® Fannie Mae Foundation 2000. All Rights Reserved
LITTLE HAITI HOUSING ASSOCIATION
Miami and the Little Haiti Neighborhood
Miami is a city dominated by people who are either foreign-born or first-generation Americans. A mass migration of Cuban exiles to the city began in 1959; since the 1970s, growing numbers of immigrants and refugees from other Caribbean and Latin Ameri can nations have come to Miami. As of 1995, Miami's population was estimated at 366,000. Of that total, 67 percent was Hispanic, 21 percent was non-Hispanic black, 12 percent was non-Hispanic white, and 1 percent consisted of other groups. The city had a very large foreign-born population (59 percent); less than a quarter of its residents (24.1 percent) had been born in Florida.
An estimated 150,000 people of Haitian ancestry live in Florida (Stepick 1998), with most residing in the Miami¡Dade County area. The most concentrated area of Haitian settlement in Florida is the Little Haiti section of Miami. According to the U.S. Bureau of the Census, the population of Little Haiti in 1990 was 39,243. Unofficial estimates, however, placed the number as high as 60,000 to 70,000. Of the total residential popu lation in 1990, 82 percent was black, 13 percent was Hispanic, and 5 percent was white. An estimated 85 to 90 percent of the neighborhood's black population is Haitian (LHHA 1998a).
Like similar ethnic enclaves, such as the Chinatowns of New York and San Francisco or Little Havana in Miami, Little Haiti encompasses both a residential area and a busi ness community where immigrants can speak their native language and purchase famil iar goods and services not commonly available elsewhere in the United States. While those positive features make Little Haiti a welcoming home for many immigrants, eco nomic conditions in the neighborhood are difficult. The median income in Little Haiti is just $14,142, one-third that of Miami¡Dade County as a whole (LHHA 1998a). Little Haiti's poverty rate of 45.6 percent is significantly higher than Miami's citywide aver age of 31.2 percent and is roughly four times the rate for Florida as a whole. According to a 1990 statistical profile, 48 percent of Little Haiti's labor force is unemployed (South Florida Housing and Community Development Corporation 1998).
Housing Conditions in Little Haiti
Formerly known as Edison Little River, the three-square-mile area that is today known as Little Haiti was largely developed after World War II and is one of the oldest sections of the city. Housing in the area reflects the middle-class orientation of its original resi dents--predominantly single-family detached homes of about 1,000 to 1,200 square feet on 5,000-square-foot lots. The area contains scattered small multifamily buildings and one large multifamily complex, called Sable Palm, that in the 1950s was purport edly "the place to be" (Harder 1998).
Today, housing conditions in Little Haiti are deplorable (Stepick 1981, 1982a, 1982b, 1998). It is not uncommon for a family of eight to live in a two-bedroom apartment. Among the housing units in Little Haiti, only 26 percent is owner-occupied, compared with a county average of 48 percent (LHHA 1998a). Single-family homes constitute 75 percent of the housing stock in Little Haiti, but many of those homes have been illegal ly subdivided into as many as four apartments. The illegally converted units rent for roughly $400 to $500 monthly--a high rent for a Haitian family with a $14,000 annual income. Code violations abound, and code enforcement is nearly nonexistent.
Given those conditions, many Haitian immigrants are highly motivated to become homeowners. Contributing further to their desire for homeownership is the Haitian cultural experience. Most Haitian immigrants are from rural areas where homeowner ship is common and renting is not. In Haiti, many people build their own houses on family-owned habitations--one- or two-acre parcels of land that can accommodate sev eral homes, all occupied by members of the same extended family (St. Louis and Fran cois 1998). New houses are constructed slowly, with each increment added on when the money to pay for it has been earned. Thus, when a home is finally completed, it is paid for in full. There are no mortgages, and any money that is borrowed for construction comes from family or friends. Haitian immigrants to the United States who find them selves surrendering a very high percentage of their income to rent are, therefore, eager to purchase homes. However, most have no acquaintance with the American process of buying a home and have little or no experience with banks or institutionalized forms of credit (Harder 1998).
Little Haiti Housing Association
LHHA was formed as a nonprofit organization in 1987 to "provide decent, affordable housing as a base for an improved quality of life for residents of Little Haiti" (LHHA 1998b). LHHA is guided by the notion that housing efforts form a critical part of the larger holistic strategy of stabilizing the neighborhood and helping people move out of poverty. The organization purchases and rehabilitates existing houses; it also constructs new affordable housing in Little Haiti and surrounding neighborhoods (Mennonite Central Committee 1997). Those homes are then sold mainly to very low income fami lies (those earning less than 50 percent of the areawide median), who receive compre hensive support from prepurchase to postpurchase. LHHA assists renters through means such as informing them of their rights and directly providing sound, affordable rental units. A 56-unit apartment building (Harvard House) is currently being reno vated, and there are plans to purchase and rehabilitate small (two- to four-unit) multi family rental properties scattered throughout the Little Haiti area. Such shelter activi ties reflect an "integrated housing product concept" that is deemed important by LHHA (Harder 1999) and that offers a diversity of shelter opportunities to the Haitian community.
Although housing has been and remains LHHA's primary focus, the organization also intervenes in three additional areas deemed critical to the successful stabilization of the neighborhood: (1) social programs, with a particular focus on youth; (2) economic development, including job creation, lending to businesses, and entrepreneurship train ing; and (3) financial integration, such as creating a credit union and increasing the presence of bank branches in the neighborhood.
LHHA currently has an annual budget of approximately $574,000. In 1998, this money came from four main sources: (1) program contracts from several sources, including the City of Miami's Departments of Housing and Social Services, the State of Florida, Dade County HOME Program, Dade Partnership, and Local Initiatives Support Corporation ($292,775); (2) corporate donations from Citibank, Northern Trust Bank, Washington Mutual, Cal Fed Bank, Bank Atlantic, NationsBank, Commercebank, Pacific National Bank, Chase Manhattan Bank, SunTrust Bank, City National Bank, and Gibraltar Bank ($55,500); (3) foundation grants from the Roblee Foundation, the Peacock Foundation, the Fannie Mae Foundation, the Bachelor Foundation, the Dade Community Foundation, and the National Presbyterian Church ($96,000); and (4) project-related income from development fees on construction projects ($129,500).
LHHA has a staff of nine as follows: executive director, housing director, finance direc tor, community outreach director, contracts manager, resource development specialist, loan processor, family outreach specialist, and community organizer. Several new posi tions are being created, including those of economic development director, client intake specialist, bookkeeper, file clerk/receptionist, and executive assistant.
In the following discussion of LHHA's activities, we focus on its shelter interventions, mainly in the homeownership arena. Between 1987 and 1990, LHHA rehabilitated and sold only one single-family detached house. Since 1991, however, the number of houses sold has risen steadily. In 1992, 5 houses were sold; in 1994, the number reached 8; and since 1996, LHHA has sold 12 to 15 houses annually. All told, 57 single-family detached homes have been sold. In addition, LHHA is currently constructing a new 33-unit town house complex (Forest Green), where units will be offered for sale.
Most of the homes that LHHA has purchased and renovated have been FHA foreclo sures, though some have been bank foreclosures or simply reasonably priced properties. Some properties had been abandoned and were being used for drug dealing and trash dumping. Once a property is acquired, LHHA undertakes extensive renovations to bring the unit up to code (and beyond) to ensure that the new homeowners will not accrue any major home repair expenses for their first several years of occupancy. In each unit, LHHA replaces the plumbing and electrical systems; applies new paints; and installs new flooring, roofing, windows, and kitchen cabinets (Harder 1998). LHHA underscores the importance of such extensive up-front rehabilitation to reduce the finan cial pressures on the very low income home buyers. Furthermore, the rehabilitation fosters local economic development, because 80 percent of the contractors and tradespeople employed in LHHA's construction projects are both neighborhood residents and minorities (Fannie Mae Foundation 1997).
Over the past 10 years, LHHA has gained respect in the Little Haiti community by ful filling its promises to clients. As a result, the organization obtains a substantial num ber of clients through word of mouth. Other clients come through referrals from county agencies and local nonprofit organizations, or they learn about LHHA at housing fairs. LHHA has experimented with several communications media in its efforts to educate the Haitian community about its services. While newspaper advertising, billboards, fly ers, and signs in front of houses have provoked very little response, purchasing time slots on Haitian radio has been highly successful (Harder 1998).
During a recent seven-month period, LHHA's housing director hosted a weekly radio program that covered various housing issues. Among the topics discussed were the benefits of purchasing a home, the types of housing available in Little Haiti, and the house-shopping process. Listeners were able to call in with questions. Although the show served primarily as an educational tool, it made the community aware of the ser vices provided by LHHA and resulted in a high volume of calls to the organization. LHHA is no longer on the radio, because of a lack of funding; however, LHHA plans to resume the program in the future (St. Louis and Francois 1998).
Over the past six years, LHHA has developed a careful qualification process that helps very low income families become successful homeowners. The process is deliberately slow, allowing time for LHHA staff members to build a relationship with the family and to ensure that the family has reasonable expectations. Clients are made aware that they will not be buying a house immediately and that preparation for homeownership is an incremental process that requires a significant commitment of time and effort, as well as money (Harder 1998; St. Louis and Francois 1998).
Financial Assessment and Financial Counseling
The qualification process begins when an individual first contacts LHHA. A staff mem ber provides a brief description of the organization's services and requests basic infor mation about family size, employment, income, savings, and residency status to deter mine whether the person is eligible to meet with the family service representative/loan processor. Currently, a family must have an annual income of at least $12,500 to buy a house through LHHA.
If the minimum requirements are satisfied, an appointment is made with the loan processor, who will guide the family through the often lengthy process of preparing to qualify for a mortgage. If more than one prospective borrower is in the household, each is asked to attend the interview. The loan processor explains LHHA's philosophy and services in detail and requests more specific information about the family's income, assets, and liabilities. The family is asked to bring several forms of documentation to the next appointment, including income tax returns and W-2 forms; current payroll check stubs; the prospective borrower's social security card, driver's license, resident alien card, and birth certificate; bank statements; names and addresses of landlords for the past seven years; names, addresses, and account numbers for all loans; credit reference letters from utility companies; and proof of disability, retirement, or other forms of income. LHHA also secures permission to order a full credit report.
The extensive examination and documentation of a family's financial and legal status is a critical part of LHHA's effort to ensure that the family can obtain a mortgage. Says LHHA's Executive Director David Harder, "Ultimately, what we're trying to do...is to take these families and shape them to make them look like the bank wants them to look in order to give them a mortgage. And that's really what the bottom line is" (Hard er 1998). Thus, LHHA must pinpoint any blemishes on a family's credit history, such as accounts sent to collections, judgments in court, or unpaid student loans, and must make sure those blemishes are cleared up before the family approaches a bank.
In contrast to many other low-income groups, Haitians very rarely have significant credit card debt or other forms of credit, such as car loans. Nonetheless, approximately 40 percent of the families who come to LHHA do have bad credit. Among the most common causes of credit problems in the Haitian community are medical bills from services that the family thought were covered by health insurance, student loans taken out for vocational or technical schools that turned out to be scam operations, and finan cial documents that were signed with little understanding of their meaning. LHHA counselors have found, for example, that many of their clients have agreed to act as cosigners on the mortgages, leases, or loans of acquaintances without realizing that they were financially liable if the other party failed to meet its obligations. Culturally, Haitians are often inclined to assist an extended circle of family and friends; however, when that assistance involves cosigning on a loan that is ultimately not repaid, the result is blemished credit. Additionally, in many cases, accounts that are listed on the client's credit report as collections were, in fact, paid before the collection process was initiated, but the creditors failed to acknowledge the payment in a timely fashion (St. Louis and Francois 1998). Such failure is attributed to processing errors, as well as to an undercurrent of discrimination and fraud directed against Haitians.1
1 - The scams have extended to the few Haitians who have become homeowners. An LHHA counselor noted the following:
* Haitians are being misled. A family in my church, a husband and wife with seven children, were going to buy a $94,000 FHA house. The broker said it would cost $9,000 to $10,000 in closing costs with three points. These high expenses included many questionable fees and charges. The family was ready to sign. I found out about this and got them a loan from a bank with only $3,000 in closing costs and only one point. That mortgage costs them $200 less per month than the loan they would have gotten from the broker. Problems of this type are happening all the time (St. Louis and Francois 1998).
When credit problems are found, LHHA works with the client to clear them up. LHHA counselors will call creditors and credit reporting agencies to work out payment arrange ments and to correct errors. If necessary (as in cases of fraud), they will refer the client to legal services. Additionally, a counselor will write a letter of explanation to accompa ny the client's credit report when submitting the mortgage application. Staff members have found that "most of the time there are reasonable explanations to those questions as to why [credit problems exist], and the bank will accept those reasons" (Harder 1998).
Lack of credit is more common than bad credit among the families who buy houses through LHHA. Haiti has a cash-based economy, and when loans are needed, they are secured through family and friends. A common arrangement is the sous-sous, which is described later. Many Haitian immigrants to the United States continue to manage their finances without the benefit of credit cards, loans, and, in some cases, bank accounts. In such cases, LHHA instructs people to establish a record of timely payment of rent and utility bills over the course of several months. That record serves as an alternative form of credit that in recent years has come to be accepted by most banks.
After credit reports and other documents have been reviewed and financial issues have been resolved, qualifying families participate in LHHA's Home Ownership Training Program. The program is a seven-week course that is normally taught in Haitian Cre ole (and ccasionally in English and Spanish) and that provides preparation for all aspects of the home-buying process (see table 1). All clients must graduate from the course to buy a house through LHHA. Even if a family does not intend to buy directly from LHHA, the course is an important element in making the family mortgage-worthy in the eyes of a bank (LHHA does not grant mortgages itself, but it acts as a liaison between primary-market lenders and potential borrowers).
One-hour classes are conducted weekly, and each class is attended by 10 to 20 people. Participants must attend all seven classes to graduate (makeups are offered). If a mar ried couple will be purchasing a home, both the husband and wife are required to grad uate from the program. Approximately 180 people have graduated from the program to date (Harder 1999).
LHHA is trying to secure funds to improve the teaching materials used for the Home Ownership Training Program. Plans are under way to standardize the curriculum in a teaching manual and to create additional handouts to help families assimilate the infor mation. Besides the traditional range of homeownership topics found in most counsel ing materials, LHHA's curriculum would cover additional topics that are particularly important in Little Haiti. For example, LHHA staff members have found that it is im portant to offer detailed instruction on banking, including the way the cycle of money
works in the United States and the value of using a checking account to pay bills instead of using cash or money orders. Similarly, they have found it important to emphasize the value of citizenship and to offer more information on different forms of insurance than is found in most homeownership counseling materials (Harder 1998; St. Louis and Francois 1998).
Finding and Financing a Home
After graduating from the Home Ownership Training Program, each participant is placed on LHHA's qualified home-buyer list. Families are instructed not to begin look ing for a house until that point because otherwise they might be misguided by a real estate agent or other "facilitator." A family that has sufficient income to purchase a home without a subsidized mortgage can locate a house on its own. LHHA will help with completing the mortgage application and will act as a liaison between the family and the bank. Much more frequently, Haitian families need subsides orchestrated by LHHA. Next, we explain what the costs of LHHA housing are and how those units have been made affordable.
Most housing provided by LHHA consists of single-family homes that were acquired and rehabilitated by the organization and then are sold to graduates of its homeown ership training program. Table 2 tracks such units sold by LHHA between 1991 and 1997. The mean price of homes sold by LHHA during that period was $62,260, and the median was $59,000. Current prices average about $80,000, comprising $40,000 for property acquisition (typically of FHA-foreclosed units); $30,000 for rehabilitation out lays (for system repairs and replacement, painting, and other improvements); and approx imately $10,000 for soft costs. The last item includes the following: (1) casualty insur ance of about $1,000; (2) the original closing cost on the FHA acquisition, amounting to roughly $2,000; (3) an anticipated $2,800 in closing costs for the purchaser of an LHHA rehabilitated unit (paid by LHHA to minimize the up-front capital needed by the pur chaser); (4) property taxes of about $1,000; (5) construction loan interest of about $500; and (6) miscellaneous other outlays.
The average $62,000 unit produced by LHHA over the period from 1991 to 1997 was sold to a household earning about $15,000 to $18,000 annually. Today's $80,000 unit is typically sold to a household earning about $18,000 to $22,000. Purchasers typically belong to large households (median of five members) that qualify as very low income that is, they earn less than 50 percent of the area median.
How can financially strapped Haitian households afford a $60,000 to $80,000 house? Haitians generally have a number of cultural attributes that make them good home buying candidates, despite their low incomes. In Haiti, rent is often paid up front. In Haitian cities, where roughly 70 percent of the population rents, a typical rent is $1,500 yearly, usually paid at the beginning of the year. Rent can be paid on a month-to-month basis, but then the charge might be $250 per month, or $3,000 for the year. Because paying rent up front can be much less expensive, Haitian families usually choose that option. Consequently, Haitians who have rented in the past have had the experience of accumulating savings to pay for shelter. Such behavior is easily transferred to saving money for a down payment on a home in the United States.
Haitians have a remarkable ability to save despite their low income. Counselors at LHHA recounted numerous instances of Haitian households who managed to save $3,000 to $5,000 annually despite earning as little as $15,000 to $20,000 per year. Households lived very frugally, often growing food on empty lots in Little Haiti. In fact, growing food in one's backyard is a tradition in Haiti, and the desire to replicate that experience in the United States is one motivation for homeownership. The Haitians' propensity to save enhances their ability to accumulate capital for the down payment and, in part, compensates for the barrier to homeownership posed by Haitians' low incomes.
Another compensating factor noted by LHHA counselors is that many Haitians have an aversion to being in debt. While that characteristic makes it harder to establish a
credit history, it also allows a larger portion of income to be applied toward paying a home mortgage. For many Haitian mortgage applicants, the entire back-end ratio of the mortgage can be applied to PITI because the applicants are debt-free (They are constrained by the front-end ratio, however). LHHA counselors recounted that Haitians in the Miami area are often stereotyped as "people dri ving jalopy automobiles at least 15 to 20 years old" (St. Louis and Francois 1998). The counselors decried the stereotyping, however, noting that by not having car loans and by opting to drive old automobiles, Haitians were better able to achieve homeownership.
Further contributing to their ability to accumulate the down payment necessary to purchase a home is the Haitian tradition of the sous-sous (also common among other Caribbean populations). LHHA counselors described the sous-sous as an informal sav ings circle of anywhere from 4 to 20 people who agree to set aside a given amount per week for a stipulated period of time, say $100 weekly for 10 weeks. A responsible indi vidual, often called a "key person," holds the weekly contributions. When the sous-sous is formed, the participating members agree what the payout schedule is to be--that is, in week one, a certain individual could withdraw the amount that he or she ultimately would contribute ($1,000 in the above example), in week two another individual could do the same, and so on. The key person sets the schedule of withdrawals and actual payments. Such an informal savings approach facilitates the Haitians' ability to buy a home--provided that lenders recognize the sous-sous as an asset to close on a mort gage. (This point is discussed later.)
In short, numerous cultural propensities of the Haitian population improve their ability to realize homeownership. At the same time, however, Haitians' very low incomes are a nearly insurmountable barrier under normal circumstances. Without assistance, there is generally no way that a Haitian household of modest means could afford a rehabili tated home priced at $60,000 to $80,000, no matter how little the household's debt and how great its proclivity to save.
LHHA overcomes the financial gap by orchestrating several layers of public and other subsidies, typically in a financing package described as follows:
1. A 5-percent down payment by the purchaser
2. A market-rate, no points, modest-sized first mortgage granted by a lender
3. A large, soft second mortgage with minimal repayment requirements funded by Miami¡Dade County or the federal government
4. A modest-sized, soft third mortgage funded by a grant from the Federal Home Loan Banks' Affordable Housing Program (AHP)
Table 2 shows the financial structuring of the first, second, and third mortgages used by LHHA. Recall that the mean-priced home over the course of LHHA's operations has been about $62,000. The 5-percent down payment on those units has thus averaged about $3,000--monies obtained from savings, the sous-sous, and other means. The 5 percent down payment from the LHHA home buyers still leaves about $59,000 on aver age that must be financed. First mortgages given by such lenders as Citibank, Barnett Banks, and First Nationwide Bank have ranged in size from $20,000 to $40,000. The mean first mortgage has been $28,924 ($27,300 median).
Because of the extensive secondary financing, the LTV ratio of the first mortgage is at a very low 25 to 50 percent. Every home sold by the LHHA has had a second mortgage, ranging in size from about $20,000 to $40,000. The mean LHHA second mortgage over the term of its operation has been $28,425 ($27,625 median). Soft second mortgages are funded from the Miami¡Dade County surtax program, HUD's HOME and CDBG pro grams, or other federal sources. Table 3 details the terms and other characteristics of such subsidies for the soft second mortgages. Finally, roughly one-third of LHHA homes have used an AHP-based third mortgage, a source also detailed in table 3. The AHP derived third mortgages have ranged in size from $4,000 to $6,000 each. For all LHHA homeowners, including those who receive no third mortgage, the average amount of third mortgage assistance is $1,900.
The major reason for the tremendous variation between first and second mortgage amounts noted above is that every transaction differs with respect to the price of the unit, the purchaser's income, and other factors. To give a sense of that variation, table 4 details borrower characteristics and financing for two homes currently being sold by LHHA. Example home one (costing $83,000) is slated for purchase by a very low income household of four earning $16,673 ($1,389 monthly), or 37 percent of the current Miami¡ Dade County median of $44,600 for comparably sized households. In most instances, this newly rehabilitated, three-bedroom home would be beyond the financial reach of a household earning less than $17,000. LHHA helps the household realize homeowner ship in this instance through the layering of mortgages and programs previously described. LHHA requires a 5-percent down payment, which in this instance amounts to $4,150 ($83,000 Î .05). The $4,150 down payment leaves $78,850 to be financed. Because the purchaser's income is so low, only a modest first mortgage can be carried; consequently, a first mortgage of $19,900 is sought. That leaves $58,950 ($78,850 ¡ $19,900) to be financed by a $53,950 second mortgage from the Miami¡Dade County surtax program and a $5,000 AHP third mortgage.
Ongoing repayment of the second and third mortgages is not required, leaving only principal and interest payments on the $19,900 first mortgage. The loan has a 30-year term and a 7.5-percent interest rate; hence, payments are only $139 monthly. The home has yearly property taxes of $1,440, or $120 monthly. The purchase requires a consid erable hazard insurance premium of $1,200 yearly, or $100 monthly. (Hazard insurance was so steep because of the large insurance company losses in Florida from Hurricane Andrew.) PITI periodic costs amount to $359 monthly for a modest front-end ratio of 26 percent of the household's $1,389 monthly income (mortgage insurance for the first mortgage is not required because that mortgage has such a low LTV). The household has no debt, so
the back-end ratio is also 26 percent--a very affordable total debt load. Also of note is that the $359 monthly cost for buying the unit is less than the typical monthly rent in Little Haiti -- and the rental units are often little better than hovels.
While the overwhelming share of LHHA's homeownership effort has involved rehabili tated units like the one described above,6
to further the delivery of an "integrated hous ing product" LHHA also does new construction.7 One such current endeavor is a new, 33-unit town house project (Forest Green) being developed by LHHA in partnership with a for-profit developer. The Forest Green units are anticipated to sell for about $80,000 to $85,000 apiece and will be purchased through a combination of a modest-sized first mortgage, a surtax-subsidized second mortgage, and a $5,000 AHP third mortgage. Ex ample 2 in table 4 illustrates the layered financing of a Forest Green unit.
6 While to date almost all of LHHA's rehabilitation has involved single-family, for-sale homes, LHHA is begin- ning to do multifamily rental rehabilitation. One such venture is Harvard House, located just north of Little Haiti in an area of significant Haitian in-migration. The complex was purchased by Greater Miami Neighbor- hoods (GMN) from the Resolution Trust Corporation, which had foreclosed on the complex's mortgage. Because the development housed numerous Haitian families, GMN asked LHHA to collaborate on the rehabilitation proj- ect. LHHA agreed, viewing this as a new opportunity to implement its "integrated housing" strategy. GMN¡LHHA plans to gut-rehabilitate the 56-unit complex, which had been operated as a slum, with the help of an LIHTC.
7 LHHA is involved in new construction for various reasons. Rehabilitation is a "catch as catch can" effort, accomplished as homes needing renovation become available. When the flow of such properties is low, new con- struction can continue to provide shelter opportunities. New construction supports rehabilitation: If LHHA has rehabilitated some houses on a block, and if vacant land is available, building anew on the empty lots can fur- ther improve the block. Furthermore, some Haitian households, as with households generally, prefer a new unit over a renovated unit. By doing new construction, LHHA is responding to the market demand.
LHHA has not experienced a problem in finding lenders to participate in its homeown ership program, because LHHA has deliberately structured the participation of private lenders so that their risk exposure is low. The front- and back-end ratios of the Haitian home buyers in LHHA's homeownership program are typically well under 30 percent a very conservative figure. In a like manner, the LTV ratio of the first mortgage grant ed by the private lender rarely exceeds 50 percent and is typically in the 30 to 40 per cent range--again, very conservative parameters.
Lenders have helped to qualify Haitian applicants by waiving application fees, by not charging points on the LHHA mortgages, and by providing grants to reduce closing costs. For example, the Cal Fed bank will likely provide a $2,500 grant for closing ex penses to each home buyer in the Forest Green town house project. Lenders have been sensitive to the cultural attributes of the Haitian community. For example, Citibank recognizes that many Haitians have not used credit routinely and, therefore, does not run a credit score on LHHA's mortgage applicants. (In Florida, Citibank follows that practice on all community mortgage products intended for portfolio.)
Lenders who were contacted by the research team and who had granted LHHA first mortgages were comfortable with and enthusiastic about the program. They did note some early obstacles to financing LHHA homes. For example, one lender noted that the Haitian home buyer usually did not have closing funds in a formal financial insti tution, as was preferred by the secondary market. Such a situation can be attributed both to cultural factors, such as a Haitian reluctance to use banks, and to government regulations, which discouraged the Haitians (and others of low income) from keeping funds in a formal account. For instance, recipients of food stamps, Medicaid, Medicaid for children, and other programs were often disqualified from receiving these supports if they had more than a token amount (e.g., $1,500) in a savings or checking account. Haitian households thus found themselves in a catch-22 situation: To improve their financial lot through homeownership, they would need to establish a formal bank account; yet doing so would imperil their eligibility for vital support programs. Ulti mately, the issue was resolved by the lenders not requiring the LHHA home buyers to have a bank account for satisfying the funds-to-close requirement; a letter stating that they had the funds would suffice.
Initially, sous-sous presented similar challenges. When LHHA first began operations, funds from sous-sous were not recognized as acceptable sources of cash for closing. However, the South Florida Fannie Mae Partnership office, in a pilot program, estab lished that funds from a sous-sous account would satisfy the funds-to-close requirement.
Appraisal issues presented challenges. The homes LHHA rehabilitates in Little Haiti cost about $80,000 each. Because property values are low in the neighborhood, the re habilitated LHHA units typically are appraised at approximately $72,000 to $74,000. That lower appraisal made it hard for prospective home buyers to obtain full financing on the $80,000 unit. Recognizing that fact, Fannie Mae developed a pilot program in three Miami neighborhoods that are undergoing rehabilitation efforts such as those effected by LHHA. Under the pilot program, Fannie Mae allows financing up to 115 percent of a property's appraised value as long as the unit's development cost does not exceed 130 percent of appraised value. In the LHHA example cited earlier, the $80,000 development cost is approximately 110 percent of the property's $73,000 appraised value, thereby not exceeding the 130 percent threshold established in the Fannie Mae pilot program. As such, full financing can be obtained on the rehabilitated houses.
In summary, issues regarding the financing of LHHA home purchases were dealt with through layered subsidies assembled by LHHA, lender flexibility, and GSE pilot reforms. Lenders viewed LHHA participation as furthering the public's interest while serving the lender's financial performance and CRA objectives.
Every family that buys a home through LHHA receives extensive postpurchase support in the form of regularly scheduled home visits, a monthly newsletter, informal access to staff members who can answer questions, and opportunities to participate in vari ous social and educational programs. LHHA's postpurchase program is designed not only to ensure that the family continues to pay the mortgage and maintain the house, but also to help forge a tightly knit group of people with a commitment to helping each other and improving the Little Haiti community. More broadly, the many postpurchase supports are designed to ultimately "empower the Haitians in their day-to-day existence" (Harder 1998).
LHHA's family outreach specialists make bimonthly visits to each family. During those visits, they engage in friendly, informal conversation with the family and ask if any problems have developed with the house or the neighborhood or if any family member is having job trouble or other difficulties. They note any repairs needed on the house and make a visual inspection of the immediate neighborhood. If any problems are mentioned by the family, the outreach specialists help the homeowner address them. For example, they might call the police if there has been a problem with drugs or noise in the neighborhood, find reliable tradespeople that the family can hire to make repairs on the house, or refer the family to other agencies for help with employment or legal issues (Diller and Chery 1998).
The visitation program is instrumental in quickly spotting and dealing with problems, as evidenced in the following case reported by a local bank officer:
The husband was leaving and she [the LHHA homeowner] wanted just to abandon the house and I remember [an LHHA counselor] coached them and got her to under stand "this is your house and you have to stay there" and they didn't default. Had [the visitation system] not been there, that would have been a foreclosure. (Fernan dez 1998)
Similarly, LHHA can provide important guidance in instances of financial crisis. If, for example, one spouse dies and the other can no longer afford the house, LHHA will explain to the person that he or she should not simply stop paying the mortgage and await foreclosure, but should instead put the house up for sale.
LHHA staff members say that the long process of financial counseling, homeownership training, and purchasing a home results in developing a close, almost familial relation ship between LHHA and the families the organization serves. That relationship is fos tered by the Haitian cultural tradition of valuing extended family. Accordingly, LHHA staff members continue to act as an informal sounding board whenever a homeowner receives written materials that are difficult to understand or needs assistance filling out immigration forms, applications, or other documents. Each time a homeowner comes in for such a service, the visit is documented in a "family assistance report," which records the purpose of the meeting and notes any follow-up that will be necessary.
Another successful postpurchase program run by LHHA is the Homeowners' Club, which offers new homeowners an opportunity to meet for social and educational activi ties and to work together for positive change in their community. Membership is open to anyone who has purchased a home through LHHA. About 40 families (of the 57 who have purchased LHHA homes) participate regularly. The club members are not given any financial incentives to come, but attend for the camaraderie and for the club's dis cussions. LHHA invites guest speakers to talk to the club about a variety of issues, from fire and hurricane safety to how to organize neighborhood watches. Club members hold discussions about issues they feel are key to neighborhood improvement, such as fos tering economic activity, developing social programs, and establishing a neighborhood watch group. It is the hope of LHHA that strong community leaders eventually will emerge from the ranks of the Homeowners' Club.
Members of the Homeowners' Club have access to the newly completed Kathy Haegele Family Center, a large resource room at LHHA containing computers, books in English and Creole, a VCR, and a small collection of educational videotapes.
In addition to providing visitation, counseling, and membership in the Homeowners' Club, LHHA works to support the long-term viability of homeownership in Little Haiti by offering an umbrella of social and financial services. For example, having found that one of the greatest concerns for members of the Homeowners' Club is ensuring a better environment for their children, LHHA is in the process of developing a number of after-school youth programs. An art program is already in operation, and a computer learning center, a computer clubhouse, a 4-H program, and a peer tutoring program are under development.
LHHA administers an innovative Service Exchange Program, which is open to all of the organization's homeowners. The program involves the exchange of services among par ticipants and is intended (1) to provide an alternative employment and barter system and (2) to foster community service. Families interested in participating in the program fill out an application listing the times they are available and the services they wish to provide. Services cover a broad spectrum, ranging from home-related activities such as gardening, painting, and doing laundry to child care, transportation, tutoring, and trans lation. For each hour worked, the participant earns one credit, for which he or she is entitled to an hour of service from another participant. Credits are earned for participa tion in community service, such as organizing street cleanups or neighborhood watches. LHHA has the responsibility for keeping track of the service accounting.
LHHA continues to expand its network of socioeconomic services. The Little Haiti¡ Edison Federal Credit Union is one such project and is intended to meet the financial and credit needs of neighborhood residents (LHHA 1998b, 3). With LHHA prompting, a Little Haiti Development Corporation (LHDC) is being formed. LHDC will provide the numerous social service and similar agencies serving the Little Haiti community with the means to coordinate, strengthen, and integrate their delivery of services (LHHA 1998a, 3). LHHA is also forming a Comprehensive Economic Development Program to complement its housing and other community-building efforts. That program will be developed in conjunction with the Little Haiti Small Business Development Center.
In Little Haiti, where homeownership by very low income Haitians seems improbable, 180 people have graduated from LHHA's homeownership training program, and 57 of those graduates have purchased houses from LHHA (This figure does not include the recent sales of Forest Green town houses). An additional 10 to 12 graduates of LHHA's training program have purchased on the general market homes that were not produced by LHHA. About 90 families that have not yet purchased homes have been prequalified for a mortgage. Many of those families are on waiting lists to pur chase homes, but because of their limited financial resources must wait until an ideal situation in terms of house price and government subsidies occurs.
Those who have realized homeownership under LHHA's auspices have exhibited a strong repayment record. The 57 purchasers of LHHA homes have a zero mortgage default rate and a zero current delinquency rate. To date, only in two instances were monthly mortgage payments 60 days late. In both cases, the homeowners were able to resolve their difficulties with LHHA's assistance, and their monthly payments have since remained current. Admittedly, the favorable economic environment of recent years and the short duration of most of the loans likely have contributed to the superior loan performance. Yet even with those contributing factors, a zero percent delinquency is commendable.
Other results are encouraging. Almost all of the 57 families that purchased homes from LHHA still reside in and own the dwellings. By all accounts, including visual inspection of the exteriors by the authors, the houses are being well maintained. A large number of the 57 homeowners are active in the postpurchase Homeowners' Club (LHHA 1997¡1998).
LHHA's contribution is graphically described by its beneficiaries. One homeowner related the following:
"I was living in a two-bedroom rental [unit] costing $550 a month. It was a terrible place...very hot...with no ceiling fan. A friend told me about [LHHA] and I now live in a beautiful place for less money. They helped me with contacting a [police] officer when my block had a problem." (Antoin 1998)
Another LHHA homeowner recalled:
"I was living in a one-bedroom with three children [in North Miami Beach]. I never dreamed I could buy [a home]. My house [from LHHA] costs me less [than the previ ous rental]. It is like a dream with a large yard. They [LHHA] said, "It's your house." They [LHHA] are like family and gave me free paint [and helped with] repairs. I now speak to my neighbors, "You have to come to [LHHA]," and have recommended many to them [LHHA]." (Lidvine 1998)
Key Contributions to LHHA's Success
What contributes to LHHA's success? The following are some key factors:
1. Developing linguistic and cultural sensitivity to the Haitians
2. Providing an integrated strategy that comprehensively provides rehabilitated and new housing, as well as homeownership and rental housing, homeownership assis tance that spans from the prepurchase to postpurchase stages, and shelter and comprehensive community development supports
3. Providing intermediation between borrowers and lenders, as well as extensive one on-one contact with clientele
4. Accessing and packaging very deep housing subsidies
Such themes are echoed in LHHA's activities in attracting applicants, qualifying appli cants, and then retaining homeowners.
Because of language, culture, and other reasons, the Haitian community is very tightly knit. It is often hard for a social service agency to gain the acceptance of Haitians. LHHA, which is staffed by Haitians and is sensitive to their culture, has broken through the cultural divide and is well known to, and supported by, the residents of Little Haiti. Trust among family or friends in the Haitian community is a very important commodi ty that makes the sous-sous and other traditions viable. LHHA has earned the trust of the Haitian community and is viewed as an insider rather than as an intruder by this community. When the organization first floated the idea of bringing low-income Hai tians to homeownership, the concept was viewed with skepticism. As LHHA began to qualify some Haitian households for home purchase, Little Haiti residents began to trust LHHA. As one observer asserted, "The talk in the street was that they [LHHA] keep their word" (St. Louis and Francois 1998). That trust leads to word-of-mouth com munication in the Haitian community about the services offered by LHHA.
Qualifying Applicants and Retaining Homeowners
Coupled with its prowess in attracting potential homeowners is LHHA's skill in quali fying these applicants. The in-depth financial credit and homeownership counseling described earlier are essential for helping the very low income Haitian home seeker to become "mortgage worthy" (Harder 1999).
Graduates of LHHA's Home Ownership Training Program who were interviewed by Rutgers University note that the course furnished them with information critical to their home purchases. One graduate said that she had dreamed of owning a home, but until she entered LHHA's program, she had little idea of what searching for a home would actually entail:
"When I first came here, I heard about the program from a friend. I heard it is a good program if you want to purchase a home. I learned a lot [from the program]. At the beginning, I did not know if I [were] to purchase a house what to look for. As a Hait ian, when you go to [find] a house you need, you know, a big tree...you look at the outside of the house, but you do not know what you're looking for. But from that pro gram I know now if I am to purchase a home what to ask.... Now I know I should check for the plumbing, the roofing, and the electricity.... Also I know [they can't just tell me those systems are fixed], I have to see the paper [to prove it was done]." (Antoin 1998)
Layering of mortgages is the key to LHHA's ability to qualify Haitians for homeowner ship. LHHA overcomes the severe homeownership affordability barriers faced by Hait ian families by significantly lowering the size of the first mortgage, with the remaining financing coming from soft second and third loans (see table 2). LHHA is fortunate in that it can draw upon the surtax program instituted by Dade County--a source of housing monies unavailable in many jurisdictions. Dade County has also made CDBG, HOME, and other federal monies available for LHHA second mortgages. The Federal Home Loan Banks, through their AHP, are a source of no-cost third mortgages. As pre viously described, lenders have worked to qualify the Haitians through means such as offering financial concessions (e.g., waiving application fees and not charging points) and underwriting in a culturally sensitive fashion.
Keeping first-time buyers in their homes for the long run is an area that is just begin ning to receive the attention it deserves. LHHA is ahead of most organizations in this regard, in that from the outset it recognized that this stage is critical. Bimonthly visi tations by LHHA staff members to the homeowners, informal counseling given during those visits to forestall problems, the Homeowners' Club, and the youth and service ex change programs are all holistically important to ensuring the success of the Haitian homeowners. Providing a rainbow of services is taxing, however--a point we will turn to shortly.
Challenges and Replicability
LHHA confronts numerous regulatory and programmatic challenges. For example, numerous 5,000-square-foot vacant lots are in Little Haiti and lend themselves to the construction of new scattered-site, single-family homes. Building on such lots is espe cially desirable if the block already contains some rehabilitated LHHA houses, because the combination of rehabilitation and new construction helps form a critical mass of revitalization. Yet many of the 5,000-square-foot lots cannot be developed because zon ing in the unincorporated portion of Dade County requires a minimum 7,500-square foot lot.(This requirement is prompted by the need to install septic tanks and drain fields because there is no county-wide sanitary sewer system.). Such a requirement impedes LHHA's ability to expand the supply of new housing and to protect investment in its rehabilitated homes.
A related issue is the dearth of multifamily zoning in Little Haiti. In this neighborhood, commercially zoned main streets are bordered by single-family zoned areas. LHHA suggests that some multifamily zones be allowed in locations just off the main streets. A transition area would make sense from a land use perspective and would provide sites upon which lower-cost multifamily housing could be developed. The residential zoning of Little Haiti--overwhelmingly low-density single-family--reflects the historical middle class orientation of the area and does not comport with the more constrained resources of the current Haitian population.
Properties foreclosed for nonpayment of taxes represent another missed opportunity for affordable housing in Little Haiti. LHHA could acquire from the city numerous houses foreclosed for personal property tax reasons if those homes were available at reasonable prices. In many instances, however, such homes are very expensive--in fact, well above market value because the city will sell them only if the buyer pays all obligated taxes, which can amount to many thousands of dollars. Both the city's unwillingness to forgive outstanding liens and other limitations (e.g., questionable title conveyed upon foreclos ing the tax liens) preclude groups such as LHHA from reclaiming the tax-foreclosed properties. This "lienfield" situation, as described by David Harder (1999), is a barrier to redevelopment in inner-city areas such as Little Haiti, much as brownfields are a liability.
Another regulatory impediment faced by LHHA is Miami's building code requirement that mandates new construction standards if the cost of rehabilitation exceeds 50 per cent of the value of the home being renovated. Those standards sometimes increase LHHA's construction costs for items that are not of material value to the housing con sumer. The 50-percent rule increases housing costs and reduces affordability for finan cially constrained Haitian home buyers.
A programmatic change has created property acquisition problems for LHHA. Previ ously, when the FHA sold foreclosures, nonprofits such as LHHA had priority during bidding and could acquire properties at a discount. The nonprofit priority and discount have been eliminated, however. Such changes reflect recent attempts to operate FHA in a more businesslike fashion--a laudable goal. Yet the revisions have made it more difficult for nonprofits to acquire FHA foreclosures expeditiously and inexpensively (Even under current conditions, FHA has been criticized for demanding prices on its foreclosed homes that exceed the values of the properties (Bradford 1998, 10, 60).).
Perhaps the biggest challenge to LHHA is financial. Over roughly a 12-year period, LHHA has been able to realize homeownership for fewer than 100 families. That accom plishment has engaged a full-time staff of 10 and has required an annual organization al budget in the $0.5 million range. That budget has to be cobbled from disparate sources: government, foundations, GSEs, lenders, and others. Home purchasers have received huge subsidies. For instance, if the second mortgages secured by the very low income households are funded by federal HOME monies, essentially no payment for either principal or interest is required. If the second mortgage is funded from Miami¡Dade County sources, very generous below-market terms are afforded (30-year loan with a 3-percent interest rate and staggered repayments; see table 3). The AHP third mortgage is essentially an outright grant. To date, the 57 single-family detached homes sold by LHHA constitute a total housing purchase of about $3.5 million, of which roughly $0.2 million was remitted in down payment, leaving $1.6 million in hard first mortgages and $1.7 million in very soft second and third mortgages. Those second and third mort gages essentially constitute a 50-percent subsidy on the purchase price of the LHHA homes. Put another way, bringing 57 households to homeownership has required a subsidy of almost $30,000 per unit.
Admittedly, there are offsets to such a considerable cost. Encouraging Little Haiti resi dents to switch from renting to owning may, in the long run, reduce social welfare ex penses borne by Miami¡Dade County. LHHA's efforts may also strengthen home values in Little Haiti, which again benefits the county. Costs must also be weighed against LHHA's social mission. LHHA's executive director stated as follows:
"It is important to me that everyone understand the basis of why we use so much subsidy. Little Haiti does have an out migration issue and the primary purpose for the subsidy is to make housing affordable for the families that have no other choic es. This allows us to provide a quality, affordable housing product to the families of Little Haiti, some of the poorest families in the County". (Harder 1999)
Deep subsidy, as well as the many outreach, counseling, and other community socioeco nomic supports offered by LHHA, are required to make its homeownership program work. Indeed, those ingredients embody its comprehensive, integrated strategy. Yet the depth, breadth, and cost of this comprehensive approach limit the potential for nation al replicability. We are not likely to see thousands of LHHA-type interventions. It may not even be legal for a lender to target an ethnic group and neighborhood as LHHA does. Selected nonprofits, however--especially those targeting a particular group or area (e.g., Asians in Chinatowns, Native Americans on reservations, and Hmongs in the Twin Cities)--may very well be able to replicate the LHHA template. In doing so, they should realize that the defining characteristics of LHHA's approach--its compre hensive integrated strategy, linguistic and cultural sensitivity, and garnering of layered subsidies--are both potent in furthering homeownership among the traditionally underserved and most challenging to implement.
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Diller, Sam, and Robert Chery. 1998. Interview with Community Outreach Director and Family Out reach Specialist, LHHA. Interview by David Listokin and Elizabeth Kronzek, Center for Urban Poli cy Research, Rutgers University. Miami, June 25.
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