mortgage payments, homeowners invest hundreds of hours of their own labor -- sweat equity -- into building their Habitat house and the houses of others.

Trajectory of Change for the Organization TODAY Donor International The Model Developer Teacher Only Parent Isolationist Hub of community wheel TOMORROW Asset-builder Global Contextualizer Housing expert Teacher and Learner Partner Catalyst Crucial spoke in community wheel Strategic Plan

One Perspective…HFH as the common interest

…affordable housing as the common interest

Exponential Increase Possible?

Production of housing units has reached a plateau For the past five years about 4400 houses on average have been constructed in the U.S. while growth outside the U.S. persists Availability of land, NIMBY, rising costs and identification of buyer-ready families are among persistent challenges Challenges in sustaining production Limitations in the model make it difficult to maintain patterns of growth Performance In The U.S.

U.S. Production History

Complexity of service delivery

What about preservation of important value add?

………and who and what we are?

Critical FactorThe Role Of The Community Habitat for Humanity happens at the community level. This being the case, the program can only succeed if the development of truly buyer-ready families is a responsibility of the community and its civil society.

Housing Need Spectrum

Homeownership Continuum of Service

Window of Service

Model of Typical Sale Appreciation In Value Over Time $65, Sale Price $95, Appraised Value 1 st Mortgage Principal Only 2nd Mortgage Forgivable Years of Amortization

Buyer Qualifications …are based on three very important selection criteria which are: Need Ability to Pay Willingness to Partner

Need Criterion: It must be true that: the family does not qualify for homeownership through conventional financing or any other special-purpose loan program; the familys annual income is not more than 80% of the median income for their geographical area; (*see A note about annual and median income below); AND at least one of the following need-related factors must also be true: the family is extremely cost-burdened (defined as spending 50% or more of their income for housing) and does not have the downpayment for a home; the family is not currently cost-burdened as defined above only because they are receiving temporary, non- sustainable financial support; their current housing has defective physical conditions; their current housing is overcrowded; the family is living in temporary housing about which one or more of the following statements are true: »the family is in a tentative living arrangement with relatives or friends; »the family is living in a transitional housing facility (e.g., a FEMA trailer) or motel; »the family is living in housing that is being condemned, sold or moved; »the family is losing its lease, certificate or voucher due to uncontrollable circumstances; »the family is living in a car, tent or similar quasi-homeless situation.

Ability to Pay Criterion: It must be true that: the family has a reliable source of income; the familys annual income is not less than 30% of the annual median income for their geographical area the familys income is adequate to make the monthly principle, tax and insurance payments while also meeting their other debt and living expenses. For Habitat, this is defined as debt that does not exceed 40% of their income; the family has a credit history free of liens and judgments that would prohibit their ability to sign a mortgage and they have a demonstrated history of making payments on time.

Willingness to Partner Criterion: It must be true that: the family is committed to being a full partner in the construction of their home; the family understands Habitats sweat-equity requirement and is willing to fulfill it; the family agrees to participate in counseling sessions focused on home maintenance and financial management.

Ability to Pay Calculator--Example

Typical Underwriting ProcessNot Scalable Interested Parties Contact Their Local Affiliate And Request An Application A Committee Called Family Selection Largely Made Up Of Volunteers Reviews Applications And Makes Recommendations For Approval or Denial Local Board Of Directors Approves Application And Applicant Signs A Letter Of Acceptance And Begins Sweat Equity

Application and pre- purchase support Outreach & family identification Selection Post- selection support Post- purchase support Description of sub-process Identification and screening of potential Habitat families Assist with application, financial counseling, Habitat commitment plan Select families based on detailed criteria Ensure family meets commitments Crisis counseling, credit remediation and pay plan workouts Lead role Case workers Habitat Mentorship partners Process outputs Pre-screened families ready to begin application process and/or steps to become Habitat ready Applications and nominations from high potential families for review Screened, interviewed, selected families Habitat home- owner Self-sufficient family Process becomes scaleable while Habitat retains control over family selection Habitat for Humanity Case work consortium Other service provider The new family process uses allies to significantly increase affiliate capacity

*Assumes 2% conversion rate **Assumes 33% conversion rate based on highly screened and qualified applications Traditional model* Number of families 50,000 Total Families touched 0 Pre- Screened families 49,000 Denied applica- tions 1,000 Approved families 50,000 Total Families touched Pre- screened families 2,000 Denied Applica- tions 1,000 Approved families Proposed model** Number of families Affiliate screening responsibility In traditional model, affiliates would need to touch 50,000 families - an overwhelming prospect The proposed model uses our partners to pre-screen applicants so that the total number of applications is reduced and the likelihood of a family being approved increases from 1-5% today to 30+% Affiliates retain control over the most important step – the final selection of families from a qualified pool of applicants The pilot partnership model requires far fewer affiliate application reviews

Typical Steps In HFH Homeownership Process Homeowner education sessions completed. Site is assigned & home construction begins. Sweat equity requirements are fulfilled. Construction completed. Move-in and legal purchasing begins. Homeowner makes monthly payments. Homeowner properly maintains home and yard. Payments are recycled over and over. Homeowner gains home equity over time.

Key Elements For Success Buyer Preparedness Programs Debt Remediation Individual Development Accounts Deep Involvement In The Building Process

Key Opportunities For Research Does the economic component of the Habitat for Humanity model (no interest and heavy subsidy) move children of homeowners permanently out of poverty? Do subsequent generations continue to need Habitat or other subsidies for housing? What is the long-term economic tradeoff between a no-interest loan and the loss of the usual interest-related income tax deduction? What pre- and post-purchase counseling programs have a positive impact on successful homeownership in the Habitat for Humanity context? Which elements of these programs are most influential in the success? Do the spending and savings patterns of homeowners change after they are in their Habitat for Humanity homes? If so, how and why? Does the "place" where Habitat for Humanity homes are sited impact positively or negatively the overall equity a family accrues in their homebuying experience?

Q and A