Authors:
Sierra Stoney, Independent Community Development Researcher
Christi Baker, Director of Strategic Initiatives, Asset Funders Network
CDFIs are financial institutions with a mission to expand access to capital and advance economic prosperity in low-income urban and rural communities across the nation. They use a combination of public and private resources to remedy historic disinvestment by designing affordable homeownership opportunities in today’s housing market and helping people with low and moderate incomes purchase homes affordably and sustainably. CDFIs engaged in affordable homeownership work have a transformative effect on the people and communities they serve.
Now more than ever, community development financial institutions (CDFIs) are needed to help lower- and middle-income households access homeownership pathways.
As market conditions make homeownership increasingly unaffordable for those households, CDFIs have a proven track record of bridging affordability gaps that would otherwise shut potential buyers out of homeownership and deter generational wealth-building.
This brief illustrates the range of ways philanthropy can support CDFIs in their efforts to catalyze affordable homeownership opportunities in communities nationwide. Examples of funder investments and CDFI initiatives offer practical information about affordable homeownership approaches and how they have been resourced. After some background information on CDFIs, the brief explains different CDFI homeownership approaches and then offers recommendations for funders to support the creation of pathways to wealth-building and homeownership.
CDFIs generally fall into five different types of financial institution;
each type is distinct in how it is funded and operates:
CDFIs offer affordable homeownership services along a continuum, depending on community need and available resources.
Historical Context of CDFIs and Homeownership
Building on the foundation of Civil Rights Era laws and advocacy, CDFIs emerged to meet the needs of communities that have struggled with disinvestment due to redlining, displacement, and loss of wealth due to forced removal.
Disinvestment in communities affected by these forces contributed to deteriorating housing stock and infrastructure, depressing property values. This trend, paired with lack of access to mortgage lending, effectively and systemically prevented residents from accumulating generational wealth. To this day, formerly redlined communities continue to have elevated levels of deteriorating housing stock and infrastructure, low homeownership rates, lower property values, and a lack of access to credit and banking services.
Since the 1970s, CDFIs have provided financial services and capital to communities that are not served by conventional financial institutions, helping to improve credit access and wealth-building. From its beginnings, the industry focused on small business lending and community stabilization, including investment in affordable rental housing, mortgage lending, and financing to preserve homeownership preservation.4 CDFIs later developed to meet the needs of communities that have struggled with disinvestment, displacement, and loss of wealth for reasons other than redlining, such as forced removal, urban renewal, and gentrification.
More recently, in the aftermath of the 2008 subprime mortgage crisis, CDFIs have deployed resources to support Black and Latine households and segregated communities, which were disproportionately targeted by subprime lenders in the years leading up to the crisis5 and subsequently experienced higher rates of foreclosure.6 The crisis had wide-ranging effects on targeted communities. In addition to displacing and causing financial hardship for families that lost their homes, high rates of foreclosure also depressed home values in affected communities, eroding home equity for those homeowners who remained.
Current Political and Economic Headwinds
CDFIs face daunting economic and political challenges. Housing, mortgage, and insurance market conditions continue to eat away at homeownership affordability, while the federal funding sources that CDFIs rely on to offset unaffordable market conditions are either uncertain or vanishing altogether.
Furthermore, all markets have a limited supply of affordable homes suitable for CDFIs’ homeownership clients. The challenges that constrain the supply of affordable homes and available financing vary across communities, but may include:
Rising home prices
High housing demand
Aging housing stock
Inadequate residential development
High interest rates
Increasing homeowners’ insurance premiums
Taking an individualized approach, CDFIs help clients identify homeownership as a goal and develop a strategy for success.
“We give opportunity to folks who would not pass a quick and simple screening by one of the big banks, but who we know are really committed to buying a home and paying their loan. Our members don’t make the Herculean efforts that they make to come to this country to build a life and take out a up to us to set them up for success.”
GABRIEL TREVES-KAGAN
Vice President of Development
Latino Community Credit Union, North Carolina
