I attended a meeting last week sponsored by the National Association of Hispanic Real Estate professionals (NAHREP). This group has brought many high quality educational events to the greater Seattle area and I’m so impressed with NAHREP that I decided to join. I have been following the success and growth of NACA, the Neighborhood Assistance Corporation of America, for several years. They are a non-profit association born out of disgust with predatory lending and the use of subprime loans by banks, lenders, and brokers during the housing bubble. It’s founder, Bruce Marks, was featured on 60 Minutes, and many other national news programs. NACA has two main goals:
1) To extend the reach of affordable lending and homeownership to every working person; and,
2) To combat discrimination and exploitation of working people by lenders and financial institutions.
NACA has offices in many states and is in the process of coming to the greater Seattle/Puget Sound. They have no physical office here but they are on the way. NACA, a non-profit organization, also holds either a lender or mortgage broker license in the states in which they do business.
Best Mortgage in America
NACA is bringing their “Best Mortgage in America” to WA State. They hold a WA State Mortgage Broker license MB-4082 and currently have one licensed loan originator assigned to WA State with the intent to hire more, though their compensation plan is best served by loan originators who prefer salaries in line with working for a non-profit….because one of the many duties of NACA employees is to spend many hours thoroughly counseling their clients before the client becomes a homeowner, and requires long face-time office hours of 830-6PM. So what is the “Best Mortgage in America?” Let’s find out.
- NACA acts as the mortgage broker; loans are funded by Bank of America or Citi
- Purchase money loan only (there is no refinance program)
- Less than perfect credit—Okay
- No credit score—Okay
- Affordability and Character-based lending
- Below market interest rates
- Interest rate buy downs at purchase are encouraged
- 30 or 15 year term
- 1-4 single family home, condo, coop
- Loan limits: Home or Condo for King, Pierce Kitsap. Snohomish county loan limit not yet available…SFR: $341,516, Duplex: $416,254, Triplex: $488,153, Fourplex: $583,514
- Rehab/Renovation Lending: 110% of after-repairs-completed value
- Owner occupied only
- Owner occupied for as long as the NACA loan is in existence
- No down payment
- No closing costs
NOTE: Actually there ARE closing costs. The representative from NACA said, and I quote, “There is a fee, and there are non recurring costs but these are paid for by the lender.”
Before NACA goes wild with their “no closing costs” marketing program in WA State, I recommend their compliance department read our WA State Mortgage Broker Practices Act:
WA 208-660-440
(3) Is it a violation to advertise that third-party services are “free” when the licensee has paid for the services? Yes. Advertising using the term “free,” or any other similar term or phrase that implies there is no cost to the applicant is deceptive because you can recover the cost of the purportedly “free” item through the negotiation process. This is a violation of RCW 19.146.0201 (2), (7), and (11). See the Federal Trade Commission’s Guide Concerning Use of the Word “Free” and Similar Representations (16 C.F.R. §251.1(g) (2003))
Misc
- NACA fully underwrites the credit portion of the loan before the borrower is released to purchase a home from the Realtor and the pre-approval letter will contain the monthly payment including taxes, insurance, and homeowner’s assoc dues, if any, instead of just a sales price.
- One purchase every 5 years to discourage flipping.
- RE Condos: Requires 51 percent owner occupied in the complex w less than 10 percent of the units delinquent. Complex does not have to be FHA approved.
- Not just for first time homebuyers: Home buyer cannot own another piece of real property when receiving the NACA loan. Note: the Homebuyer CAN own land or timeshare because we can’t “owner occupy” our land or timeshare.
- If purchasing a short sale, NACA buyers do not pay any of the seller’s fees including any third party short sale negotiator fee
- No income limits
- No time limit required to stay in the home
- ITIN (individual taxpayer ID number) okay
- Also avail: mixed use commercial-residential
- Buyer pays for home inspection
- Cannot use a NACA loan to purchase property at a foreclosure auction.
- NACA selects the title company
- Homebuyer’s loan closing will take place in the local NACA office.
Real Estate Brokers
Real estate brokers go thru a NACA training program. Since NACA does a lot of homebuyer outreach education, if a buyer is referred from NACA to the real estate broker then the real estate broker will pay a referral fee to NACA of 33%. They do not yet have a real estate license in WA State but will soon and mentioned “buyer broker representation” as part of their goal for WA State. Their real estate broker program is not up and running yet but the NACA rep says plans are in place to bring the program into the Seattle/Tacoma area soon.
REOs: 14-Day First Look w/BOA
NACA-approved home buyers have an exclusive option to purchase REOs from Bank of America before they are listed in the MLS. Not all REOs, and not all of BOA’s REOs…just some. This “first look” list goes from Bank of America to NACA. NACA sends the REO list to Realtors affiliated with NACA. BOA has three BPOs completed to determine the price. Selling broker makes sure NACA-approved buyer can qualify. If yes, then the NACA-approved buyer can view the home before it is listed on the MLS. If a NACA-approved buyer submits a full list price offer within the 14 day “first look” window, then the offer must be accepted by BOA, even if other offers are higher. IN ADDITION: If NACA-approved buyer makes a full price offer within the first 14 days….are you sitting down? Get this à BOA will give 10 points to the buyer to buy down the interest rate. Typically 1 point = .25 of a rate buydown so this means the NACA-approved buyer could end up with a 2.5 percentage point interest rate buydown. The opportunistic side of my brain started thinking about how I could buy a home this way but the skeptical side of my cold black heart tells me that maybe the First Look homes are going to be mostly dog house former meth labs in Granite Falls.
NACA Homebuyers Are Heavily Counseled
All bets are against the NACA borrower. Zero down, less-than-perfect credit sounds like your typical FHA borrower using gift funds for the down payment. And currently FHA’s default rate is 15%. Zero-down-less-than-perfect-credit also sounds like a subprime borrower. At the peak of the meltdown/housing reset, subprime loans defaults went as high as 40%.
So why should NACA’s default rate be any less? Here’s why: The NACA borrower goes through heavy pre-purchase counseling and has access to after-purchase default support services such as help with forbearance/repayment plans and loan modification support. In addition, if you have a NACA loan and you are in financial distress, you can receive 3 monthly payments paid by NACA to bring your loan out of default.
So what’s the catch?
NACA homebuyers must join NACA at a cost of $20 per month while they are attending pre-homebuyer counseling classes and then the cost is $50 per month for 5 years ($3,000.) In addition, NACA homeowners must agree to participate in 5 NACA activities each calendar year. Activities include community volunteer work, hosting a NACA meeting in your neighborhood, organizing a homebuyer workshop, participating in advocacy campaigns against predatory lenders, and so forth.
Reasons For
Clearly this is a great deal for first time homebuyers who want a mortgage with a very low interest rate and don’t mind going through the extensive homebuyer counseling, don’t mind paying $50/month for 5 years, and don’t mind carving out time to participate in 5 volunteer activities each year. Some consumers were burned by predatory lenders during the real estate bubble and burned again with the 2008 recession. Maybe they are now renters…it’s been 2 years since their financial distress event and they are considering buying once again. This sounds like a good program for people with a previous foreclosure of bankruptcy due to the extensive pre-purchase counseling they will get at NACA.
Reasons Against
Clearly this is not a good loan program for people who don’t want to commit to owner occupancy for the life of the loan. Or become active NACA members, are financially uber smart and would consider the homebuyer counseling classes beneath them. Budget? Savings? They’ve been doing this successfully for years and don’t need somebody to hold their hand. On the other side of the financial spectrum, not all buyers are going to fit into the NACA box including those with higher debt-to-income ratios. Yeah, we are free-throwing those high DTI loans into the FHA program for as long as that will last. NACA DTI is a more manageable 31/40.
Sustainable homeownership should be our goal in mortgage lending. This is NACA’s main priority and I welcome NACA to Washington State.
By the way, NACA’s loan default rate is less than 1 percent.