Community Developments Investments (February 2018)
Building the American Dream, One Homeowner at a Time
Susan L. Beatty, Vice President and External Communications Manager, U.S. Bank
Keona Tate enjoys her new kitchen in the home she rehabilitated as an American Dream homeowner in Chicago. (U.S. Bank)
For many people, the American dream starts with a beautiful house they can call their own. Homeownership has long been at the core of most people's financial goals. It represents stability, community, and confidence. Studies have shown that children and families are better positioned to thrive and succeed in a home that is safe and permanent.
With this in mind, U.S. Bank started the American Dream home loan program in the 1990s to provide a solid and ethically priced product to help consumers with limited resources become homeowners. The sidebar to this article gives further details on this product.
The American Dream program is a good option for low- to moderate-income (LMI) borrowers and in LMI neighborhoods, because it allows for a low down payment and offers, in addition, rehabilitation loan options. In 2016, about 1,200 households used this program to realize their dream of homeownership, resulting in over $145 million in mortgages, helping to revitalize communities across the U.S. Bank footprint.
LMI individuals and households buying in LMI neighborhoods often have a hard time saving enough money for the traditional mortgage down payment amount (5 to 20 percent, or more). In addition, these buyers often find that homes in their price range need repairs before they can be occupied. Over the past 10 years, especially during the Great Recession, many lenders pulled out of this niche market and stopped offering low-down-payment programs. U.S. Bank did not pull back and is proud of continuing to offer this product, as the need in many communities during this time was greater than ever.
"Helping consumers achieve the goal of homeownership is one of the most rewarding things we do as a bank," said Melissa Borino, U.S. Bank's Senior Vice President and Managing Director, Community Development and Community Reinvestment Act. "It is our goal to earn our customers' trust by helping them reach their financial objectives, and homeownership is often at the top of the list. The American Dream program has been the beginning for so many individuals and families across our footprint. When people first walk into their new home, there is a feeling of great achievement."
The program includes home buyer education in an effort to increase financial capacity and options for consumers to make good choices for their future. At U.S. Bank, we hope the program serves as a path to home buying, and most importantly as a means to sustainable homeownership.
"At the end of the day, we want our customers to not only achieve homeownership but feel confident in their ability to improve and maintain the property and repay the loan," said Lisa Ekstrom, Community Programs Manager for U.S. Bank.
Home Buyer Counseling
Beyond the American Dream home loan program and other lending programs, U.S. Bank is committed to supporting buyers through the home purchase process. We partner with several housing counseling agencies to provide first-time home buyer training and participate in numerous down payment assistance programs. In 2016, nearly 1,500 U.S. Bank mortgage customers benefitted from down payment assistance programs.
U.S. Bank requires that all customers seeking an American Dream rehabilitation home loan receive home buyer counseling. In some cases, customers may need to repair their credit or save additional funds to purchase a home, which can take several months. Once the home buyer becomes pre-approved and starts looking for a home, it can take additional time to find the right home. When a home is selected, the bank sends out a rehabilitation advisor to determine the amount of work needed to make the home move-in ready. The potential home buyer is then required to find at least two bids from contractors to complete the needed repairs. The bank also has an appraiser estimate the after-rehabilitation value to ensure that the market value will be there once the repairs are done.
"First-time home buyer education is critical for consumers," said Lenny McNeill, Senior Vice President of National Strategic Markets for U.S. Bank. "We recommend this to all of our potential buyers. Having a basic understanding of how taxes, appraisals, loan financing, and even the closing process work is paramount for consumers to understand the home buying process. We take great responsibility in making sure our customers have all the information they need when they complete the program."
There are times when the appraisal done after the rehabilitation doesn't support the amount of property repairs. In this situation, additional negotiations may need to take place between the home buyer and seller, or additional grants or gap financing located. This process can take six months or more. Seeing the look on a home buyer's face at closing when the documents are signed and ownership is official, however, is recognition that all the hard work was worth it," Borino said. In addition, rehabilitating a home in an underserved or LMI community often spurs others to fix up their homes, changing the community over time and increasing home values.
The American Dream loan is a product that needs to be highlighted, by individuals familiar with the products to potential home buyers interested in LMI communities. That is why U.S. Bank is focused on hiring a diverse team of lending officers to meet market demands with staff who reflect the market's diverse population. We are working to increase and improve our recruiting efforts to help create more homeownership opportunities in our communities.
Keona Tate's Story
Keona Tate recently closed on a fully rehabilitated home in the Woodlawn neighborhood on the south side of Chicago, using the American Dream product. Although she secured the contract at a relatively low sale price, the home required an extensive amount of rehabilitation before she could move in and enjoy the space.
"Keona came to us eager to become a homeowner," said Chester Bell, CRA Mortgage Sales Manager for U.S. Bank in Chicago. "We were able to get her into the American Dream program and ultimately into a fully renovated home. That is the ultimate win-win."
The rehabilitation advisor who worked with Tate and the bank concluded that improvements for the home would cost $40,000. An appraisal was completed based on the after-rehabilitation value to ensure the acquisition cost and improvements were within reason. The entire process, including construction, took roughly six months. With the help of a local down payment assistance program, coupled with the American Dream product, Tate was able to move into a like-new home with over 30 percent equity. We believe that the new value will act as a tide that lifts other home values in the area.
"The beauty of homeownership in some communities is that it has a ripple effect for the entire area," said Eva Brown, Community Development Regional Manager for U.S. Bank. "Success and stability encourage additional success and stability. A strong and vibrant community is the end goal, and homeownership is a large part of reaching that goal."
For additional information, please contact Melissa Borino at firstname.lastname@example.org.
The American Dream program is a fixed-rate home loan financing program that allows rehabilitation funds to be included in its loans. U.S. Bank has made nearly 3,700 of these loans over time, totaling nearly $400 million.
Borrowers' family income must be less than 80 percent of area median income. There are no income limits if the purchased property is located in an LMI census tract. The borrower must provide a minimum of $1,000 or 2 percent of the purchase price, whichever is larger, from the borrower's own funds. The bank's American Dream program also allows for some flexibility in credit guidelines. There are no minimum credit scores, and a borrower cannot be rejected because of a lack of established credit history. U.S. Bank has a no-interest deferred assistance loan program that can be used in conjunction with the American Dream product. This no-interest loan program assists with a down payment, closing costs, and rehabilitation gap funding. Maximum assistance under this program is $5,000.
This publication is part of:
Collection: Community Developments Investments
Letty Ann Shapiro
On the cover
Before-and-after image of a home in New Orleans rehabilitated by Redmellon Restoration & Development, a mission-driven real estate development company.
Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.