Mortgage Bond Story

creative solutions — research that leads to change

In the early 1980's MACED's small staff researched home ownership patterns in the mountains and identified the lack of affordable mortgages as a primary barrier to home ownership. The required 30 percent down payment and a 10-15 year amortization schedule that could be called in on demand made home ownership impossible for many people.

MACED looked for underlying causes of the problem and found that the banks in the mountains could not participate in national mortgage programs available in other parts of the country.

Secondary mortgage markets, like Freddie Mac, Fannie Mae and Veterans Administration mortgages, were not accessible to the small banks in the mountains because rural areas did not conform to underwriting standards designed for metropolitan areas. Houses with septic systems, more than an acre of land and gravel roads were excluded. Banks had no experience servicing or qualifying home mortgages for the secondary mortgage market.

Correctly identifying these barriers was the key to success. MACED developed a strategy, built the capacity of local banks, and pushed for changes in the mortgage program standards so that rural homeowners could qualify. It's just one example of focusing resources on key leverage points to shift a whole system. Step by step, MACED brought together local banks and local governments to make the system serve people better.

Barry Powell, vice-president of Bank One in Richmond, Kentucky, says that MACED permanently changed the way home mortgages are handled in mountain communities.

"The banks were small, and we didn't have expertise and experience. We didn't have internal resources to make mortgages available and we couldn't access the programs that made mortgages affordable."

MACED organized a consortium of 96 banks to influence the secondary mortgage standards so rural homeowners could qualify. "We couldn't be heard alone. But MACED organized a voice loud enough to be heard, and things changed," Powell said.

MACED trained bank staff to service mortgages and worked with 106 banks and 29 counties to issue two mortgage revenue bonds for $46.5 million to get the system going. "We advertised the 95% financing, and it was astounding. People lined up down the road to get home mortgages," said Powell.

Initially 800 people were able to buy homes, and banks gained the experience necessary to participate in affordable mortgage programs.

"It worked. It worked good. Now it's regular practice, and people can get 30-year mortgages with 95% financing on a regular basis," Powell said.

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