Monday, May 12, 2008

Lend America: Lending for the long term

Lend America, Melville, N.Y., a privately-owned, direct-to-consumer residential mortgage lender that focuses on government-insured lending, has partnered with the Rainy Day Foundation, a non-profit organization, in an effort to keep FHA borrowers in homes longer.

Under the new agreement, Lend America will originate the loans and Rainy Day will provide its Homeowner Education and Loan Protection Program (HELP).

I spoke to Michael Ashley, Chief Business Strategist of Lend America, and Rick Del Sontro, CEO of the Rainy Day Foundation, about the new program.

According to Del Sontro, H.E.L.P ensures borrowers have a clear understanding of the home ownership process, while offering counseling to promote the positive financial behavior, such as savings plans, needed for long-term home ownership. In addition, H.E.L.P will offer borrowers financial protection, including assistance with mortgage payments, should an unexpected financial crisis arise.

Del Sontro, who stared Rainy Day in 2003, says that FHA borrowers can get into trouble by the sixth month and delinquencies usually peak by the 12th month and then begin to decline by the 18th month.

“Over the past 5 years, we’ve learned that these borrower face some inherent challenges,” said Del Sontro. “They don’t come into home ownership with a lot of reserves. It’s not required, so they are one hiccup away from running into problems. And they don’t have great allies. They don’t have anyone who can coach them through certain things.”

Ashley said the alliance with Rainy Day is a perfect fit for his business. Lend America abandoned subprime lending about three years ago because Ashley thought government-insured programs would serve his market better. The company secured the toll free number 1-800-FHA-FIXED and began specializing in the products. But Ashley says he still sees more borrowers getting into trouble.

“We are hearing firsthand, through our telephone hotline, how homeowners are finding themselves overburdened by their mortgage situation and our looking for real solutions that can help them now,” he said.

H.E.L.P. provides one-year job loss protection that provides up to 6 months of mortgage payments, financial crisis protection that provides mortgage payment assistance in a crisis, and a monthly newsletter. Del Sontro said that the organization makes monthly calls to the borrower for the first six months to solidify the relationship.

“Many homeowners have little understanding of their current and/or future financial obligations and the first time there is a significant financial setback, there is not enough savings to keep them from experiencing a financial setback,” Del Sontro said. “With a preventive initiative such as H.E.L.P., borrowers will better understand the process and financial responsibilities of owning a home and learn the tools to be better prepared to manage the debt associated with home ownership.”

The insurance is underwritten by a national insurance provider Rainy Day declined to name, but Lend America also pays a fee to enroll its customers in the program.

Lenders have counted on community organizations in the past to help first time homeowners get into new homes, mostly through downpayment assistance. Most of the programs designed to get borrowers back out of trouble have been reactive in the past. Ashley says this alliance is a proactive response designed to make borrowers more successful at home ownership. Since FHA is the new subprime, this may be a timely test of the industry's ability to make that happen.

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