The New York Times

By Binyamin Appelbaum

February 25, 2014

WASHINGTON — About 200 people struggling to become homeowners filled the pews of Plymouth Congregational church on a recent Saturday morning. Some were self-employed, others short on a down payment, many branded by credit problems. Mortgage lenders would have thrown money at them a decade ago. Now, the chastened industry turns them away.

Bruce Marks, the unconventional lender who organized the gathering, is determined to demonstrate that the rest of the industry is wrong.

Mr. Marks’s nonprofit organization, the Neighborhood Assistance Corporation of America, has $10 billion in funding from Bank of America to make loans on its own terms over the next decade. It does not require down payments. It does not consult credit scores. Its loans all carry interest rates below 4 percent.

It has enough money to mint about 50,000 homeowners, but Mr. Marks has a larger goal. He wants to show that it is possible to lend to lower-income borrowers on terms that are profitable and sustainable. He wants to expand homeownership. He wants to redeem the original idea behind subprime lending.

“I think that everybody should have an opportunity to own a home,” he said in a recent interview. “We’ve got to rekindle hope in people, especially minorities who threw everything into the dream of homeownership and lost it.”

The great recession unsettled Washington’s longstanding commitment to homeownership. Mortgage companies are reluctant to lend to anybody but the safest of borrowers, and the government — led by the Consumer Financial Protection Bureau, an agency created largely to protect mortgage borrowers — has raced to formalize that new caution. Public policy has shifted from expanding homeownership to preventing bubbles.

Even some advocates for lower-income families have reassessed the importance of helping people buy homes.

“I’ve seen too many neighborhoods devastated, too many families devastated by giving them credit that they could not afford,” said Ira Rheingold, executive director of the National Association of Consumer Advocates, an umbrella group for legal aid providers. “We need to build communities and wealth so that people can then go ahead and build sustainable homeownership.”

Mr. Marks, an energetic 58-year-old with a salt-and-pepper beard, has little patience for such fears. He says low interest rates and housing prices have created a second chance — an opportunity to help lower-income families buy homes, but this time on terms they can afford.

He is part of a growing chorus in the housing industry warning that the government’s push toward safety is reviving an earlier era when homeownership was beyond the reach of too many families, particularly minorities.

“I find that in this overall discussion, the borrower sort of gets left on the sidelines,” Teresa Bryce Bazemore, president of the mortgage insurance company Radian Guaranty, said at a December event here organized by the Bipartisan Policy Center. “You can protect the market and the government to the point where no one can buy anything.”

Mr. Marks has a reputation as a flamethrower. He mounted a series of confrontational campaigns in the 1990s demanding money from banks to make loans in underserved communities. He once publicized the extramarital relationship of a recalcitrant bank executive by distributing leaflets to his neighbors. In 1999, then-Senator Phil Gramm, a Republican of Texas, denounced Mr. Marks as an “extortionist” on the Senate floor.

During the housing crash that began in 2006, Mr. Marks used similar tactics to press banks for the authority to modify loans, transforming his nonprofit into one of the largest sources of help for homeowners facing foreclosure.

But this time, he says, he is focused on making his point by making loans. “We’re going to see how many people we can make homeowners,” he said, “and can we make this a new way of doing business.”

The innovation that sets Mr. Marks apart from other mortgage lenders was the result of a late-night conversation on a Boston porch in the early 1990s. Mr. Marks, then working for the local hotel workers union, was drinking beer and trading ideas with an idealistic banker named Kevin Winn.

The union had won a few million dollars in funding from local banks to help its members buy homes. Most of the workers — like the people who gathered at the Washington church — did not meet the standards of conventional lenders. They could not afford down payments. They did not have histories of repaying previous loans.

Subprime lenders charged such borrowers high interest rates, at least in part to compensate for the higher risk of default. But Mr. Marks wanted to charge the same rates the banks gave wealthy customers.

That meant he needed a different way to reduce the risk of default. He planned to rely on careful screening of applicants and on building a sense of community among the borrowers, in part by requiring them to join the nonprofit for a $20 annual fee and to participate in its advocacy. These are time-tested strategies for reducing defaults.

Mr. Winn suggested they also needed a new kind of safety net. Borrowers are usually required to pay for an insurance policy that compensates the lender if they default. Mr. Marks’s organization instead requires borrowers to contribute to a fund that prevents defaults by making loans to people facing medical emergencies or a job loss.

“We knew we were stretching the traditional definition of affordability,” Mr. Winn said. “We knew that sometimes things would go wrong. The question is, ‘What happens next?’ ”

Since then, the Neighborhood Assistance Corporation has made more than 35,000 home purchase loans. It originated 4,005 of those loans from 2004 to 2006, at the peak of the housing boom. About 6.4 percent of those borrowers have received assistance from the insurance fund, but only 2.6 percent lost their homes to foreclosure, less than a third the national rate, according to a study the nonprofit commissioned from the Promontory Financial Group.

After a lull, the pace of lending is beginning to revive. Donita Mays, 28, found a house in the southeast Washington neighborhood where she was raised. Ms. Mays, a federal contractor, made enough money to qualify for a $300,000 loan,

but her credit score was in the low 600s and she lacked the savings for a down payment.

A friend at church mentioned Mr. Marks’s program. She began attending the required homeownership education classes. She demonstrated that she could afford a loan by setting aside every month the amount that would become her monthly payment. In November, she received a loan with an interest rate of 2.875 percent.

“I’m a single mother, grew up poor. I said, I’m never going to be able to afford a home,” she said. “It’s just awesome.”

Federal standards that began to take effect in January, intended to protect people from borrowing more than they can afford, limit the amount of money that borrowers can put up to buy down the interest rate, as Ms. Mays did. Lenders are not required to comply with the standards — instead, loans that do are shielded from subsequent litigation — but in the current climate of abundant caution, nearly all loans fall within the standards. And some mortgage industry executives say lenders will be reluctant to make other kinds of loans even as the economy begins to improve.

Before the housing collapse, in 2005, almost 13 percent of conventional loans went to borrowers with credit scores below 620. Last year, that figure was 0.22 percent, according to CoreLogic, a real estate data and analytics company. Subprime lending has almost disappeared.

Administration officials say it is too early to judge the results, and they are willing to make adjustments. Already regulators are backing away from a requirement for a minimum down payment of 20 percent.

Officials have pushed back, however, against the idea that the new standards are overly restrictive.

“As we all know, before the crisis, credit was too easy to get,” Shaun Donovan, the secretary of Housing and Urban Development, said in early February. “But now, it’s too hard to obtain for qualified Americans. We are confident that our actions have found the right balance between responsibility and opportunitymoving forward.”

Some advocates say the administration, and the new consumer agency, deserve the benefit of the doubt.

Michael Calhoun, president of the Center for Responsible Lending, shares some of the concerns about access to credit expressed by Mr. Marks. About 15 percent of the mortgage

loans made by Self-Help Credit Union, a lender affiliated with the center, would not meet the new standards.

But Mr. Calhoun said the consumer agency was on the right track. “They have done everything that they can to facilitate an expansion of credit,” he said.

And even some who share the concerns expressed by Mr. Marks see his approach as unnecessarily confrontational.

“He means well, and what he does helping people is why I support him,” said Representative Corrine Brown, a Florida Democrat who has been a regular guest at the nonprofit’s housing fairs. “But over time you need to learn to work with people and mellow.”

Mr. Marks does not intend to let the issue rest quietly, however. He has all the lending money he can use. He makes $165,000 a year, owns a comfortable house with his wife, a lawyer who also works for the nonprofit. They have a teenage daughter. Yet he still is fueled by a burning anger that some people are not getting what he views as a fair chance at homeownership.

“People say to me all the time, ‘Will you be less confrontational, less aggressive, less pushing the limits?’ ” he said. “The time where we stop pushing is when they should find someone else to run the organization.”