Fredaca Singleton, a hairdresser in Natchez, Miss., used to think she would never own a home.
Four years ago, she was focused on everyday needs -- feeding two children and paying her bills -- until she heard about a local program that helps low-income families build wealth and save toward home ownership.
The Adams-Jefferson-Franklin-Claiborne (AJFC) Community Action Agency serves residents of nine poverty-plagued counties in southwest Mississippi through a program establishing individual-development accounts, known as IDAs,
The program's participants contribute earned income to a savings account, which is matched at a 3-to-1 ratio by funds from the government, foundations and corporations. The savings are then used for a down payment on a house and to create manageable mortgage payments for participants.
But to get those benefits, participants must take 12 hours of financial literacy classes and homebuyers education courses -- plus make some big sacrifices.
Singleton struggled to fix her credit in order to be approved for a mortgage. She reconsidered how she used her money, avoided unnecessary shopping trips and stopped putting purchases on a layaway plan.
"It's hard. It's mentally hard because a lot of things that you buy... you really don't need, but you think you need it," Singleton said.
Ultimately, Singleton purchased a new home on a quiet cul-de-sac of houses all built for participants of the program.
"It was like a dream," Singleton said. "It took a long time for me to look at the house and think, 'This is my house.'"
The Mississippi program is one of about 200 agencies and community-based organizations across the country running IDA asset-building programs that receive funds from the U.S. Department of Health and Human Services. Most are focused on homeownership, starting a business or paying for higher education.
Similar programs exist in some communities outside of the government-funded network, and are funded solely through non-profit organizations, private donations or local banks.
IDAs are a tool that can be used to help low-income people move into the financial mainstream, said Ray Boshara, vice president for domestic policy programs for the New America Foundation, a non-partisan public policy institute.
"When families have savings and assets, it not only prevents them from falling into financial ruin ... when you own things you are invested in your community in a way you normally would not be," Boshara said.
Andrea Levere, president of the Corporation for Enterprise Development, an economic opportunity think tank and policy group that works with IDA programs, said the initiative has proven that not only will "people save given the right incentives and right structure, but that they will save even at very low incomes, which was stunning."
The demand for such programs is overwhelming in the South, the region with the highest level of poverty in the country. AJFC has about 180 people enrolled in its program with another 600 on the wait list. A similar IDA program run by United Way for the Greater New Orleans Area has a wait list of nearly 850.
Mississippi has the highest state poverty rate in the nation, according to U.S. Census data from 2004 to 2006. Louisiana ranks third.
Living below the poverty line means a family of four is surviving on less than $21,200 a year, according to government estimations. Most IDA programs use 200 percent of the poverty level, or a similar calculation, for their participant requirements.
Rebecca Blank, co-director of the National Poverty Center at the University of Michigan, said there has been a historical misconception that people living in poverty don't work.
"That is certainly not true today, if it ever was," she said, but full-time, year-round work can be very difficult to find in economically-depressed areas.
A person can easily hit stretches of time when he or she doesn't have a reliable income. Building a savings cushion for such times or emergencies is one of the tenets preached by IDA programs.
Christopher Jones, a father of three and an AJFC IDA participant, took that piece of advice very seriously.
"You think 'I'm working, I'm making good money.' You never think, 'This might not last.' You have to have something put away," said Jones, who lives in Natchez, Miss., and works for the Army Corps of Engineers on projects in various states six months a year.
In housing savings programs, it is particularly important to stress long-term financial responsibility and budgeting, experts say, because the participants will have to continue to make mortgage payments.
Even with the program's financial-literacy education, participants still require guidance. Many IDA participants have not had a bank account before entering the program. Oftentimes, participants also need time to raise their credit scores to qualify for mortgages.
The Department of Health and Human Services does not keep statistics on the rate of foreclosures from the IDA programs. However, IDA programs do a good job of determining if and when someone is ready to buy a large asset such as a home, Boshara said.
"Anyone who goes through an IDA program is not going to be pushed into a subprime loan. They would be put into a mortgage that is suitable for them and their financial situation," Boshara said.
The Corporation for Enterprise Development, or CFED, reported that several of the country's largest IDA programs found no foreclosures, but a large study on the issue is planned later this year.
CFED's Levere said people who buy homes after going through an IDA program have a big advantage because they "start with a down payment, they've had financial education about homeownership and they have all been guided to high-quality mortgage products that they can afford."
In Louisiana, the United Way in New Orleans has used housing and vehicle IDAs to help Hurricane Katrina victims get back on their feet. Now the group is launching a business-asset IDA program to combat a top concern in New Orleans: childcare.
"Post-Katrina, day-care centers were practically non-existent," United Way New Orleans IDA Director Odessa Adams-Payne said. "In order for our city to be able to rebuild, our families would need a place to stay, they would need somewhere for their children to go when they went to work."
Sandra Dillon runs a small childcare business from her New Orleans home, caring for five children. She is one of the first IDA childcare recipients and plans to use the program to grow her business. She hopes to convert her garage into a workspace that can handle more children. Eventually, she wants to hire a helper so she can legally expand the business.
"Right before Katrina, I was working for a collection agency. Of course they didn't come back after Katrina. My husband didn't have a job. I didn't have a job, and for the longest we were just living off of insurance money," Dillon said.
Starting her childcare business and purchasing a home, also through the United Way IDA program, is what broke her family out of that rut.
Breaking the generational cycle of poverty is one of the most important functions of the savings programs, Adams-Payne said.
"When families invest in a productive asset, their children tend to do the same thing," she said.
Royal Hill, head of family and community partnerships at AJFC, agreed that the impact he sees on families that go through an IDA program is striking. He sees IDA graduates' changes their attitudes to focus on the future. He credits that to the program's structure and the fact that graduates must put in a lot of work to reach their goals.
But the IDA programs face challenges of their own, namely that the amount of money they can match for their participants fluctuates based on what they can collect from federal and state governments, foundations, banks and non-profits. The United Way of New Orleans, for example, offers a 4-to-1 matching ratio for its participants.
Raising funds to make the matches can be a struggle for some IDA providers. Both AJFC and United Way New Orleans said it's a major challenge to have enough staff to handle their caseload.
One other obstacle to homeownership in New Orleans, where nearly 70 percent of the housing was destroyed by Katrina, is the high cost of construction and building materials. This has made it difficult for some United Way IDA participants to place a down payment on a home unless they can get additional housing subsidies.
And while the lure of home ownership is a powerful incentive, many experts say it is important for participants to practice using basic savings without having a big-ticket item as the end goal.
The National Poverty Center's Blank said poor people would have better day-to-day stability if they were able to have a matched savings account for all purposes.
"We don't make savings easy for low incomes families," Blank said. "Matched savings plans are a great way to think of how to make savings easy and how to encourage it."
Michael Barr, a law professor at the University of Michigan who advised Congress on the subprime mortgage fallout, agreed.
"IDAs have served an important role in demonstrating that low-income households can save," Barr wrote in an e-mail. "Now we need to develop a national, inclusive savings policy that can efficiently bring all households into the savings system."