With the help of a Community Development Financial Institutions (CDFI) Fund award, Bank of Franklin has successfully created and implemented a new loan program that is getting Low-to-Moderate Income (LMI) borrowers into homes. CDFI awards are given yearly through the United States Department of the Treasury Community Development Financial Institutions Fund, which was created to promote economic revitalization and community development through investment in banks and other qualified lenders that combine CDFI awards with private funds to have dramatic economic impact in LMI areas. Mississippi has more CDFI banks than any other state, and this is an example of the type of investments that the many CDFI banks around Mississippi make.
How it Began
Brad Jones, President and CEO, and his team at the Bank of Franklin wanted to find a way to help provide more mortgage loans to LMI borrowers. In addition to finding a way to approve more loans, they also needed to find a way to get more applications into the bank. They created a new program to help kickstart the mortgage process for these borrowers.
“We had the pieces already in progress, we just had to finalize our idea. There was a FA (Financial Assistance) CDFI award that we hadn’t applied for before, but we needed a new product to qualify for the award. The LMI mortgage product was a perfect fit,” he said.
The U.S. Department of the Treasury's Community Development Financial Institutions Fund (CDFI Fund) awards Community Development Financial Institutions (CDFIs) grants annually. The awards enable CDFI banks to increase lending and investment activity in low-income and economically distressed communities across the nation, and Mississippi benefits from the largest concentration of CDFI-certified banks of any state in the country.
Jones and his team applied for the CDFI FA award with the new mortgage loan product in mind. ““We called it ‘HOPE,’ short for Home Owners’ Pathway to Equity, because LMI borrowers often don’t have hope that they can get a mortgage loan. The product has underwriting standards designed to lessen credit risks, but those standards are flexible enough to allow borrowers who couldn’t otherwise qualify for traditional mortgage loans to qualify for our HOPE loan,” said Jones. “When we decided on the impact that we wanted to have, we compared traditional secondary market mortgage loan standards with the needs that we wanted to meet, and ultimately decided to build this product to fit those needs.”
The bank was awarded an FA award of $637,500 for the new mortgage loan product.
How it Works
The bank team looked at how this community of borrowers might be getting left out, and tried to approach the mortgage process in a new way. The bank established a HOPE loan committee that meets weekly. “Every application automatically goes in front of the HOPE loan committee. While we do have underwriting standards, our goal is to look at each application and situation holistically and to really dig deep to find out if the loan is possible,” said Jones.
The HOPE loan program goes further than standard down payment assistance programs that are hard to qualify for and offers a more solid path to success. One of the key differences has been the required step of homeownership counseling.
The Bank of Franklin sends potential borrowers to a program with D & E, A Housing & Economic Empowerment Center, Inc., located in McComb, Mississippi. They offer various workshops on homeownership, and the borrowers must provide proof of workshop completion to continue with the HOPE process.
“This step has been a very helpful tool in making our borrowers successful,” said Jones.
How it’s Going
Jimmy Allen is a mortgage loan lender with Bank of Franklin. The very first loan she had approved with the HOPE program was a borrower that she had been working with for over two years. “We had been working with this borrower for a while, and she was always right on the cusp of getting approved. The HOPE loan program was what allowed her to finally get into her first home. It was rewarding for both of us to cross that finish line,” said Allen. To reach potential borrowers with whom the bank does not have an existing relationship, they use targeted digital advertising, including geocoding in places where renters are prevalent. The bank also uses a combination of tv, radio and print advertising.
So far, the results speak for themselves. The bank has already approved $1.650 million in HOPE mortgage applications. “We were initially aiming for $3 million in 3 years with $750k to start in 2021. We are significantly ahead of our projected goals,” said Jones. “While these loans do carry a higher than normal risk profile, done responsibly, the FA grant should more than cover any losses on these loans.”
Most of the loans in their footprint have been in Pike County, and 69% have gone to minority borrowers.
“When we do have to turn a borrower down, the goal is to not say no, but merely not now. We attempt to work individually with each applicant to turn homeownership into a possibility over time.,” added Jones.
The HOPE program has been so successful in getting LMI borrowers into homes, many of whom are first-time homebuyers, that the CDBA has invited Jones to speak on a panel in December.
“We’re a CDFI bank. That means we’re mission-driven to help address generational poverty issues and that’s the real goal of this program,” Jones said.