Some recent data about Habitat for Humanity suggests that it may still be possible to have lower-income homebuyers without higher risks of default or foreclosure:
A recent study led by the Cox School of Business at Southern Methodist University, which was commissioned by the Dallas branch of Habitat, found that foreclosures in Habitat’s Dallas market were less than 2% last year. Although the report only looked at the Dallas office of Habitat, the findings mirror those found in other Habitat offices across the country, the organization says.
If this data holds up across the country, we should then ask why Habitat owners have such low foreclosure rates. Is it just because Habitat for Humanity has a limited operation each year (a small sample to work with) or is there something about their program that makes a difference?
The article suggests that Habitat’s particular program is what makes the difference: the homebuyers go through “home-ownership education,” there is consistent interaction with Habitat after the home purchase, the purchased homes are relatively modest (not “McMansions”), and Habitat imposing a less punitive late fee for late mortgage payments. One of the study’s authors sums up the impact of what Habitat does:
“These are practices that I think any bank should implement, particularly after looking at the foreclosures in the last five years,” said Paul Hendershot, lead author of the Dallas Habitat report and an adjunct University of North Texas professor.
It would probably cost quite a bit for lending institutions to adopt the practices of Habitat for Humanity for each mortgage holder. While the up-front costs are prohibitive, the lenders would save down the road as homeowners would go through fewer foreclosures.