"Just Price Solutions" Could Open The Door To Home Ownership For First Time Buyers
Thursday, June 26, 2008SUZANNE PRATT: Sales of existing homes edged up a bit in May, rising 2 percent as people tip-toed back into the market. Still, many would-be buyers are having trouble qualifying for loans in the tight credit environment. Now, there's a glimmer of hope for first time homeowners. David Brancaccio of "Now on PBS," introduces us to a California couple using a new lending system that gives buyers a helping hand.
DAVID BRANCACCIO, NIGHTLY BUSINESS REPORT CORRESPONDENT: Devon and Stacey Wilson have a good credit score, over 700. A couple of years ago they could have gotten a half dozen exotic mortgages, but not today.
DEVON WILSON, PROSPECTIVE HOMEOWNER: Banks want 20 percent. They want the down payment. It's not like before where you can walk up and sign a paper and get a loan approval to a house.
BRANCACCIO: The Wilson's have only $20,000 to put down and Devon's starting salary as a landscape architect is $60,000 a year, not bad right out of college, but when Stacy Wilson plugged that into a mortgage calculator...
STACY WILSON, PROSPECTIVE HOMEOWNER: Even at our best guess we were still only coming in at around $200,000, where like you can't get a house in California for $200,000.
BRANCACCIO: But then they had a stroke of luck. Their real estate broker sent them here, to the Cabrillo Home Ownership Center and a counselor has enrolled them in a new program called just price solutions. It's a revolutionary mortgage lending software invented by online banking pioneer, Brian Cosgrove and his team.
BRIAN COSGROVE, PRES., JUST PRICE SOLUTIONS: How can we remake mortgages so that, so that we don't have to use sub-prime, if you will in that process? How can we redo this and come up with something that's sustainable and works and pays everybody that's involved in the process?
BRANCACCIO: They did it by updating a little known government outfit with an impressive success rate, Neighborhood Housing Services of America, whose borrowers have a foreclosure rate of just about 1 percent, even during the sub-prime crisis. Their winning formula? Along with a fixed rate loan, all borrowers get matched up with an in-person homeownership counselor in their community.
COSGROVE: We needed somebody to step in that could advise people without a, without a purely economic incentive.
BRANCACCIO: Today the Wilson's counselor uses the JPS system to instantly approve them for several grants and loans. Then he divides their mortgage in two so their payments are reduced to a fixed rate just above 6 percent, about the same terms as those with the best credit and a full down payment.
ELIZABETH WARREN, PROF., HARVARD LAW SCHOOL: $297,000 is what the loan amount that you will be making payments on, total payment $2,269.
BRANCACCIO: And that means after tax rebates, they'll be paying almost exactly what they've been paying in rent. JPS, a non-profit, has pulled in funding from Fannie Mae, Citibank and State Farm, among others and through software fees is striving to become self sufficient. Elizabeth Warren, professor of bankruptcy law at Harvard, is encouraged by the program.
DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC & POLICY RESEARCH: The number one retirement plan in America is pay off your house and live on your Social Security. If you can't put a single dollar away in retirement funds, if you were able to buy a home and get it paid off, you'll have a relatively secure retirement.
BRANCACCIO: But just how far should policymakers push the idea of owning a home? Dean Baker is an economist at a nonpartisan think tank.
COSGROVE: We're talking about low and moderate income people. They don't have a lot of money to throw around. So if we're talking about spending more money on housing costs than necessary, that's coming at the expense of health care for their kids of, you know, getting good food, child care.
BRANCACCIO: However, Brian Cosgrove says if we want this foreclosure crisis to end, we need to promote sound ways to encourage home ownership.
COSGROVE: Now when a community breaks, it's just as important for those of us who are lending in there to step in and say, look, I don't want all the capital to come flying out of here. Let me find another borrower.
BRANCACCIO: For NIGHTLY BUSINESS REPORT, I'm David Brancaccio in New York.
PRATT: For more on the mortgage crisis and possible solutions, watch "Now on PBS" airing tomorrow night on most public television stations. Check your local listings.
