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Voucher Homeownership 

Program Assessment 

Volume II 

Case Studies 
Table of Contents 

Introduction ...........................................................................................................................................i 

Bernalillo County, NM......................................................................................................................1-1 

Colorado.............................................................................................................................................2-1 

Danville, VA.......................................................................................................................................3-1 

Green Bay, WI...................................................................................................................................4-1 

Milwaukee, WI...................................................................................................................................5-1 

Missoula, MT .....................................................................................................................................6-1 

Montgomery County, PA..................................................................................................................7-1 

Nashville, TN......................................................................................................................................8-1 

San Bernardino, CA..........................................................................................................................9-1 

Syracuse, NY....................................................................................................................................10-1 

Toledo, OH.......................................................................................................................................11-1 

Vermont............................................................................................................................................12-1

 
Introduction 

This report is the second volume in a two-volume assessment of the voucher homeownership program

prepared by Abt Associates Inc. for the U.S. Department of Housing and Urban Development. HUD 

contracted with Abt Associates in 2001 to describe the early implementation of the voucher 

homeownership program. The study is the first assessment of the program at this early stage of its 

implementation and examines how the program is working in the following locations across the 

country: 

• Bernalillo County, NM 

• Colorado (state program) 

• Danville, VA 

• Green Bay, WI 

• Milwaukee, WI 

• Missoula, MT 

• Montgomery County, PA 

• Nashville, TN 

• San Bernardino, CA 

• Syracuse, NY 

• Toledo, OH 

• Vermont (state program) 

The 12 study sites were selected to include both PHAs that are operating their programs without 

outside resources (beyond the voucher program) to defray the cost of administering the program and 

PHAs that are offering the program as part of the Neighborhood Reinvestment Corporation (NR)’s 

voucher homeownership demonstration.1

 A second site selection criterion was that sites had to have 

had at least one family purchase through the program as of November 2001 when site selection was 

conducted. After satisfying these two criteria, we selected sites covering a range of program designs, 

geographic locations, and PHA characteristics. The 12 study sites, however, were not intended to be 

representative of any broader pool of homeownership programs, housing markets, or PHAs. 

The study draws on complementary analytical techniques—case studies and cross-site analysis. The 

study findings are organized into two volumes based on these different modes of analysis. Volume 1 

of the report—the Cross-Site Analysis—highlights common themes and patterns across the study

sites, including lessons learned from the early implementation of the voucher homeownership 

program. Volume 1 also includes a detailed introduction to the voucher homeownership program 

and to the study, as well as an Executive Summary of the main study findings.

Volume 2 of the report—the Case Studies—provides details on the voucher homeownership 

programs at each of the study sites and tells the story of program implementation from the point of 

view of program staff, partners, and participants. The case studies presented in Volume 2 form the 

basis for the cross-site findings presented in Volume 1. The case studies discuss in detail the program

choices that the study sites made in designing local voucher homeownership programs and the 

challenges that the PHAs and their partners have faced in program implementation. 

 1 Under the demonstration, as of May 2002, NR has provided funding to 21 of its local NeighborWorks 

affiliates—community-based organizations that work with low-income homebuyers and homeowners—to

partner with PHAs to implement the voucher homeownership program. In fiscal years 2001 and 2002, 

Congress appropriated a total of $15 million to NR to support this initiative. 

i 
The case studies were developed following two-day site visits conducted by Abt staff to each of the 

12 study sites. During the site visits, we interviewed program staff, partners, and program

participants; gathered data on participating families from PHA administrative files; and compiled 

detailed information on how home purchases are financed. Finally, we collected U.S. Census Bureau 

data at the neighborhood level to evaluate how the neighborhoods in which families are purchasing 

compare to the neighborhoods in which they were renting. 

The case studies provide particular insight into how local factors—such as housing market conditions, 

PHA staff capacity, and the availability of program partners—shaped the design and implementation 

of the program at each study site. The diversity of the study sites in terms of housing markets, PHA 

types, and populations served is such that the case studies should also offer useful lessons to a range 

of PHAs considering offering the program. 

Each case study covers the following topics: 

• Housing market conditions; 

• Program design, including: targeting and outreach, homeownership counseling, home search 

and inspections, financing models, and post-purchase activities; 

• Program management, staffing, and partnerships; 

• Program outcomes; and 

• Lessons learned. 

The case studies include numerous exhibits designed to be helpful for PHAs considering the voucher 

homeownership option. These exhibits include a flow diagram of the voucher homeownership 

purchase process at each site; summaries of the study sites’ approaches to targeting and outreach, 

counseling, and inspections; and sample purchase transactions to illustrate the financing arrangements 

in place at each site. Finally, the case studies document the key advice that program directors and 

staff at the 12 study sites offered to PHAs considering the homeownership program. 

 

 

 

ii 
Bernalillo County, New Mexico 

Bernalillo County Housing Department 

Introduction 

The Bernalillo County Housing Department (BCHD), a division of the Bernalillo County

government, administers 1,693 housing choice vouchers. Bernalillo County is the most populous 

county in New Mexico and includes the city of Albuquerque. BCHD administers the voucher 

program in the unincorporated areas of Bernalillo County; however, an agreement with Albuquerque 

Housing Services allows voucher program participants from unincorporated areas of the county to 

relocate to the city of Albuquerque and vice versa. 

BCHD began offering the voucher homeownership option in July 2001 under the authority of HUD’s 

final rule. At the time of the site visit, in March 2002, 13 program participants had purchased houses. 

In April 2002, two more households purchased. Local partners play a central role in BCHD’s 

program. The New Mexico Mortgage Finance Authority (the State Housing Finance Agency) 

provides below-market first mortgage loans and down payment and closing cost assistance to 

program participants. These additional subsidies are crucial to making homeownership affordable to 

BCHD participants. BCHD has also partnered with two nonprofit organizations to provide 

homeownership counseling. One of these organizations provides counseling specifically for persons 

with disabilities and has been instrumental in assisting borrowers to purchase using Fannie Mae’s 

HomeChoice mortgage product for persons with disabilities. BCHD and its partners are pleased with 

the number of closings to date and hope to achieve as many as 20 closings per year. However, most 

of the households who have purchased through the program thus far were fairly close to being able to 

purchase at the time they applied to the program. BCHD anticipates that as the program expands, the 

low incomes and poor credit of applicants may become a more significant challenge. 

Housing Market Conditions 

Bernalillo County has one of the more expensive housing markets among the 12 sites in the study. 

However, housing prices currently appear to be relatively stable. According to the National 

Association of Realtors, the median sales price of existing homes in the first quarter of 2002 was 

$128,000, four percent lower than the 2001 median. BCHD staff report that there is sufficient 

housing stock affordable to program participants, although one- and two-bedroom units are more 

difficult to find than larger units. The purchase prices of the homes purchased through BCHD’s 

program thus far range from $73,787 to $167,300, with an average purchase price of $98,008. The 

purchase price of $167,300 is something of an exception, as the next highest purchaser price is 

$117,900. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

units in Bernalillo County. Approximately 64 percent of the units in the county are valued between 

$50,000 and $149,000, within the price range of BCHD program participants. This supports the view 

of program staff that the local housing market does not present a barrier to the program’s growth. 

1-1 
Value of Owner-Occupied Units in Bernalillo County, Based on 2000 Census 

-

10,000

20,000

30,000

40,000

50,000

60,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants range 

from $73k to $167k 

Number of 

Units 

Value of Units 

Program Design

Targeting and Outreach 

BCHD makes the voucher homeownership option available to existing participants in its rental 

voucher program and to households admitted to the voucher program from the waiting list. To date, 

most homeownership applicants have been existing voucher program participants. In addition to the 

minimum income and employment requirements specified in the final rule, BCHD requires that 

program applicants have no outstanding debt to BCHD, no family-caused violations of HUD’s 

Housing Quality Standards (HQS) in the last 12 months, and 

no serious or repeated lease violations within the past 12 

months. Potential applicants from the waiting list with poor 

credit are encouraged to enter the rental program until they

have an opportunity to improve their credit. Candidates who 

appear to be purchase-ready may go directly into the 

homeownership option. 

BCHD officials have not set a limit on the number of 

households who may pursue homeownership, but estimate that 

they will likely have about 20 closings per year. BCHD staff 

report that they have tried to keep the program requirements 

simple and open to as many households as possible. As a result, they have not limited the program to 

participants in the FSS program or otherwise imposed additional PHA eligibility requirements. When 

it first announced the homeownership option, BCHD sent letters to all households in its rental 

voucher program that met the minimum income requirement for the program (about 500 households). 

Based on its previous experience administering a down payment assistance program for the New 

Target Population and Outreach Methods 

BCHD’s voucher homeownership option is 

available to existing voucher participants and 

households admitted to the program off the 

waiting list. 

Since conducting initial outreach to about 500 

rental voucher participants in July 2001, BCHD 

has relied primarily on word of mouth to market

the program. 

1-2 
Mexico Mortgage Finance Authority (MFA), BCHD expected that less than 10 percent of those 

recruited to the program would be able to purchase in the first year. 

According to BCHD staff, 225 households have expressed interest in the program since it was first 

announced. Ten percent of these households did not meet the minimum employment and income

requirements of the program, and others have poor credit that will prevent them from purchasing for 

some time. Nevertheless, as of March 2002 BCHD staff felt that they had incurred a sufficient 

backlog of prospective homebuyers that they no longer needed to market the program actively. At the 

time of the site visit, BCHD’s primary method of outreach was to discuss the homeownership option 

at briefings for new voucher program participants and at annual reexaminations of existing program

participants. BCHD staff also receive inquiries from participants in Albuquerque Housing Services’

rental voucher program, who have heard about the homeownership option through word of mouth. 

BCHD asks all clients expressing an interest in the homeownership option to sign a letter of intent to 

participate in the program. While not a formal screening device, the letter includes a checklist of the 

basic eligibility criteria of the program (e.g., first-time homebuyers, minimum income requirements, 

good credit, etc.). Clients who believe they meet the eligibility requirements are encouraged to 

contact BCHD’s Family Self Sufficiency Program (FSS) Coordinator, who is responsible for the daily

management of the program. The FSS coordinator discusses the program requirements with 

applicants over the telephone and refers them to the nonprofit organizations that provide 

homeownership counseling. Once the applicants have completed the pre-purchase counseling, they

meet in-person with the FSS Coordinator to begin BCHD’s formal screening process. 

Homeownership Counseling 

BCHD has partnered with two nonprofit agencies to provide pre- and post-purchase homeownership 

counseling. Neighborhood Housing Services (NHS) of Albuquerque, Inc. provides counseling to 

non-disabled program participants and HOME New Mexico (HNM) provides counseling to 

participants with disabilities. Representatives from both NHS and HNM reported that the voucher 

program participants they counsel have more severe credit issues and require more counseling than 

other first-time homebuyers with whom they typically work. 

NHS requires voucher program participants to attend one eight-hour pre-purchase homebuyer 

education course. These sessions are held twice monthly on Saturdays. Voucher participants are 

grouped with other first-time homebuyers. NHS staff lead the sessions and guest speakers, such as 

lenders and realtors, make presentations. The topics covered include mortgages, budgeting, credit, 

maintenance and repair, predatory lending, homeowners insurance, and the home search process. 

In addition to the group session, NHS provides one-on-one counseling on a case-by-case basis. In 

particular, NHS provides individualized credit counseling to participants requiring individualized 

attention in this area. NHS works with these participants to establish a detailed credit repair plan. As 

the Executive Director of NHS noted, “We prefer to give the families a few months to address just a 

few issues at a time to avoid overwhelming them. It makes the families feel better if they can see 

incremental progress.” NHS uses a tracking system that includes sending a follow-up letter to 

1-3 
Bernalillo County Voucher Homeownership Purchase Process 

BCHD pre-screens family

for program eligibility and 

refers family to counseling

Family meets with lenders 

for preapproval

Family contacts BCHD

Family enters into 

contract of sale

Family schedules

independent inspection

Family obtains approval

of lenders for mortgage 

loans and grants

BCHD conducts HQS 

inspection after 

independent inspection

Family selects realtor 

and begins searching 

for a home

BCHD reviews 

inspection reports and 

financing

Family receives

financing and closes

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If repairs are not required

If family has a 

disability

If family is not

disabled

Family completes individual 

orientation, 6 hours of group 

counseling, and individual

counseling as needed with HNM

Family completes 8 hours of

group counseling and individual

counseling as needed with NHS

BCHD screens family for 

program eligibility and 

issues voucher

Families with

disabilities typically

use HomeChoice

loan products

Families without 

disabilities typically 

use MFA loan

products

1-4 
families who have not purchased every three months for a year. Given that many voucher 

homeownership candidates are not ready to purchase when they complete the counseling, this 

provides participants with an ongoing connection to the program. 

HNM provides homeownership counseling for voucher 

homeownership participants with disabilities. Founded in 

1995, part of HNM’s core mission is to provide specialized 

homeownership counseling to first-time homebuyers with 

disabilities. HNM requires all voucher homeownership 

participants to attend a one-on-one orientation. This one-hour 

meeting allows HNM staff to discuss the participant’s 

particular situation as well as to review their income, credit, 

and goals. Poor credit does not preclude participants from

attending the pre-purchase homebuyer education class. 

Pre-Purchase Counseling 

BCHD has partnered with two counseling 

agencies to deliver pre-purchase counseling to 

program participants. Persons with disabilities 

receive 6 to 8 hours of group and individual 

counseling through HOME New Mexico. Nondisabled participants receive 8 hours of group 

counseling and individual counseling as needed 

through NHS of Albuquerque, Inc.

After the orientation, HNM invites the participants to return for a mandatory six-hour pre-purchase 

homebuyer education class. These classes are held once a month on Saturdays and voucher 

participants are grouped with other first-time homebuyers. The pre-purchase curriculum covers the 

following topics: the benefits of homeownership, money management, home mortgages, home search, 

credit repair, home maintenance, and predatory lending. HNM’s Executive Director reports that in 

addition to the homebuyer education class, nearly all voucher homeownership participants receive 

one-on-one counseling ranging from one to 100 hours depending on each client’s need. “One-on-one 

counseling is the key to success because it allows you to customize the counseling to each individual 

situation. We teach participants how to use the tools to help themselves.” 

Home Search and Inspections 

Both NHS and HNM include the home search process as part of their pre-purchase homebuyer 

education curriculum. However, neither organization provides any formal search assistance to 

voucher participants. BCHD provides participants with a list of realtors who have attended a BCHDsponsored training session on the voucher homeownership program. 

The Executive Directors of NHS and HNM, both former real estate brokers, have used their 

professional backgrounds and industry connections to educate the local real estate community about 

the voucher homeownership program. HNM’s Executive Director believes it is critical that 

participants with disabilities have access to realtors who can help them find a suitable house. She 

also noted that it is vital for realtors to be well informed about the voucher homeownership program

because it is a non-traditional transaction (requiring additional paperwork, the HQS inspection, and 

understanding of the voucher payment standards). With these concerns in mind, she recruited realtors 

to attend the training session on the voucher homeownership program referenced above. She 

conducts part of this training in conjunction with BCHD staff. 

NHS’s Executive Director has been sensitive to the needs of Bernalillo County’s Vietnamese 

population. Thus far, one-third of the purchasers in the program have been Vietnamese immigrants. 

NHS’s Executive Director connected these program participants to a real estate broker who speaks 

Vietnamese. While he is careful that participants are not “steered” to any particular broker, he notes 

that it is beneficial and comforting for program participants to have the option to speak to a broker 

who is fluent in their language. 

1-5 
There is no additional assistance with home inspections provided to participants beyond what is 

covered in the pre-purchase homebuyer education classes. BCHD staff report there is no major 

difference between the HQS inspection conducted under the homeownership voucher program versus 

the rental voucher program. However, the HQS inspections for the homeownership program are 

conducted by BCHD’s most senior inspectors (including the Assistant Housing Director who is a 

certified inspector). The HQS inspection does not occur until after an independent inspection is 

completed. The drawback of this process, and why most PHAs conduct HQS before the independent 

inspection, is that families may end up paying for an inspection on a unit that will never pass HQS 

(either because it is in such poor shape or because the seller is not willing to make the repairs). The 

advantage (according to BCHD) of conducting the HQS inspection after the independent inspection is 

that it allows the BCHD inspector to review new repairs that the seller may have made following the 

independent inspection and to assess the quality of the unit just prior to the family moving in. 

Financing Model 

The financing model used in BCHD’s voucher homeownership program varies based on the available 

loan products. Program participants must work with a lender that is approved by FHA and by the 

New Mexico Mortgage Finance Authority (MFA). At the time of the site visit, there were six MFAapproved lenders working with program participants. 

BCHD participants have access to two main sources of financing. First, MFA provides mortgages 

with below-market interest rates and down payment assistance for program participants. MFA uses 

the proceeds from single-family revenue bonds sold to investors to reduce the costs of mortgages for 

first-time homebuyers throughout New Mexico. This pool of funds finances 30-year fixed rate 

mortgages for voucher homeownership participants. The interest rate available to program

participants has averaged about 6.75 percent. For MFA loans, the HAP is considered as an addition 

to the participant’s monthly income and is provided either to the lender or household depending on 

the preference of the particular lending institution. The loans are originated by MFA-approved 

lenders. However, as with all their other mortgage products, MFA requires the loans to be serviced 

by a master servicer who buys them from the originating lender and pools them for sale to the 

secondary market (e.g., Fannie Mae or Ginnie Mae). 

In addition to first mortgage loans, MFA uses funds from HUD’s HOME program1

 to provide down 

payment assistance to BCHD participants through its existing “Payment Saver” loan program. 

BCHD requires program participants to pay at least three percent of the sales price toward the down 

payment. Of this three percent, the higher of one percent or $500 must come from the participant’s 

personal resources. The MFA’s “Payment Saver” program offers interest-free loans of up to $10,000 

(or eight percent of the purchase price) to be used for a down payment. Repayment of the loan 

principal is deferred until the property is sold, refinanced, or transferred. Program participants who 

purchase houses in the unincorporated portions of Bernalillo County (as opposed to the City of 

Albuquerque) are eligible to receive an additional $20,000 in down payment assistance. The reason 

for this disparity is that the City of Albuquerque is an “entitlement” community, and Federal rules for 

 1 HUD’s Home Investment Partnership Program (HOME) provides grants to States and local governments to

fund housing programs that meet local needs and priorities. HOME funds may be used for a broad range of 

eligible activities, including: providing home purchase or rehabilitation financing assistance to eligible 

homeowners and new homebuyers; building or rehabilitating housing for rent or ownership; and providing 

direct rental assistance. 

1-6 
disbursing HOME funds prohibit local jurisdictions from doubling the subsidy amount in 

“entitlement” areas. 

The second source of financing is Fannie Mae’s HomeChoice mortgage program. This program is 

available only to people who have disabilities or have family members with disabilities living with 

them. The HomeChoice program offers 30-year fixed rate mortgages with below-market interest 

rates. HomeChoice mortgages also offer more flexibility than typical mortgages in the loan-to-value 

ratios, down payment sources, qualifying ratios, and the establishment of credit. The interest rates on 

the HomeChoice loans made to BCHD program participants have averaged about 6.25 percent. For 

HomeChoice mortgages, the HAP is applied as a direct offset to the monthly mortgage and is 

provided directly to the lender. HNM’s Executive Director noted that the voucher subsidy often adds 

$20,000 to $30,000 in purchasing power for program participants. She also suggested that without 

the voucher subsidy, a significant share of low-income households in Bernalillo County would not be 

able to purchase houses through the HomeChoice product alone. 

Due to the specialized nature of this product, Fannie Mae has designated just one lender in 

Albuquerque to originate these loans. Fannie Mae also requires this lender to service the 

HomeChoice loans in-house. The lender requires that the monthly mortgage payments be made by

automatic withdrawal from the participant’s bank account. The lender explained that servicing the 

loans in-house keeps the lender (and Fannie Mae) more closely involved and allows them to react 

quickly to loans that might be at risk for default. However, the performance of these loans to date 

was reported to be excellent. 

In addition to the mortgage loans, program participants with disabilities also have access to down 

payment assistance from the following sources: 1) $6,000 through MFA’s “Helping Hand” loan 

program; 2) $5,000 from either the Land Title Trust Funds or from the State of New Mexico; and 3) 

$5,000 through the Federal Home Loan Bank of 

Dallas. All three products are offered as zero percent 

interest loans due upon resale or refinancing. 

Participants may only use “Helping Hand” in 

combination with one of the other two products, so in 

practice the largest amount of down payment 

assistance available to any one participant is $11,000. 

One of the lenders interviewed had originated several 

loans to BCHD voucher homeownership program

participants. He commented that from a business 

perspective, originating loans through the voucher 

homeownership program was attractive because the 

voucher subsidy allows the loan amount to be larger 

than it is in other first-time homebuyer programs 

where the down payment amount comprises a larger 

share of loan. The lender noted that the voucher 

subsidy allows his institution to generate “normal” fees 

on loans to BCHD program participants. However, a loan officer from this institution also noted that 

voucher homeownership candidates require more time and “hand-holding” than other first-time 

homebuyers. 

Sample Purchase Transaction 

Buyer’s Annual Income: $17,514 

Costs to Buyer: 

− Purchase Price: $84,500 

− Closing Costs: $4,141 

Sources of Financing: 

− 1st Mortgage: $67,600 (MFA 6.75% 30 yrs.) 

− Deferred Loan: $20,000 (MFA, 0% def until sale) 

− Forgivable Loan: $3,500 (FHLB, 0%) 

− Buyer Cash Down: $1,041 

Monthly Mortgage Payments: 

− Total monthly PITI: $514

− Monthly HAP to offset PITI: $221 

− Buyer’s share of monthly PITI: $293 

− Buyer’s share of PITI as a percent of gross monthly 

income: 20%

1-7 
BCHD staff review and approve each financing package prior to closing. BCHD does not permit 

balloon payments or adjustable rate mortgages. Because program participants are encouraged to 

work with MFA-approved lenders, it is less likely that they will be offered unaffordable financing. 

However, at the time of the site visit, program staff had just disapproved a financing package that 

included a first mortgage with an interest rate of 22 percent. (The participant had found a newly

constructed home through a builder, who had led her to the lender offering this rate.) When 

reviewing the proposed financing of each purchase, program staff try, as a rule of thumb, to ensure 

that the participant’s share of the monthly mortgage payment(s) does not exceed 40 percent of 

adjusted monthly income. However, they may permit higher payments on a case-by-case basis. 

Post-Purchase Activities 

At the time of the site visit, BCHD was still developing the post-purchase counseling component. At 

a minimum, BCHD intends to offer post-purchase counseling and specific intervention for program

participants who run into difficulty making their mortgage payments. BCHD requests that lenders 

inform the housing agency as early as possible if participants have difficulty meeting their mortgage 

payments. BCHD plans to require participants in danger of default to develop a plan of action and 

obtain additional counseling. As BCHD’s Assistant Housing Director noted, “In the event that a red 

flag goes up, we will require participants to go through additional counseling. If we see families 

getting into trouble we will work with them to create a plan they can follow to avoid future 

difficulties.” The Assistant Housing Director also noted that 

BCHD will use the annual reexamination process to confirm that 

participants are keeping up with their mortgage payments. This is 

particularly important for non-disabled participants whose 

voucher subsidy will end after 15 years. To address this concern, 

BCHD plans to monitor the size of the HAP over time. Housing 

agency staff will use a three to five percent annual decrease in the 

HAP as a benchmark for tracking whether participants will be 

able to meet their mortgage payments at the end of the assistance 

term. 

Post-Purchase Activities 

BCHD intends to require post-purchase 

counseling and develop a plan of action for 

participants in danger of default. 

BCHD will monitor the size of the HAP on an 

annual basis as a way of assessing 

participants’ progress toward self-sufficiency. 

Fannie Mae’s HomeChoice program has a more formal early intervention component. HNM staff 

send voucher program participants with HomeChoice mortgages mailings informing them of the 

availability of post-purchase counseling and encouraging them to return to HNM for individualized 

assistance as necessary. In addition, Fannie Mae requires the lender servicing the HomeChoice loans 

to inform HNM about late payments within 30 days. The Executive Director of HNM believes this 

will be a powerful tool to prevent clients from going into default. HNM also has emergency funds 

available for clients who miss a mortgage payment. In general, the emergency funds can be used to 

cover only one missed mortgage payment and only if the missed payment is due to circumstances 

beyond the client’s control (such as a death in family, loss of a job, or a medical crisis). This 

emergency assistance is provided as a zero percent interest loan repaid in monthly installments. 

1-8 
Program Management, Staffing, and Partnerships 

Outside partners play a critical role in BCHD’s voucher homeownership program. As BCHD’s 

Assistant Housing Director noted, “The approach we have taken is to let each partner do what they do 

best. We let our partners play an active role.” The key actors and their roles in the program are: 

BCHD for program administration; NHS of Albuquerque, Inc. and HNM for homeownership 

counseling; and MFA for mortgage loans and down payment assistance. BCHD attributes much of 

the program’s success to these partnerships, but developing and sustaining the partnerships has also 

required considerable work by BCHD staff. 

BCHD did not hire new staff to work on the voucher homeownership program. This was possible in 

part because there were several partner agencies in the community willing and able to fulfill key

programmatic functions. Nevertheless, BCHD reports that planning, designing, and implementing the 

program has been labor intensive. The planning and design effort was led by BCHD’s Assistant 

Housing Director and FSS Coordinator, who initially researched the operation of homeownership 

voucher programs at the HUD pilot sites. In particular, they looked closely at the program operated 

by Colorado’s Department of Human Services, Supportive Housing and Homeless Programs (SHHP). 

BCHD spoke with SHHP staff about their program and downloaded copies of some of SHHP’s 

policies and procedures documents from the Internet. BCHD was particularly attracted to SHHP’s

focus on persons with disabilities because HNM had expressed interest in making the voucher 

homeownership option available to this population. 

In addition to drawing upon the experience of SHHP, BCHD called upon its previous experience in 

operating a homeownership program. In the early 1990s, BCHD administered a down payment 

assistance program for MFA, using HOME program funds. MFA provided BCHD with funds to 

provide up to $15,000 in down payment assistance to households with incomes below 80 percent of 

the area median. Thirty-four low- and moderate-income households purchased houses on the private 

market through this program. BCHD’s Executive Director believes the experience was helpful in 

developing the voucher homeownership option because, “our mentality was already programmed for 

homeownership.” 

This prior partnership with MFA also gave MFA confidence in BCHD’s capacity to administer a 

homeownership program. In early 2001, BCHD approached MFA about accessing down payment 

assistance funds for voucher homeownership participants. After reviewing HUD’s program

regulations, MFA suggested that in addition to down payment assistance, MFA could adapt one of its 

existing mortgage products for use in the program. Given that MFA did not have much previous 

knowledge of the voucher program, BCHD reports it was important to spend time educating MFA 

staff about voucher program regulations and nomenclature. 

During the program design and development phase, which took about four months, BCHD’s FSS 

Coordinator spent about 75 percent of her time on the program. In addition, the Assistant Housing 

Director spent about 50 percent of his time on the program. 

With the program fully operational, as of March 2002, the FSS Coordinator devotes approximately 25 

percent of her time on the program and the Assistant Housing Director devotes five to 10 percent of 

his time. The FSS Coordinator handles the day-to-day management of the program and has the most 

1-9 
contact with program partners and participants. The total level of effort by BCHD staff is now 

approximately one third of one full-time equivalent staff. 

Although 15 families have purchased through the program and the program’s structure is firmly in 

place, interviews with BCHD staff and outside partners noted several program issues that may require 

ongoing monitoring. The first is a BCHD resource issue. Thus far, BCHD has funded its voucher 

homeownership activities entirely through voucher program administrative fees. BCHD’s Assistant 

Housing Director believes that BCHD could “double or triple” the number of closings through the 

program if the housing agency had more resources to allow staff to work closely with program

applicants with credit problems. He suggested that with 

additional staff time to devote to the program, BCHD could 

develop additional partnerships in the community. At the 

same time, he noted that BCHD cannot afford to allow the 

FSS Coordinator to spend more than 25 percent of her time 

on the homeownership program, at least in part because her 

normal duties are a SEMAP-rated area. 

The program has also raised resource concerns for BCHD 

partners. Specifically, BCHD’s reliance on other agencies to 

fulfill key programmatic functions runs the risk of placing an 

excessive burden on its partners. For example, HNM’s Executive Director reported that there is a 

fine line between counseling voucher homeownership clients and taking on the roles of the housing 

agency. As she noted, “We are trying not to be everything to all people. We can’t be expected to 

answer all the voucher-related questions such as portability or landlord matters. We try to route those 

types of issues back to BCHD.” Furthermore, she noted that she would prefer that BCHD devote one 

staff person to work on the program full-time, as opposed to the FSS Coordinator’s current 

commitment of one day a week. 

Program Staffing 

BCHD devotes the equivalent of one third of one

full-time staff person to administering the 

program. This includes daily management of the

program and working with the outside agencies 

that provide counseling and financing to program

participants. Given limited PHA resources, 

these partnerships are essential to BCHD’s 

ability to offer the program. 

Another management issue is related to BCHD’s voucher utilization rate. At the start of the voucher 

homeownership program, BCHD staff were concerned that the homeownership program might 

jeopardize the agency’s voucher utilization rate. In particular, staff were concerned that if 

homeownership applicants coming off the voucher waiting list would take much longer to “lease up” 

their vouchers (by buying a home) than families in the rental program. In order to mitigate this risk, 

BCHD decided not to issue vouchers to applicants until they are certified to be eligible for the 

program, have completed homeownership counseling, and have been pre-qualified for a mortgage by

a lender. In addition, BCHD staff encourage families admitted from the voucher waiting list and 

interested in homeownership to rent for a year while they prepare to purchase. As a result of these 

efforts, most of the families who have purchased through the program have been existing rental 

participants, and BCHD’s utilization rate has not been adversely affected. 

Finally, HNM staff expressed concern about their perceived role in the program. According to HNM 

staff, at the start of the program HNM played a “middle man” role between the HomeChoice lender 

and BCHD because there was considerable confusion about how the mortgage amount would be 

calculated. For example, program participants would be quoted one loan amount from the lender and 

given a different figure by BCHD. Because of their close contact with program participants, HNM 

staff found themselves facilitating contact between the lender and BCHD. There has been much less 

confusion over this issue—and less need for HNM to step in—since the lender and BCHD created a 

form that they share with one another that gives a best estimate of the HAP and mortgage amount. 

1-10 
Program Outcomes 

As of April 2002, 15 program participants had purchased through the program. Although BCHD staff 

did not set an official target for the number of purchases, they are close to reaching their unofficial 

goal of 20 closings per year. In addition to the 15 purchasers, 68 households have completed prepurchase homeownership counseling (including 30 persons with disabilities). At the time of the site 

visit, in March 2002, 16 of the 68 households who had completed counseling but not yet purchased 

had pre-qualified for mortgages and were searching for homes. The remaining 52 households have 

credit issues to address before they will be ready to purchase. BCHD staff reported that they would 

ideally like to complete more than 20 closings per year. However, the Assistant Housing Director 

noted that thus far, the people who have purchased or are purchase-ready are “the cream of the crop”-

—people who do not require major assistance to become homeowners. This pool of candidates is 

limited. The Assistant Housing Director suggested that BCHD could work with applicants who are 

less prepared for homeownership— “transforming renters into homeowners” as he put it—but he 

believes that this may require staff resources that the housing agency does not presently have. 

The average annual household income of participants who have purchased through BCHD’s program

is $14,471. This is significantly higher than the average for participants in BCHD’s voucher program

as a whole, which in May 2001 was $9,725.2 Five of the 15 purchasers are persons with disabilities. 

As might be expected, purchasers with disabilities had 

lower incomes than purchasers without disabilities. 

Thirteen of the 15 purchasers received some form of down 

payment or closing cost assistance. BCHD’s Assistant 

Housing Director noted that many of the purchases would 

not have been possible without this additional help. Six 

purchasers, all Vietnamese immigrants, also received gifts 

from family members. These gifts ranged from $4,688 to 

$27,467. 

Program Outcomes 

• Number of households counseled: 83 

• Number of homes purchased: 15 

• Average income of purchasers: $14,471 

• Average purchase price: $98,008 

• Instances of loan default: 0 

All five of the purchasers with disabilities have accessed mortgages through Fannie Mae’s 

HomeChoice program. Combining the voucher subsidy with the HomeChoice program presents an 

attractive opportunity for persons with disabilities. As noted above, the voucher subsidy creates an 

additional $20,000 to $30,000 in purchasing power over what HomeChoice’s below-market interest 

rates can offer. On average, voucher purchasers with disabilities have been able to make down 

payments of five to 20 percent of the purchase price (including grants and subsidies), although 

HomeChoice only requires a three percent down payment. 

BCHD program staff report that most voucher homeownership participants have been able to find 

suitable homes without difficulty. On average, purchasers take about two months to purchase once 

they begin homeownership counseling. However, the Assistant Housing Director noted that the 

relative scarcity of smaller houses in Bernalillo County makes it harder for elderly persons and 

persons with disabilities to find homes.3

 The Executive Director of NHS noted that he believes the 

quality of the houses purchased through the program is good. Most of the houses are less than six 

 2

 Based on data collected by HUD’s Multifamily Tenant Characteristics System (MTCS). 

3

 For persons with disabilities, PHAs can request HUD approval for exception payment standards up to 120 

percent of the local Fair Market Rent as a reasonable accommodation. 

1-11 
years old. However, many of these newer houses are “tract” houses in new subdivisions and, as a 

result, they may not appreciate as much as houses in more established neighborhoods. 

BCHD data indicate that about 60 percent of the homes purchased through the program passed the 

initial HQS inspection. The Assistant Housing Director noted the repairs on homes that did not 

initially pass HQS have been relatively minor, such as replacement of electric outlets, adding smoke 

detectors, and tightening loose light fixtures. In all cases, the seller made the necessary repairs. 

“I always wanted my own home but 

did not think it would ever be possible.

This program changed that and now I 

live in an area where I have always 

wanted to live.” 

 - BCHD program participant

The program participants interviewed during the site visit expressed a great deal of satisfaction with 

their homes and neighborhoods. One program participant with a disability commented, “I always

wanted my own home but did not think it would ever be possible. This program changed that and 

now I live in an area where I have always wanted to live.” Prior to 

the voucher homeownership program, this participant had applied for 

a first-time homebuyer program that only qualified her for a $35,000 

mortgage, which precluded her from purchasing in Bernalillo County.

However, with the voucher subsidy, this participant qualified for a 

$65,000 mortgage and was able to buy a house in the neighborhood 

of her choice. 

According to BCHD’s FSS Coordinator, many of the houses purchased by the Vietnamese program

participants border a neighborhood of Albuquerque with a reputation for high crime. Nevertheless, 

the windshield survey conducted during the site visit revealed that homes in this area were well 

maintained and desirable. Furthermore, BCHD staff reported they were careful to counsel these 

participants about the reputation of this area before the participants made their final decision. 

Lessons Learned 

BCHD has been successful in assisting households to purchase houses through the program with a 

relatively low level of PHA staff effort devoted to ongoing program management. BCHD staff 

emphasize the role that outside partners have played in fulfilling key programmatic functions and 

providing attractive financing options for program participants. As BCHD’s Executive Director put 

it, “A lot of housing authorities think they have to do all the work in-house. I think you have to be 

willing to give up some control. Letting go and having partners play key roles in certain 

programmatic functions has been a good thing for us.” 

Thus far, the households who have been able to purchase through the program have had relatively

high incomes and good credit standing. In addition, they have shown initiative in seeking out the 

program. BCHD staff suggest that the households who have completed counseling but have not yet 

purchased are not as prepared for homeownership and typically have poor credit. Serving these 

households—who require more counseling—will put additional pressure on BCHD’s limited staff 

resources. As BCHD’s Assistant Housing Director noted, “At some point we will hit a plateau in the 

number of families that are able to purchase homes through the program. We won’t be able to make 

the impact we would like to without additional resources.” He argued that additional resources from

HUD would allow BCHD and its partners to deliver more intensive counseling to this segment of 

voucher participants and help more households purchase homes. The Assistant Housing Director also 

suggested that additional down payment assistance funds would be helpful to ensure that voucher 

homeownership participants can afford to purchase in the local housing market. 

1-12 
BCHD staff and partners offered the following advice to PHAs considering the voucher 

homeownership option: 

• Partnerships allow PHAs to outsource key program roles, reducing the burden on PHA staff. 

PHAs must be willing to give some control to their partners, including lenders. Building strong 

relationships with lenders through open and frequent communication is critical to reducing the 

amount for work required by PHA staff and other partners over the long-term. Lender confusion 

or lack of support for the program can present a major obstacle for everyone involved. 

• Open and continuous communication among partners is key to smooth and efficient program 

implementation. Confusion among the program partners about how the mortgage would be 

calculated using the voucher subsidy caused some confusion in the early implementation of 

BCHD’s program. As HNM’s Executive Director summarized, “communication between lenders 

and the PHA is critical.” 

• It is not necessary for PHAs to “reinvent the wheel.” BCHD drew from the example of an 

agency that was already offering the homeownership option and adapted the model to serve local 

circumstances. In designing their programs, PHAs should also try to keep the programs as 

flexible as possible so as not to preclude potential partnership opportunities. For example, BCHD 

has been open to using different financing models (HAP as direct mortgage offset and HAP as 

income) with different lending partners. 

Bernalillo County Program Summary 

Number of homes purchased: 15 

Average income of purchasers: $14,471 

Average purchase price: $98,008 

Average monthly HAP payment: $234* 

Financing models: HAP as Offset, HAP as Income 

PHA program staffing: 0.3 full-time staff equivalent 

*Based on a sample of 10 purchases. 

1-13 
State of Colorado 

Department of Human Services, Supportive Housing 

and Homeless Programs 

Introduction 

Colorado’s Supportive Housing and Homeless Programs (SHHP), a division of the State Department 

of Human Services, administers approximately 2,600 housing choice vouchers statewide, primarily to 

persons with disabilities. The homeownership option is available to persons with disabilities 

throughout the state who have rented through SHHP’s voucher program for at least a year. As of 

May 2002, 21 voucher households had purchased through the program. SHHP has been involved in 

providing homeownership opportunities to persons with disabilities since 1993, when it received 

HUD HOPE 3 funds to provide down payment assistance to clients with mental disabilities. Prior to 

the HOPE 3 program, SHHP had helped establish a task force of nonprofit organizations, lenders, and 

city and state agencies to increase homeownership opportunities for persons with disabilities. This 

task force, now known as the HERO (Homeownership Education and Resource Opportunities) 

Alliance, saw the proposed voucher homeownership option as a good opportunity for this population. 

SHHP received permission from HUD in January 2000 to offer the voucher homeownership option 

under the proposed rule as a pilot site. 

The main challenge for SHHP’s voucher homeownership program has been the tight housing market 

in the Denver metropolitan area, where 10 of the 21 program participants have purchased. The high 

cost of housing in many parts of Colorado, together with the extremely low incomes and special 

needs of SHHP’s voucher participants, has influenced the implementation of SHHP’s homeownership 

program. In particular, SHHP and its partners have been able to make a high level of subsidy

available to program participants in addition to the monthly voucher subsidy, including below-market 

mortgages and down payment and closing cost assistance. 

Housing Market Conditions 

The state of Colorado includes some of the most expensive housing markets among the 12 sites in the 

study. According to the 2000 Census, the median house value for the state as a whole was $168,896, 

more than 40 percent higher than the national median. The housing market in the Denver area is 

particularly tight. According to the National Association of Realtors, the median sale price of 

existing homes in the Denver metropolitan area in the first quarter of 2002 was $223,800, up 3 

percent from 2001 and 14 percent from 2000. In contrast, the purchase prices of the homes purchased 

through SHHP’s voucher homeownership program range from $65,000 to $127,000, with an average 

purchase price of $95,238. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

housing units across the state of Colorado. Just over a third of the units in the state (38 percent) are 

valued below $150,000, within the potential price range of voucher program participants (although it 

is unlikely that participants will be able to purchase units for more than $130,000). The majority of 

housing units in Colorado (62 percent) are valued at $150,000 or more. In the Denver metropolitan 

area, 68 percent of housing units are valued at $150,000 or more. The relative scarcity of housing 

2-1 
within the price range of program participants suggests that the housing market—particularly in the 

Denver metropolitan area—presents a potential barrier to the growth of SHHP’s voucher 

homeownership program. 

 

Value of Owner-Occupied Units in Colorado, Based on 2000 Census 

0

50000

100000

150000

200000

250000

300000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Number of 

Units 

Value of Units

Units purchased by voucher 

homeownership participants range 

from $65k to $127k 

Program Design

Targeting and Outreach 

The homeownership option is available to persons with disabilities who are existing participants in 

SHHP’s rental voucher program. Operating under the proposed rule as a pilot site, SHHP was not 

covered by the HUD minimum income threshold established in the final rule, and typically serves 

families with incomes below the HUD minimum income amount. SHHP chose to restrict its program

to households who have participated in the rental program for at least a year and are in good standing 

with the agency, but not to impose other eligibility requirements. In particular, there is no minimum

income requirement. Households who meet the basic eligibility criteria and who report that they have 

good credit are invited to attend homebuyer education and pursue homeownership. SHHP 

encourages applicants who think that poor credit or lack of credit may prevent them from obtaining a 

mortgage to request a credit report and pursue credit counseling as needed. SHHP’s Program

Coordinator provides information on credit counseling to program applicants both verbally and as 

part of a packet of information sent out to program applicants. 

SHHP’s Program Coordinator noted that the program would have fewer participants if it were 

operating under the final rule, which requires that households admitted to the program have an annual 

income equal to at least 2,000 hours of annual full-time work at the Federal wage (currently $10,300). 

Ten of the 21 households that have purchased homes to date have annual incomes below $10,300. 

2-2 
Moreover, analysis of SHHP program data from May 2001 suggests that approximately four-fifths of 

all persons with disabilities in SHHP’s rental program have incomes below $10,300. 

SHHP has a preference in its homeownership program for participants in the FSS Program. Thus far, 

however, FSS participation has not been a big factor. SHHP’s FSS program is relatively small 

(approximately 40 participants) and to date only one 

voucher homeownership purchaser has been an FSS 

participant. 

SHHP administers its rental voucher program statewide by

delegating certain aspects of program administration—

including intake, HQS inspections, and annual 

reexaminations—to a network of residential coordinators. 

The residential coordinators are typically staff from local 

service agencies that serve persons with disabilities (such 

as mental health centers, independent living facilities, and 

agencies serving persons with developmental disabilities). 

When SHHP began offering the voucher homeownership option, SHHP staff encouraged the 

residential counselors to market the program to potential homebuyers across the state. After the first 

few closings, however, SHHP staff decided that they did not need to market the program aggressively

in order to meet their target of 10 closings per year for the first two years. SHHP now relies primarily

on referrals by the residential coordinators and word of mouth. SHHP currently receives about four 

new applications a month. SHHP’s Program Coordinator processes voucher homeownership 

applications at SHHP’s central office in Denver, but the residential coordinators have primary contact 

on a day-to-day basis with program applicants outside the Denver area. The residential coordinators 

also conduct the pre-purchase HQS inspection and annual reexaminations for homeownership 

program participants. 

Target Population and Outreach Methods 

SHHP’s voucher homeownership option is available

to persons with disabilities who have participated in 

the rental voucher program for at least a year and 

are in good standing with the agency. 

SHHP has not marketed the program aggressively 

but has relied primarily on word of mouth and 

referrals by the staff administering the voucher 

program to reach out to potential homebuyers.

Homeownership Counseling 

SHHP believes that providing quality pre-purchase counseling is critical to the voucher 

homeownership program’s success, particularly given the very low incomes of program participants 

and the challenges associated with their physical and mental disabilities. However, ensuring that 

good quality counseling is available statewide is a challenge. Through the HERO Alliance, SHHP 

has developed a close relationship with the Colorado 

Housing Assistance Corporation (CHAC), a Denver-based 

nonprofit agency that provides down payment assistance 

and homeownership counseling to first-time homebuyers. 

CHAC also provides specialized homeownership 

counseling for persons with disabilities. However, given 

the size of the state, SHHP has had to partner with multiple 

agencies to provide the mandatory counseling. Program

participants may attend any homebuyer education class 

provided by a counseling agency approved by the Colorado 

Housing and Finance Authority (CHFA). CHFA subsidizes 

the counseling, which is free for program participants. 

Pre-Purchase Counseling 

SHHP requires that participants complete a 

homebuyer education class taught by one of 31 

counseling agencies across the state that have 

been approved by the Colorado Housing and 

Finance Authority. Participants who apply for 

down payment assistance may also receive an 

additional one-on-one counseling session and 

credit assessment.

2-3 
Colorado (SHHP) Voucher Homeownership Purchase Process

Family is briefed by SHHP 

and submits application

Family is certified eligible

by SHHP and referred to

counseling

Family meets 

individually

with CHAC

counselor

Family meets with CHFAapproved lender for 

mortgage preapproval

Family contacts SHHP

Family completes 4 hrs 

group counseling at 

CHFA-approved

counseling agency

Family enters into 

contract of sale

SHHP Residential 

Coordinators conduct

HQS inspection

Family formally applies

for mortgage and down

payment assistance

Family selects a realtor 

and searches for a

home

SHHP reviews 

inspection reports and

financing

Family receives

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If repairs are not required

If family receives

counseling from 

CHAC or applies to

CHAC for down 

payment assistance

Family schedules 

independent inspection

If family reports

having credit issues Family is 

referred to

credit

counseling

2-4 
There are currently 31 CHFA-approved counseling agencies statewide. CHFA monitors the quality

of the counseling provided by these agencies by auditing every class and instructor on a periodic 

basis. The length of the homebuyer education class varies from agency to agency, but is typically

about four hours and covers budgeting, credit, homeownership financing (including predatory

lending), working with a realtor, the inspection process, and post-purchase home maintenance. SHHP 

participants typically take the class alongside other low-income, first-time homebuyers who are not 

receiving voucher assistance and may or may not have disabilities. Twelve of the 31 agencies offer 

specialized counseling for persons with disabilities. SHHP encourages its participants to attend these 

specialized classes and to have a service provider or family member accompany them if necessary. 

In addition to the mandatory homebuyer education class, some participants in SHHP’s voucher 

homeownership program also receive one-on-one counseling (including a credit assessment) from

CHAC, which provides first-time homebuyers access to down payment assistance in the form of 

deferred and forgivable loans. A one-on-one counseling session with CHAC’s homeownership 

counselor is required for purchasers who receive down payment assistance through CHAC. Of the 21 

families that have purchased to date, 13 have received down payment assistance from CHAC. 

CHAC’s counselor is experienced in working with persons with disabilities and knowledgeable about 

the voucher program. She travels throughout the state to meet with individual program participants. 

SHHP’s Program Coordinator believes that program participants generally receive high quality prepurchase counseling—either through the mandatory homebuyer education class or through one-onone meetings at CHAC. However, he sees pre-purchase counseling as an area of the program that 

warrants continued attention. Most of SHHP’s purchasers have little income to spare after paying the 

monthly mortgage and other expenses. In addition, Medicaid has an asset limitation of $2,000, which 

makes it difficult for the many program participants who rely on Medicaid for health insurance to set 

aside funds for home repairs or other needs. Given these challenges, it is imperative that the prepurchase counseling, particularly on budgeting, be effective. 

Home Search and Inspections 

Beyond the homeownership counseling, SHHP does not provide program participants with any

additional housing search assistance. Program participants are encouraged to work with a realtor, and 

some of the counseling agencies provide lists of recommended realtors. Thus far, finding homes has 

been difficult for some participants purchasing in the Denver area; one participant looked for 11 

months before finding a house that met her needs. On average, however, program participants have 

taken just over four months to find and purchase a home after completing the counseling. 

SHHP works through its network of residential coordinators to conduct the pre-purchase HQS 

inspections on voucher homeownership units. SHHP tries to coordinate the HQS inspection so that it 

happens at roughly the same time as the independent inspection—this way SHHP can present the 

seller with a single list of required repairs. Seventy percent of the purchased units sampled for this 

study passed HQS on the first inspection. SHHP’s Program Coordinator suggested that thus far, the 

repairs required have been minor and he has not encountered a situation where the independent 

inspection revealed flaws that prevented the sale from going through. 

2-5 
Financing Model 

SHHP worked closely with CHFA to develop the financing model for the voucher homeownership 

program. CHFA offers two 30-year fixed rate loan products for persons with disabilities, known as 

HomeAccess and HomeAccess Plus. HomeAccess is targeted to very low-income borrowers 

(typically with incomes less than $20,000) and offers a three percent interest rate. HomeAccess Plus 

is geared toward borrowers in the $20,000 to $40,000 income range and offers the same belowmarket interest rate as CHFA’s other affordable mortgage products (as of April 2002, 6.25 percent). 

Acceptable first mortgage loan types for CHFA’s HomeAccess and HomeAccess Plus products 

include FHA-insured, Rural Development-guaranteed, Rural Development-leveraged, and 

Conventional Uninsured. Although SHHP anticipates that all voucher homeownership participants 

will use either the HomeAccess or HomeAccess Plus loan products because of their favorable interest 

rates, participants may use other affordable loan products, provided that they follow FHA’s loan-tovalue ratio guidelines and have a fixed interest rate.1 All program participants must pay at least $750 

of their own funds toward the purchase, regardless of the loan product used. 

In addition to the first mortgage loans, CHFA also provides a second mortgage of $10,000 at a 1.5 

percent interest rate to assist with the down payment. Unless the home is sold, at which point the full 

amount of the loan is due, principal and interest payments on this second mortgage are deferred until 

year 30 (when the first mortgage has been paid off) and then amortized over 10 years. CHFA buys 

and services all first and second mortgage loans made to voucher participants through the 

HomeAccess and HomeAccess Plus programs. 

SHHP participants can also access additional loans for down payment and closing costs through 

CHAC. For example, participants may borrow up to $3,500 from the Federal Home Loan Bank in the 

form of an interest-free loan that is forgivable after five years. Alternatively, participants may access 

up to $6,000 in down payment assistance through CHAC funded by the State Division of Housing 

(DOH). These loans are deferred for 30 years, at which point the participant can either pay the loan 

in full or the loan can be amortized over a number of years to avoid a balloon payment. 

CHFA gives preference for its HomeAccess and HomeAccess Plus loan products to SHHP voucher 

homeownership participants. However, competition for the three percent loans is stiff, despite the 

fact that CHFA has tripled the funding available for these loans in the past year. The funding for the 

loans is allocated to four lenders with experience serving persons with disabilities. SHHP program

participants wishing to access CHFA loans must work with one of these lenders. Participants may in 

theory get a non-CHFA loan from another lender, but thus far none have done so. Most participants 

need CHFA’s low interest rates to purchase. In addition, the experience that CHFA’s lenders bring to 

the table in working with persons with disabilities (they are also members of the HERO Alliance) is 

an advantage for program participants. 

 1 Seller financing and balloon payments may be permitted on an exception basis at the discretion of SHHP 

and CHFA. In one case, a participant purchased with a down payment assistance loan that required 

repayment in full at the end of 10 years (a balloon payment). SHHP discussed the loan terms thoroughly

with the participant, pointing out the risk, and allowed the sale to proceed only after the participant 

submitted a written request for the loan to be allowed.

2-6 
SHHP and CHFA together determined that they would use the HAP as offset model because it gives 

program participants the most buying power. In the HAP as offset model, the amount of the first 

mortgage is calculated by adding the full amount of the HAP to the monthly principal, interest, taxes, 

and insurance (PITI) that the participant could afford on the basis of his/her own income. SHHP 

determined that most voucher participants could not afford to buy homes, particularly in the Denver 

area, if the HAP were applied in any other way.

Moreover, because all of SHHP’s participants are 

persons with disabilities, and therefore entitled to 

receive the voucher subsidy for the full term of the 

mortgage, the risk typically associated with the 

offset model (that households will face a excessive 

housing cost burden when the subsidy runs out) is 

mitigated. 

At the start of the pilot program, SHHP and CHFA 

received approval from the local HUD 

Homeownership Center, in conjunction with the 

HUD Field Office, to use the HAP as offset model. 

In September 2001, however, FHA issued a letter 

to lenders stating that the HAP should be treated as 

income in determining the homebuyer’s qualifying 

ratios.2

 This has presented a major stumbling 

block for SHHP’s program, because FHA policy

does not permit underwriters to use treat the 

voucher subsidy as a direct mortgage offset for FHA loans. SHHP has asked FHA for a waiver and, 

with CHFA’s assistance, is exploring private mortgage insurance alternatives. In the absence of a 

change in FHA policy or a mortgage insurance alternative, program participants must qualify for 

conventional uninsured loans in order to purchase with the HAP applied as a mortgage offset.3

Sample Purchase Transaction 

Buyer’s Annual Income: $8,105 

Costs to Buyer: 

− Purchase Price: $105,051 

− Closing Costs: $2,130 

Sources of Financing: 

− 1st Mortgage: $10,000 (3% 30 yrs., CHFA) 

− 2nd Mortgage; $82,800 (1% 33 yrs., RHS) 

− Deferred Loan: $10,000 (1.5% def 30 yrs, CHFA) 

− Forgivable Loan: $3,500 (0%, FHLB) 

− Buyer Cash Down: $881 

Monthly Mortgage Payments: 

− Total monthly PITI: $342

− Monthly HAP to offset PITI: $227 

− Buyer’s share of monthly PITI: $115 

− Buyer’s share of PITI as a percent of gross monthly 

income: 17%

Two of SHHP’s 21 purchasers have bought houses in rural areas and have combined CHFA loans 

with loans from the U.S. Department of Agriculture’s Rural Housing Service (RHS)’s Section 502 

Direct Loan Program, commonly known as Section 502 loans. In these cases, CHFA provides first 

and second mortgages and RHS provides a third mortgage. The use of SHHP’s program in rural 

areas may be limited, however, by the lack of public transportation in rural areas of the state, which 

presents challenges for people whose disabilities (and incomes) prevent them from owning a car. 

SHHP and CHFA encountered some initial resistance from the four lenders chosen to participate in 

the program. The lenders were concerned that they would not be able to sell the loans on the 

secondary market and did not want to service separate mortgage payments from program participants 

and SHHP. CHFA’s commitment to buy and service the loans was crucial to securing the lenders’

support for the program. The loan officers interviewed stated that their institutions would not have 

participated in the program if CHFA had not agreed to purchase the loans because they did not think 

that Fannie Mae or Freddie Mac would buy the loans. CHFA also agreed to allow the lenders to 

 2

 HUD Mortgagee Letter 2001-20, September 7, 2001. 

3

 Among the 12 study sites, FHA’s policy has also been a problem for Missoula. 

2-7 
charge a one percent origination fee for these loans, making them slightly more profitable than other 

CHFA loans. 

The lenders are now strongly committed to the program, but the loan officers interviewed reported 

that the loans are more time-consuming to process and less profitable than other loans that they make 

to low-income borrowers. The loan officers explained that the underwriting process is more timeconsuming because it is done manually and the underwriting staff need to be trained in the specifics 

of the program. In addition, the loan officers commented that the closing process for voucher 

program participants was more challenging than usual because of the need to coordinate additional 

paperwork, because of lead-based paint requirements, and because some participants are bringing 

four or five different sources of financing to the table. 

Post-Purchase Activities 

SHHP has two strategies to help voucher homeownership participants be successful over the long 

term. First, CHFA established a procedure for servicing the loans that allows CHFA and SHHP staff 

to respond quickly if a participant is delinquent in making a monthly mortgage payment. CHFA buys 

all of the loans from the originating lenders and services them. At the time of purchase, program

participants authorize CHFA to withdraw their share of the monthly mortgage electronically, from

their bank accounts, on the fifth of each month. One of CHFA’s servicing staff then manually

matches these payments against the HAP amounts, which are wired from SHHP to CHFA on the first 

of the month, to ensure that each borrower has made the 

full payment. This process is labor intensive, but ensures 

that CHFA can respond to delinquencies in a timely

manner. In the event of a late payment, CHFA would 

immediately notify SHHP. SHHP would then work with 

the participant’s residential coordinator to resolve the 

issue. SHHP believes that the involvement of three 

entities—SHHP, CHFA, and the residential 

coordinators—in post-purchase monitoring of program

participants will help prevent instances of delinquency

from escalating into default. In particular, the residential 

coordinators are likely to learn either directly from

participants themselves or through the case management staff at the participant’s service agency if the 

participant is having a problem meeting his or her mortgage payments. As of May 2002, none of the 

loans has defaulted or incurred any late fees. 

Post-Purchase Activities 

• SHHP does not require any additional counseling 

or HQS inspections once participants have 

purchased. 

• Participants receiving down payment assistance 

from CHAC agree to one post-purchase home 

visit as a condition of receiving that assistance. 

• Participants’ mortgage payments are monitored 

on a monthly basis by CHFA’s servicing staff. 

SHHP chose not to require any formal classroom post-purchase counseling. This decision was based 

on feedback that SHHP received from housing counselors across the state who had attempted to 

implement post-purchase counseling programs and had found it very difficult to compel homebuyers 

to participate in additional counseling after they purchased. Voucher homeownership program

participants who receive down payment assistance through CHAC, however, are required to have a 

home visit from a CHAC counselor within two years of purchasing. This visit provides an 

opportunity for the counselor to meet with purchasers one-on-one and note any obvious maintenance 

or repair problems. In addition, CHAC invites all of its clients (including families that purchased 

through the HOPE 3 program) to attend an annual reunion. During the reunion, CHAC holds an 

informal group counseling session to revisit the information on budgeting, maintenance, and 

2-8 
predatory lending provided in the pre-purchase class. The reunion is also an opportunity for SHHP 

to check in with program participants. 

SHHP does not conduct post-purchase HQS inspections. SHHP felt that without recourse against 

participants whose units fail, the inspections would not be effective. SHHP’s Program Coordinator 

considered having the residential coordinators conduct less formal home visits to program

participants, but ultimately decided that this was not consistent with helping participants to become

more independent. Instead, SHHP plans to maintain contact with participants after purchase through 

mechanisms such as post cards and calendars with tips on home maintenance and other reminders of 

the resources available should participants have difficulty making their mortgage payments. SHHP 

has also built a maintenance and replacement allowance equal to one percent of the purchase price per 

year into the monthly subsidy.

4

 

Although SHHP’s program does not require post-purchase counseling or post-purchase HQS 

inspections, SHHP devotes staff resources to tracking participant’s progress after they purchase. This 

involves maintaining active communication with CHFA staff—who monitor the mortgage 

payments—and with the residential coordinators—who interact with participants on a day-to-day

basis and are responsible for interim and annual reexaminations. 

Program Management, Staffing, and Partnerships 

Developing a voucher homeownership program required an intensive effort by SHHP and its partners. 

The proposed rule gave the pilot sites wide discretion, but relatively little guidance, in designing their 

programs. In addition, SHHP was the only pilot site focusing on persons with disabilities. SHHP’s 

Housing Director, Program Manager, and Program Coordinator each played a key role in planning the 

program. In its early stages, SHHP’s Program Coordinator, 

who also has primary responsibility for SHHP’s FSS 

program, spent approximately 75 percent of his time working 

on the voucher homeownership program. Creating a new set 

of policy documents and forms was highly labor intensive. 

In addition, SHHP struggled with how to apply the voucher 

subsidy to the mortgage and how to make the program

attractive to the private lending community. In resolving 

these key issues, the partnership with CHFA was crucial. 

SHHP’s Program Coordinator suggests that without CHFA it 

might have been impossible to get the program started. 

Program Staffing 

SHHP devotes the equivalent of one full-time staff 

person to administering the program. CHFA staff 

also devote a significant amount of time to the 

program. Homeownership counseling is provided 

by partner agencies free of charge. SHHP 

believes this level of staff effort is the minimum 

required to operate a successful program. 

Since becoming fully operational, the program continues to require significant staff resources from

SHHP, although the level of effort is less intensive than it was during the start-up phase. SHHP’s

Program Coordinator, who acts as a lynchpin between all of the partners involved in the program, 

now spends about 60 percent of his time on the program. He is intimately involved with each 

purchase transaction and maintains a computer database that helps him to monitor participants’

progress at each stage of the program, both pre- and post-purchase. He has also become a resource 

 4 The maintenance and replacement allowance increases the amount of the monthly subsidy, thereby 

reducing the family’s share of the monthly mortgage payment and (in theory) freeing up funds that the 

family can set aside each month for maintenance and replacement. 

2-9 
for other voucher program administrators across the country seeking to develop voucher 

homeownership programs. In addition to SHHP’s Program Coordinator, two senior staff and a clerk 

each spend about two days a month working on the program. The combined level of effort required 

by SHHP staff to run the program is roughly equivalent to one full-time staff person. 

In addition to the functions performed by SHHP staff, the residential coordinators play a role by

conducting the pre-purchase HQS inspections and income reexaminations (as they do in the rental 

program) and by acting as the first point of contact with program participants. SHHP staff have to 

make sure that the residential coordinators understand the homeownership program well enough to be 

able to respond effectively to participants should any issues come up related to their ability to pay the 

mortgage. Training the residential coordinators on the homeownership program and keeping them

informed as to changes in program policies and procedures is a particular challenge that SHHP faces 

in administering vouchers statewide. 

Staff resources for the program have been funded primarily through administrative fees earned 

through the housing choice voucher program. Given the level of staff effort required to get 

participants into homeownership, SHHP argues that the cost of administering a homeownership 

voucher exceeds the administrative fee earned. Because the program is relatively new, most of the 

staff resources thus far have gone to “up front” activities—helping program participants to purchase 

homes. It may be that SHHP will begin to recoup some of these up front costs of administering the 

program by not having to deal with rent increases or annual HQS inspections once participants 

purchase. The level of effort that the program has required thus far, however, is an ongoing concern 

for the agency. SHHP believes that it will need to devote at least one full-time equivalent employee 

to the program, assuming that the program continues to grow by 10 to 20 families a year and that 

buyers continue to need the subsidy for most if not the entire term of the mortgage. 

Program Outcomes 

SHHP set a goal of 10 closings each year for the first two years of the pilot program. With 19 

closings through April 2002, the program is on target. (Three additional households had purchased as 

of May 2002). Of the 19 households that had purchased through April 2002, 11 had a mental illness, 

six had developmental disabilities, and two had physical disabilities. In addition to the 19 purchasers, 

52 individuals and families had completed pre-purchase 

homebuyer education. Of these, 26 were working toward 

homeownership and 26 had dropped out of the program. 

SHHP staff are satisfied with both the number of applicants 

to the program and the proportion of participants who have 

succeeded in purchasing and do not plan to alter their 

marketing strategy or make major changes to program

administration. SHHP believes that the majority of families 

who drop out of the program discover during homebuyer education that they are not prepared for 

homeownership. Some families also get discouraged at having to wait for CHFA’s three percent 

loans, which are in high demand. Poor credit has not been a major problem for the program, as most 

SHHP clients have had little discretionary income for their entire adult lives and, therefore, were not 

able to get into debt. Lack of credit history, however, has been a problem for some participants, who 

have worked with the CHAC counselor to develop alternative records of on-time payment. 

Program Outcomes 

 Number of households counseled: 71 

 Number of homes purchased: 21 

 Average income of purchasers: $10,623 

 Average purchase price: $95,238 

 Instances of loan default: 0 

2-10 
SHHP homeownership participants have purchased houses throughout the state. All 19 participants 

have purchased using the below-market loan products that CHFA offers specifically for persons with 

disabilities. Participants who purchase outside the Denver area generally have a range of housing 

options, while purchasers in the Denver area usually are limited to condominiums and town homes. 

Based on a sample of 10 purchase transactions, participants appear to be buying homes that are in 

good condition. Five of the homes purchased were single-family homes, four were condominiums, 

and one was a duplex. Seven of the 10 homes passed HQS on the first inspection. Eight of the sellers 

of the homes were individual owners, one was a nonprofit, and one was a management company.

The individual who purchased from the management company purchased the condominium she had 

been renting; the others moved to purchase. Participants took between four and five months on 

average to find and purchase a unit once they completed the homebuyer education class. 

Of the 19 housing units purchased to date, one was newly built and one had been rehabilitated to add 

accessibility features. The ability to purchase newly constructed homes is important for SHHP’s

program, because the cost of making existing units handicap accessible can be prohibitive. 

SHHP has not imposed a limit on the percentage of income that participants can spend on monthly

homeownership expenses. Instead, the agency relies on the lenders’ underwriting guidelines to keep 

the purchases affordable. Based on the sample of 10 purchase transactions, the monthly PITI on the 

mortgage, less the subsidy provided by SHHP, represents, on average, approximately six percent of 

purchasers’ gross monthly income. However, as part of the program requirements, SHHP also 

develops an estimate of monthly homeownership expenses for each program participant. Monthly

homeownership expenses include the allowance for maintenance and repairs set by SHHP (equal to 

one percent of the purchase price annually), an allowance for utilities (based on the utility allowance 

schedule used in the rental voucher program), and other required expenses. When these additional 

costs are factored in, total monthly homeownership expenses represent, on average, approximately 42 

percent of purchasers’ gross monthly income. Given their low incomes and limited savings, 

unanticipated homeownership expenses are likely to be difficult for participants. Thus far, however, 

there have been no instances of late payments. 

One of the two program participants interviewed during the site visit provided insight into the 

challenges that purchasers may face in managing their expenses. The participant, who has physical 

disabilities, was thrilled to be a homeowner after twelve years of 

renting through the voucher program. Her first year of 

homeownership, however, had not been easy financially. She 

found that she had a lot of minor repairs to make on her 

condominium, and the Homeowners’ Association had recently

imposed a special assessment. She receives $895 a month in 

Supplemental Security Disability Income, but has unreimbursed monthly medical expenses of close to 

$700. With $200 a month to spend on “everything,” including her share of the monthly mortgage, 

she says that she has become adept at budgeting. She expressed some concern, however, that other 

participants may be less well equipped to deal with the expenses of homeownership, and she 

suggested that in addition to the current pre-purchase education, SHHP should offer a very practical 

class on budgeting, focused on “how to get by when you are poor.” 

“I think if you don’t have savings or 

family members to help with 

expenses, this program can be real 

scary.” 

 -- SHHP program participant

2-11 
Lessons Learned 

SHHP attributes the success of its voucher homeownership program to three factors: 

• the availability of first-mortgage loans at very low interest rates; 

• the availability of down payment and closing cost assistance; and 

• the use of the full HAP as a direct offset to the mortgage. 

The major challenge facing the program is the high cost of housing in the Denver area. For 

participants who wish to buy in Denver, the availability of CHFA’s three percent interest rate and use 

of the HAP as a direct offset to the monthly mortgage payment is critical to the ability to purchase. 

For this reason, FHA’s policy that the HAP be treated as income threatens the growth of SHHP’s

program. Thus far, all of the families who have purchased since the publication of the FHA letter 

have been able to obtain conventional mortgages, but this is not expected to continue. 

The other ongoing challenge for SHHP is the level of staff effort that the program requires. SHHP 

has to balance the costs of the program against the benefit of expanding homeownership opportunities 

for persons with disabilities. The latter is a central component of SHHP’s mission, and the success of 

the program in assisting longtime rental voucher participants to purchase homes has been highly

gratifying to SHHP staff. However, the administrative burden that the program creates continues to 

be a concern. 

SHHP’s Program Coordinator believes the following lessons are relevant for PHAs considering the 

voucher homeownership option, whether or not they are serving persons with disabilities: 

• The program is labor intensive, both in the start-up phase and in day-to-day operations. It is

important that the program fit closely with the agency’s mission and its menu of housing options. 

PHAs should track the program’s effect on the agency’s budget—in particular, comparing per 

unit staff costs and HAPs for the PHA’s homeownership and rental programs. 

• Partnerships play a critical role in program start-up and ongoing management. In SHHP’s

case, CHFA, CHAC, and the other lenders and realtors in the HERO Alliance have been 

invaluable. SHHP’s Program Coordinator recommends that PHAs offering the homeownership 

option develop a similar support network within their communities, particularly if they plan to 

serve persons with disabilities. For all PHAs, regardless of the client base served, recruiting a 

group of committed lenders is a great asset in resolving the challenges that each purchase 

transaction presents. In SHHP’s case, CHFA played the lead role in getting private lenders 

involved. 

 

• A computer database of voucher homeownership program participants is helpful for efficient 

program management. SHHP has developed a database that includes detailed data on program

participants and can generate forms, letters, and statistical reports. Although time-consuming to 

create, SHHP has found the database to be a valuable management and tracking tool. 

2-12 
• A very high level of subsidy (below-market mortgages and down payment and closing cost 

assistance) is needed to make the voucher homeownership program work for extremely lowincome people with disabilities. In Colorado, the subsidy comes in the form of mortgage loans 

with below market interest rates, second mortgage loans that do not need to be paid back until the 

first mortgage is paid off (or the house is sold), and no-interest loans that are fully forgivable if 

the participant stays in the house for five years. 

Colorado Program Summary 

Number of homes purchased: 21 

Average income of purchasers: $10,623 

Average purchase price: $95,238 

Average monthly HAP payment: $359* 

Financing model: HAP as Offset 

PHA program staffing: 1.0 full-time staff equivalent 

*Based on a sample of 10 purchases. 

2-13 
Danville, Virginia 

Danville Redevelopment and Housing Authority 

Introduction 

The Danville Redevelopment and Housing Authority (DRHA) manages 722 housing choice vouchers 

in Pittsylvania County, Virginia, near the North Carolina border. In 1999, DRHA received 

permission from HUD to offer the voucher homeownership option under the proposed rule as a pilot 

site. DRHA was attracted to the program as a way to build its homeownership capacity, because 

homeownership had become an increasingly important part of DRHA’s plans to revitalize its public 

housing developments through the HOPE VI program. In addition, DRHA received a new allocation 

of vouchers in 1999 that the agency wanted to use for homeownership. DRHA partnered with the 

City of Danville’s Housing and Development Department and with the Telamon Corporation, a 

nonprofit Community Housing Development Organization, to develop the program. As of April 

2002, 10 households had purchased homes through DRHA’s voucher homeownership program, and 

DRHA anticipated another 10 closings by the end of the year. Despite this success, the poor credit of 

program applicants and reluctance of private lenders to finance mortgages have limited the number of 

closings to date. 

Housing Market Conditions 

Pittsylvania County has one of the most affordable housing markets among the 12 sites in this study. 

According to the 2000 Census, the median house value in Pittsylvania County in 2000 was $80,300. 

In the city of Danville, the county’s main population center, the median house value in 2000 was 

$71,900. Danville has a larger concentration of low-income households and a lower homeownership 

rate than the county as a whole and has lost population and jobs in recent years, contributing to a 

loose housing market. DRHA staff observed that there is plenty of housing stock for sale in the price 

range of voucher program participants. Thus far, DRHA voucher homeownership participants have 

purchased units ranging from $32,500 to $62,000, with an average purchase price of $46,532. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

housing units in Pittsylvania County. The vast majority of units (90 percent) are valued below 

$150,000, with approximately 71 percent valued below $100,000. More than half of the units in 

Pittsylvania County are valued between $50,000 and $99,000. 

3-1 
Value of Owner-Occupied Units in Pittsylvania County, Based on 2000 Census 

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants range 

from $33k to $62k 

Number of 

Units 

Value of Units

Program Design 

Targeting and Outreach 

From the program’s inception, DRHA has made the voucher homeownership option available to 

existing voucher program participants, households on the 

voucher program waiting list, and public housing residents. 

DRHA has not targeted the program to a specific subgroup of 

its client population because the agency wants to keep the 

program open to as wide a pool of applicants as possible. As a 

pilot site approved to operate under the proposed rule, DRHA’s 

initial minimum income criteria for non-elderly, non-disabled 

households is equal to two times the payment standard. DRHA 

established a lower threshold for elderly and disabled 

households. However, DRHA now follows the income guidelines set forth in the final rule, which 

require an annual household income equal to at least 2,000 hours of annual full-time work at the 

Federal minimum wage (currently $10,300). 

Target Population and Outreach Methods 

The voucher homeownership option is 

currently open to existing voucher program 

participants, households on the voucher 

program waiting list, and public housing 

residents. The program is marketed primarily

through word of mouth.

When it began offering the program in early 2000, DRHA ran advertisements in the local newspaper 

to market the program to potential participants. The advertisements generated a lot of interest and 

DRHA staff note that word of mouth is now largely sufficient to ensure a steady flow of applicants. 

DRHA also sends a letter describing the homeownership option to households nearing the top of the 

voucher program waiting list. The letter encourages interested households to attend a briefing about 

the program. In addition to notifying applicants on the waiting list, DRHA’s Housing Choice 

Voucher Program (HCVP) staff inform rental voucher participants about the homeownership option 

during annual reexaminations. 

3-2 
DRHA conducts credit checks and income verifications for all interested applicants who appear to 

meet the basic program requirements. Eligible applicants are then invited to begin the required 15 

hours of homeownership counseling. DRHA refers clients who are not eligible due to poor credit to 

Consumer Credit Counseling Services before allowing them to pursue homeownership counseling. 

 

Homeownership Counseling 

Program participants must complete 15 hours of pre-purchase homebuyer education provided by

DRHA. The 15 hours of group instruction are divided into 60- to 90-minute classes and cover topics 

such as mortgage readiness, money management, consumer credit, home selection, legal rights and 

responsibilities, and home maintenance. The classes are led by DRHA’s Voucher Homeownership 

Specialist or HCVP Coordinator and each class is supplemented with a guest speaker, such as a 

lender, credit counselor, or realtor, and a video produced 

by the Virginia Housing Development Authority

(VHDA). Participants also receive manuals for 

independent study outside of class. 

Because the housing agency pre-qualifies all participants 

before they begin homebuyer education, all voucher 

homeownership candidates follow the same counseling 

track. In addition to the classes, DRHA provides one-onone support and counseling to all clients. The intensity

and degree of this one-on-one support is tailored to individual family circumstances. As the Voucher 

Homeownership Specialist noted, “We believe that establishing one-on-one rapport with participants 

is preferable to just meeting with them in large groups.” This individual attention also allows DRHA 

staff to ensure that participants are reviewing the manuals distributed during the group sessions and, 

as a result, building on their knowledge of homeownership. 

Pre-Purchase Counseling 

DRHA requires that participants complete 15 hours of

pre-purchase counseling. The counseling takes 

place over several group sessions led by DRHA staff 

and guest speakers. DRHA also use videotaped 

material in the counseling sessions. In addition to the

group sessions, DRHA provides one-on-one support 

and counseling to all clients. 

Once they have completed the required pre-purchase counseling, DRHA homeownership candidates 

may begin searching for a mortgage and a home. The lenders involved in the program each have their 

own pre-qualification process, which includes a separate credit check and income verification. 

The Telamon Corporation provided pre-purchase counseling to program participants during the initial 

phase of the program. Telamon is a HUD-certified counseling agency as well as a nonprofit 

Community Housing Development Organization. Telamon has extensive homeownership counseling 

experience and provided counseling to the first three participants to purchase homes through the 

program. However, DRHA began offering the pre-purchase homebuyer education in-house in 

January 2001. Offering the counseling in-house appealed to 

DRHA staff because they knew that many voucher participants 

face transportation barriers and would have an easier time 

getting to the DRHA’s Danville office. (Telamon’s office is 

about 15 minutes by car from Danville.) In addition, DRHA’s 

HCVP Coordinator believes that providing the counseling inhouse is preferable because it gives the program staff an 

opportunity to work with clients on a one-on-one basis and to be 

“We wanted to be in a good position to 

deal with participants on a one-on-one 

basis. Homeownership is a big step for 

them, so we wanted to be able to hold 

their hands when necessary.” 

-- DRHA HCVP Coordinator 

3-3 
Danville Voucher Homeownership Purchase Process 

DRHA verifies family’s

program eligibility and 

runs a credit report

Family completes 15 hrs group 

counseling with DRHA in 60- to 

90-minute sessions, plus 

individual counseling as needed

Family is

referred to

credit 

counseling

Family meets with lenders 

for preapproval

Family contacts DRHA

If family has

poor credit

Family enters into 

contract of sale

DRHA conducts HQS 

inspection prior to 

independent inspection

Family obtains approval 

of lenders for mortgage

loans and grants

Family arranges for 

independent inspection

Family selects realtor 

and begins searching 

for a home

DRHA reviews 

inspection reports and 

financing

Family receives 

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If no repairs are required

3-4 
available for “hand holding” if necessary. Finally, DRHA thought that doing the counseling in-house 

would keep program costs down, as DRHA would eventually have had to pay for some portion of the 

counseling services provided by Telamon to voucher homeownership participants. 

The DRHA staff members who conduct the homeownership counseling became certified through the 

Virginia Housing Development Authority (VHDA). The certification is valid for two years and 

requires participation in follow-up workshops to maintain the certification. DRHA paid a modest fee 

to VHDA for the certification. 

Home Search and Inspections 

DRHA gives homeownership voucher candidates up to one year to purchase once they have been 

issued a voucher. DRHA and its partners report that the relatively loose housing market in Danville 

allows participants to find units to purchase without much difficulty. DRHA explains the home 

search process to homeownership voucher candidates during the pre-purchase homebuyer education 

classes. DRHA staff provide participants with a list of realtors but make no recommendations about 

specific realtors. 

Beyond what is covered in the pre-purchase homebuyer education, DRHA provides no assistance to 

participants with home inspections. DRHA has assigned responsibility for all HQS inspections in the 

homeownership program to the HCVP Coordinator and the Voucher Homeownership Specialist. The 

HQS inspection is done before the independent inspection and the results of the two inspections are 

then compared. DRHA staff reported it has imposed no licensing requirements for independent home 

inspectors used by program participants because the state of Virginia has no such requirements for 

private real estate transactions. 

Financing Model 

The DRHA has worked with public, private, and nonprofit entities to create financing mechanisms for 

the voucher homeownership program. To date, the single-mortgage model has been used to finance 

all purchases made through the program, but the structure of the mortgage and the treatment of the 

HAP depends on the type of institution originating the mortgage. Loans originated by the Telamon 

Corporation and City of Danville’s Housing and Development Division (HDD) consider the HAP as a 

direct offset to the monthly mortgage payment. By contrast, the HAP is counted as income by the 

private lenders working with the program. 

The City of Danville’s affordable homeownership program provided the financial model for the 

mortgages originated by both the Telamon Corporation and HDD. The Telamon Corporation offers 

loans with 10-year terms at 4.75 percent interest. In addition, participants can borrow up to $12,000 

at zero interest to be paid back over a five years at the end of the term of the first mortgage (i.e., in 

years 10 to 15). HDD offers below-market interest rate loans to Danville residents with incomes at or 

below 80 percent of area median. For the voucher homeownership program, HOME and Community

Development Block Grant (CDBG) funds provide the capital for the loans, which are paid back by the 

purchaser and the HAP. HDD’s loans to program participants have been at six percent interest, with 

5- to 10-year terms. 

DRHA requires that participants make a minimum down payment of $500 from their own resources. 

Program participants can also access up to $8,500 as an interest-free, forgivable loan to assist with 

3-5 
down payment or rehabilitation costs through the Federal Home Loan Bank’s (FHLB) Affordable 

Housing Program. However, these funds may only be used for homes purchased in one of the three 

neighborhoods targeted for revitalization by the City of Danville. These “targeted” neighborhoods 

have housing stock that is in need of rehabilitation and a high concentration of low-income

households. In addition to the FHLB loan, participants who purchase homes in one of the targeted 

neighborhoods can access forgivable loans of up to $15,000 to cover rehabilitation costs through 

HDD (using HOME and CDBG funds).1

 The three targeted neighborhoods are Camp Grove, Green 

Street, and Liberty Hill (the location of DRHA’s future HOPE VI revitalization project called Liberty

View). 

While the Telamon Corporation and HDD have proven a reliable source of mortgage finance for 

voucher homeownership participants, there are limits to the amount of mortgage assistance they can 

each provide. The Coordinator of HDD reports that the City’s affordable homeownership program is 

limited to $1 million in business annually. As a 

nonprofit Community Housing Development 

Organization, the Telamon Corporation also has a 

limited amount of funding available for mortgage 

assistance. 

With these limitations in mind, DRHA has 

developed relationships with private sector lenders 

to ensure additional sources of mortgage finance for 

program participants. However, DRHA officials 

report local lenders have been reluctant to provide 

mortgage financing for the voucher homeownership 

program. According to the housing agency, the 

HAP is an unfamiliar concept to the lending 

community and many lenders are wary of 

incorporating this unconventional funding source 

into mortgages. Despite these objections, as of 

April 2002, three private lenders had closed mortgages for program participants. DRHA has not set a 

cap on the percentage of income that program participants can spend on their monthly mortgage 

payments, but does not allow balloon mortgages or variable interest rate loans, and will only consider 

seller financing on a case-by-case basis. 

Sample Purchase Transaction 

Buyer’s Annual Income: $12,547 

Costs to Buyer: 

− Purchase Price: $32,500 

− Closing Costs: $2,282 

Sources of Financing: 

− 1st Mortgage: $26,781 (7.3% 30 yrs.) 

− Forgivable Loans: $7,500 (FHLB, 0% 5 yrs forgivable) 

− Buyer Cash Down: $500 

Monthly Mortgage Payments: 

− Total monthly PITI: $245

− Monthly HAP to offset PITI: $128 

− Buyer’s share of monthly PITI: $117 

− Buyer’s share of PITI as a percent of gross monthly 

income: 11%

The private lending institutions participating in DRHA’s voucher homeownership program include 

traditional banks and mortgage companies. As noted above, these lenders have employed the singlemortgage model with the HAP counted as income because they originate FHA loans. In assessing the 

efficacy of counting the HAP as income, one loan officer commented that deducting the HAP directly

from the monthly mortgage, “would be better because it opens up the program to more participants. It 

would ensure people with lower incomes a better chance at meeting the qualifying ratios.” However, 

FHA guidelines provide that the HAP be treated as income in determining participants’ qualifying 

ratios, and local lenders remain committed to this model for the time being. 

 1

 If additional repairs are needed, the homes purchased in the target areas are also eligible for an additional 

$15,000 loan for rehabilitation at four percent interest. 

3-6 
Loan officers participating in the program expressed concerns about loan defaults under the program

but reported that the voucher homeownership mortgage loans have performed as well as other 

affordable mortgage products. As one loan officer noted, “Our underwriters are pretty rigorous no 

matter who is applying for a loan. We are pretty confident when we make a loan that the borrower 

will fulfill their obligations.” 

Lenders also expressed some reservations about the temporary nature of the HAP. With a measured 

degree of caution one lender noted, “The bet is that participants’ incomes will increase fast enough to 

afford the entire mortgage payment within 15 years.” The DRHA Executive Director expressed more 

confidence in the single-mortgage model noting that, at least initially, all first-time homebuyers face 

rather large mortgage payments, but over time increased household income should lessen their debt 

burden. 

The poor credit of many applicants was a concern to the lenders involved in the program. One 

official from the Telamon Corporation noted that, “The biggest challenge to the program was trying 

to make these deals work given the credit issues facing many of the applicants.” One notable 

example was a participant with $8,000 in outstanding debt to a local hospital. DRHA staff negotiated 

with the hospital administrators to forgive the participant’s debt. Otherwise, the participant’s debt-toincome ratio would have been prohibitively high. The private lender with the most involvement in 

the program to date noted that poor credit is the biggest difference between the voucher 

homeownership participants and other low-income first-time homebuyers. 

All the mortgages originated through the program are serviced by two separate checks with the HAP 

sent to the participant first and then to the lender. The private lenders require the check backed by the 

HAP to include both the lending institution’s and participant’s name. (This practice is only permitted 

because Danville is operating under the proposed rule. Two-party checks to the family and lender are 

not authorized under the final rule.) In order to meet the lenders’ servicing requirement, the 

participant is required to enclose both a personal check and the HAP from DRHA in one envelope, 

sent to the lender. 

 

Post-Purchase Activities 

DRHA will not require post-purchase counseling, but anticipates providing post-purchase counseling 

on an as-needed basis. In particular, DRHA staff believe that in 

addition to post-purchase homeownership counseling, participants 

may need job search assistance in the event they are laid off to 

ensure they continue to improve their economic circumstances. 

This is particularly important in the context of the 15-year time 

limit on the HAP for non-elderly, non-disabled households. As 

the HCVP Coordinator notes, “The thought always stays in your 

mind about what will happen to these families over the long term

since the HAP will eventually phase out. Although purchasers 

are okay right now, more counseling in the interim will ensure they are in a good position in 10 

years.” 

Post-Purchase Activities 

DRHA does not require post-purchase 

counseling but plans to provide it on an 

as-needed basis. DRHA does not 

require or plan to conduct post-purchase 

HQS inspections. 

DRHA does not require or plan to conduct post-purchase HQS inspections. 

3-7 
Program Management, Staffing, and Partnerships 

DRHA received approval from HUD in December 1999 to be one of 15 voucher homeownership pilot 

sites. In early 2000, DRHA formed a “Homeownership Committee” to plan and design their voucher 

homeownership program. This committee included DRHA staff as well as staff from the Telamon 

Corporation and from the City of Danville’s Housing and Development Division (HDD). DRHA 

staff note that they relied heavily on the homeownership and real estate experience of the Telamon 

Corporation and HDD in drafting the program guidelines. The “Homeownership Committee” met on 

a regular basis (ranging from once a week to once a month) over a period of approximately four 

months. By Spring 2000, DRHA completed a draft of the program guidelines. 

From the outset, the voucher homeownership program has been housed within DRHA’s HCVP 

department. Although no new staff were hired to work on the program, DRHA officials report that 

running the voucher homeownership program has been a labor intensive effort, particularly in the 

planning and initial implementation phase. According to the HCVP Coordinator, “It was a difficult 

program to get off the ground because we had to talk with lenders, realtors, and bank officials. The 

majority of them had no idea what the voucher program is about.” During the planning and design 

phase, DRHA’s HCVP Coordinator spent approximately 80 percent of his time on the program. 

Once the program was up and running, DRHA designated a Voucher Homeownership Specialist to 

handle the day-to-day management of the program. This person has the most contact with program

partners and participants. As of April 2002, she spends 

about 50 percent of her time on the program. However, 

during the first year of the implementation she spent 

nearly full time on the program. DRHA’s HCVP 

Coordinator currently spends approximately 25 percent of 

his time on the program, while the Executive Director 

spends less than 10 percent of his time. As of April 2002, 

DRHA staff estimated the combined level of staff effort 

required to run the program to be approximately 80 

percent of a full-time staff person’s time. This staff time 

is funded entirely through voucher program

administrative fees. DRHA’s Executive Director reports that the agency has no additional resources 

to devote to the program. DRHA staff would like to see HUD create funding for a voucher 

homeownership specialist in order to relieve the pressure on current staff. 

Program Staffing 

DRHA’s Homeownership Specialist spends 50 

percent of her time managing the program, although

the HCVP Coordinator reports that with sufficient 

resources he would prefer this person to work fulltime on the program. Overall, DRHA devotes 

approximately 0.8 in full-time staff equivalents to the

voucher homeownership program. 

HDD provided key input on the financial model for the program. In particular, the City’s pre-existing 

affordable homeownership program provided a template for the program’s financial structure. At the 

suggestion of HDD’s Coordinator, the housing agency also partnered with the Telamon Corporation. 

The partnership with the Telamon Corporation was crucial because Telamon had extensive 

homeownership counseling and housing development experience. In partnership with DRHA, the 

Telamon Corporation financed the construction of three single-family homes targeted to first-time 

buyers near DRHA’s Liberty View public housing development. Participants in the voucher 

homeownership program were considered a potential pool of buyers. The Telamon Corporation used 

HOME funds to finance the construction of the single-family homes while DRHA donated the land 

and served as the project manager. These were the first houses purchased by voucher homeownership 

3-8 
participants in Danville. Two of the homes are manufactured homes and the third is a site-built (nonmanufactured) home. 

As noted previously, DRHA officials reported considerable reluctance from the private lending 

community to finance mortgages through the voucher homeownership program. Outreach conducted 

by DRHA staff to local lenders in 2000 indicated that there was little interest in an income source that 

was viewed as “outside of the box.” However, as the program evolved private lenders began to show 

more interest. The lenders interviewed who are now participating in the program note that they have 

become involved for a variety of reasons including Community Reinvestment Act (CRA) credit, 

business expansion into new markets, and general support for first-time homebuyer programs. One of 

the most active lenders in the program had no prior relationship with DRHA and became aware of the 

voucher homeownership program through HUD’s Field Office in Richmond in early 2000. This 

lending institution had extensive experience with HUD programs as well as a desire to expand their 

business into the Danville area. Both of these factors led the lender to be proactive about getting 

involved in the program. With the encouragement of the lender’s corporate office in Richmond, the 

Danville branch contacted DRHA and closed its first mortgage in early 2001. 

Program Outcomes 

As of April 2002, DRHA staff reported that over 500 households had expressed interest in the 

program; however, only a small percentage was eligible for the program. For example, at DRHA’s 

most recent homeownership briefing, only two of the 25 attendees met the program’s income criteria. 

Nevertheless, 10 households had purchased through the 

program as of May 2002. Five of the houses were purchased 

in “targeted” city neighborhoods, while the other five were in 

non-targeted areas (including two outside of Danville). 

DRHA has set a target of 20 closings per year over the next 

four years. Given that 13 additional participants have 

completed the pre-purchase homebuyer education and are 

searching for homes, the housing agency has a reasonable 

chance of reaching 20 closings in 2002. As of April 2002, 

five participants have obtained financing through private lenders, three have financed their homes 

through the Telamon Corporation, and two have purchased through the City of Danville’s Housing 

Development Division (HDD). 

Program Outcomes 

• Number of households counseled: 23 

• Number of homes purchased: 10 

• Average income of purchasers: $11,209 

• Average purchase price: $46,532 

• Instances of loan default: 0 

The 10 homes purchased through April 2002 include four manufactured homes, two recently

rehabilitated homes, and four existing homes that required no rehabilitation. One lender involved in 

the program expressed some concern with the quality of the housing stock available in the 

neighborhoods targeted by the FHLB affordable housing program. However, the Coordinator of 

Danville’s HDD noted, “I have no reservations about the quality of the homes that we rehabilitate in 

those areas. The homes are better than new when we finish them because they were built in the 1920s 

or 1930s using solid construction techniques and materials.” The most common repairs that HDD 

makes to homes in the targeted neighborhoods are replacing roofs, upgrading bathrooms, and 

updating central heating. DRHA’s Executive Director reported that the manufactured homes 

purchased through the program are of good quality as well. As he noted, “there is no difference 

between stick built and modular homes except for the time to construct them. A modular or 

manufactured home can be delivered in just four weeks. The quality is just as good.” The lenders 

3-9 
interviewed did not express concern that the manufactured houses would lose value—or not 

appreciate in value as quickly—as non-manufactured houses. 

Five of the ten homes purchased through the program failed their first HQS inspection. Three of 

these homes were in neighborhoods targeted for redevelopment by the City of Danville. The sellers 

financed all of the required repairs. 

Although the site visit revealed that the success of revitalization efforts in the “targeted” 

neighborhoods varied by area, the homes purchased through the program in these locations appeared 

to be in good condition. The Coordinator of HDD reported that the revitalization of the Green Street 

neighborhood (where one voucher homeownership participant had purchased a home) had not been as 

successful as other areas. He attributed this in part to a lack of community participation as well as to 

historic preservation laws in effect in the neighborhood that make repairing the aging housing stock 

time-consuming and complicated. Nevertheless, he was confident in the rehabilitation work his 

agency had completed on individual homes in the area, including one home purchased by the 

homeownership voucher participant. An interview with this participant revealed she was quite 

satisfied with her home, “I fell in love with it when I first saw it. I loved the front porch and that it 

had a backyard for my child to play in.” 

Lessons Learned 

DRHA attributes the success of its program to date to Danville’s relatively affordable housing market, 

the homeownership experience of its program partners, and the commitment of PHA staff to making 

the program work. Nevertheless, the program faces several challenges going forward. Finding a 

pool of qualified applicants has been a labor-intensive effort for DRHA staff and partners. Although 

less staff time is required now than during early program implementation, the HCVP Coordinator 

noted that ideally he would like to have at least one person dedicated to the program full-time. The 

Executive Director of DRHA observed that, “We spend a lot of time counseling the participants but 

perhaps we could do more. We would like additional resources to work intensively for a full year 

with these people to move them into homeownership, but we don’t have the resources to do that 

now.” 

The following lessons were offered for other public housing authorities interested in implementing a 

voucher homeownership program:

• Build partnerships wherever possible in the design phase of the program. As DRHA’s HCVP 

Coordinator noted, “We had a good idea on how to design it. The challenge was trying to sell it to 

people who had never heard of it.” He recommends that other PHAs know their city’s leadership 

and establish contacts with local nonprofit agencies and lenders working with first-time 

homebuyers. DRHA’s Executive Director noted that dialogue with the City of Danville’s HDD 

Coordinator led his agency to contact the Telamon Corporation about the voucher 

homeownership program. Telamon provided mortgage financing for the first three homes 

purchased through the program. 

3-10 
• Communication between the PHA and partners is critical. During the early implementation of 

the program, one lender found he was screening large numbers of applicants who did not qualify

for a mortgage. However, increased communication between PHA staff and the lender about the 

credit histories of program applicants has improved this situation. According to the lender, “The 

quality of the applicants has improved over time because the housing agency has a better 

understanding of the credit scores our underwriters require.” 

• The voucher homeownership is a great mechanism for helping people. In reference to getting 

the homeownership option off the ground, DRHA’s Executive Director noted, “Some days can be 

really frustrating, so, on the tough days, I remember the people we have helped move into homes. 

Very often in public housing we don’t get to see the improvements in people’s lives. With this 

program, we get to see low-income people gain the benefits of homeownership.” 

Danville Program Summary 

Number of homes purchased: 10 

Average income of purchasers: $11,209 

Average purchase price: $46,532 

Average monthly HAP payment: $260 

Financing Model: HAP as Income, HAP as Offset 

PHA Program Staffing: 0.8 full-time staff equivalent

3-11 
Green Bay, Wisconsin 

Brown County Housing Authority 

Introduction 

The Brown County Housing Authority (BCHA) has an allocation of approximately 2,790 housing 

choice vouchers that are administered by Integrated Community Services (ICS) in the Green Bay

area.1 ICS is a nonprofit organization that administers the voucher homeownership program under 

BCHA’s supervision. The voucher homeownership program in Brown County is run by a close 

partnership of several public and private agencies and organizations, with BCHA as the lead agency. 

The BCHA and ICS work closely with Neighborhood Housing Services of Green Bay (NHS), a 

nonprofit NeighborWorks organization that provides the counseling component of the voucher 

homeownership program. Other key partners include local banks and mortgage brokers and Options 

for Independent Living (Options), a nonprofit organization that provides assistance to persons with 

disabilities. 

The homeownership option is available to voucher program participants throughout Brown County,

including the city of Green Bay. As of March 2002, at the time of the site visit, four households had 

purchased homes through the program in Brown County. By the end of May 2002, a total of 11 

households had purchased homes. Program staff report that they have faced relatively few challenges 

during program implementation. The limiting factors are the availability of affordable housing and, 

to a lesser extent, capacity at NHS. 

Housing Market Conditions 

The housing market in Brown County, and the city of Green Bay, is moderately expensive. 

According to the National Association of Realtors, the median sales price of existing homes in the 

Green Bay metropolitan area in the first quarter of 2002 was $125,600, up 4.1 percent since the first 

quarter of 2001 and up 6.4 percent since 2000. According to program staff, new homes in Green Bay

are typically more expensive than existing homes, averaging about $180,000. Thus far, Green Bay

program participants have purchased homes ranging from $51,000 to $105,000. 

Green Bay program staff consider the local housing market as a challenge for the voucher 

homeownership program, but not a major barrier to program growth. The chart below presents data 

from the 2000 Census on the number and value of owner-occupied housing units in Brown County.

Almost three quarters of the units in the county (73 percent) are valued below $150,000, and 

approximately 37 percent are valued below $100,000. The largest share of units in Brown County are 

valued between $100,000 and $149,000.

 1 At the time of the site visit, 197 of these vouchers were technically allocated to the Green Bay Housing 

Authority (GBHA). GBHA’s jurisdiction is limited to the city of Green Bay while BCHA serves both the 

city and county. The same person is the Administrator at both BCHA and GBHA, a management role akin

to Assistant Executive Director. Although this case study will refer to BCHA going forward, BCHA and 

GBHA distinctions are not meaningful for this program as all vouchers are administered together by the 

same nonprofit contractor, ICS. As of July 1, 2002, the GBHA transferred all of its vouchers to BCHA. 

4-1 
Value of Owner-Occupied Units in Brown County, Based on 2000 Census 

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants 

range from $51k to $105k 

Number of 

Units 

Value of Units 

Program Design

Targeting and Outreach 

The homeownership option in Green Bay is available to both new and existing voucher program

participants. In addition to the minimum income and employment requirements in the final rule, 

Green Bay program staff require that participants are in compliance with their current lease and are 

able to secure a mortgage loan from a lender. Voucher homeownership candidates must pre-qualify

for a mortgage before the household is enrolled in the program and begins intensive counseling at 

NHS. Limiting participation to households who are close to being able to purchase was a strategic 

choice motivated in part by staffing constraints. 

Initially, BCHA and ICS staff discussed limiting 

participation in the program to participants in the Family

Self Sufficiency (FSS) program and to those who had 

participated in the rental program for at least a year. In 

the end, it was decided not to limit the program to either 

of these groups. The ICS Homeownership Coordinator, 

who is also the FSS Coordinator, thought that the FSS 

population was generally unprepared for homeownership 

and thus would be an inappropriate population to target. 

In addition, the ICS homeownership and FSS Coordinator 

was concerned that voucher participants would join the FSS program just to gain access to the 

homeownership option and not to accomplish other important goals. As of May 31, 2002, two 

program purchasers had come directly from the voucher waiting list. 

Target Population and Outreach Methods 

Green Bay’s voucher homeownership option is 

available to new and existing voucher program 

participants who can pre-qualify for a mortgage. 

ICS staff have not marketed the program 

aggressively since word-of-mouth referrals are 

generating more than adequate interest in the 

program given current staff capacity.

4-2 
The Green Bay program was initially publicized at a press conference held at NHS in August 2001 

with BCHA, ICS, and Options staff in attendance and Congressman Mark Green speaking. There has 

been little additional publicity since the press conference. Although some housing organizations—

including Options—mention the program in their newsletters and brochures, awareness of the 

program spreads predominantly by word of mouth. These basic marketing methods have been 

sufficient to generate a steady stream of inquiries (at least five phone calls per week, according to the 

ICS Homeownership Coordinator). 

All households interested in the program must call the ICS Homeownership Coordinator for an 

eligibility assessment and to receive a packet of information. Once households have reviewed the 

materials and their eligibility is confirmed, they are referred to an optional “How to Buy a Home” 

seminar offered monthly by NHS. Interested households then meet with lenders to learn about 

financing options and pre-qualify for a mortgage. The informational materials initially sent out by

ICS include the names of lenders and realtors for reference. Sometimes households meet one-on-one 

with NHS staff before meeting with lenders in order to become more informed and prepared. As of 

March 2002, neither ICS nor NHS had the ability to pull credit reports, so the visit with the lender is 

key to assessing households’ mortgage-readiness. In general, households need to be mortgage-ready

to participate in Green Bay’s voucher homeownership program. The program does not provide 

assistance in long-term credit repair. There are several agencies to which both NHS and lenders refer 

clients in need of credit repair. However, clients in this situation cannot enroll in the homeownership 

program. 

Homeownership Counseling 

Households that pre-qualify for a mortgage are referred to NHS for intensive pre-purchase counseling 

conducted in two, three-hour sessions over the course of several weeks. NHS uses homebuyer 

training materials developed by the Neighborhood Reinvestment Corporation (NR) for this 

counseling. These comprehensive materials cover topics such as budgeting, credit, homeownership 

financing (including predatory lending), working with a 

realtor, the inspection process, and post-purchase home 

maintenance. NHS homebuyer training sessions integrate 

English-speaking voucher program participants with all 

other NHS clients and cost $250 per client. For voucher 

program participants in the homeownership program, this 

cost is covered by a grant from BCHA to NHS. 

The voucher homeownership program has successfully

served a number of Hmong families—eight of the 11 

families that had purchased as of the end of May 2002 are Hmong. Hmong-speaking clients receive 

training by watching a videotape on homeownership. This tape—approximately three hours in 

length—covers most of the material in the NHS sessions, but does not match the curriculum exactly. 

A Hmong purchaser interviewed for this study found the taped training to be thorough and 

informative. She thought that it did a good job preparing her for homeownership. 

Pre-Purchase Counseling 

The Green Bay program requires that participants 

complete NHS of Green Bay’s intensive homebuyer 

training classes. These classes are structured in 

two, three-hour sessions. Hmong-speaking 

participants receive homebuyer training from a 

three-hour instructional video.

4-3 
Green Bay/Brown County Voucher Homeownership Purchase Process 

Family calls NHS for free 

consult and to attend 

homebuyer seminar 

(suggested)

Family contacts 

BCHA/ICS for 

informational package

Family attends two 

group counseling 

sessions at NHS

ICS conducts HQS 

inspection

Family finalizes approval 

on all loans and grants 

Family searches for 

houses, typically with a 

realtor

ICS/BCHA and NHS 

staff review inspection

reports and financing

Family receives

financing and closes 

on home

Seller makes repairs and

unit passes HQS

If repairs are 

required

If repairs are 

not required

Family meets with lenders 

for mortgage pre-appproval

Family meets with ICS to 

review program eligibility

and obtain estimate of HAP 

Family arranges for 

independent inspection

4-4 
Although binder materials on homeownership are also available in Hmong, literacy is an issue among 

many Hmong clients according to NHS staff. At the time of the site visit, NHS was in the process of 

also developing homebuyer training and materials in Spanish. 

In addition to the mandatory homebuyer training, Green Bay program participants sometimes meet 

with NHS counselors for one-on-one counseling and follow-up. NHS staff reported that program

participants have not needed any special attention or assistance greater than that given to other NHS 

clients. A counselor commented that NHS believes in exposing clients to lenders early on because 

“that’s what they have to learn to deal with.” The counselors do not want to coddle their clients and 

do not have the staff time available to do so. 

Home Search and Inspections 

When program participants are ready to begin the home search process, most seek out realtors on the 

referral sheet sent to them by ICS. NHS staff report that one of the challenges of the home search 

process is that affordable homes do not stay on the market very long. Realtors have helped clients 

identify new listings in their price range. Options staff are available to help persons with disabilities 

to find homes. This search assistance has helped program participants to find houses priced 

significantly below the local median sales price. 

The majority of the Hmong purchasers have worked with a local Hmong realtor who has taken an 

active interest in the program. This realtor accompanies families to appointments with lenders and 

others to translate and assist them through the process of buying a home. Several ICS staff are 

Hmong and Hmong-speaking, which is helpful for overcoming language and cultural barriers, but no 

key voucher homeownership program staff speak Hmong. 

Once a participant finds a home in his/her price range and makes an offer to purchase, the 

independent and HQS inspections are conducted, usually at about the same time. The program

requires that independent inspections be carried out by state-licensed inspectors, a list of whom is 

included in the initial informational packet. 

The participant and the ICS Homeownership Coordinator review the results of the independent and 

HQS inspections. While most homes identified by clients are in good repair, there are often minor 

repairs that need to take place for the unit to pass HQS. For example, in several cases the sellers have 

had to make minor lighting and railing repairs before the property would pass HQS. In addition, 

BCHA has adopted housing quality standards that are higher than HUD’s HQS. If a unit meets all of 

HUD’s HQS but fails on one or more of BCHA’s higher standards, BCHA may allow the buyer to 

make those additional repairs after closing. In such cases, which are the exception rather than the 

rule, BCHA provides the lender with the list of additional repairs prior to closing so that the lender is 

aware that the changes need to be made. The lender may require the buyer to secure funds for these 

repairs or establish an escrow account for the repairs before proceeding with the closing. 

Financing Model 

The Green Bay program is currently using the mortgage offset model, in which the mortgage amount 

is calculated by adding the full amount of the HAP to the monthly mortgage payment the participant 

can afford. The details of the financing model were developed with input from local lenders and 

representatives from the Wisconsin Housing and Economic Development Authority (WHEDA), 

4-5 
which is the Wisconsin State Housing Finance Agency. The mortgage offset model seemed to be the 

obvious choice for lenders as it maximized buying power. When asked if the expiration of the 

voucher after 15 years was a concern, one lender responded that the issue had not been extensively

discussed and that it was not a significant concern. 

Mortgages have been made to program participants using conventional as well as below-market 

lending products. Several banks and several mortgage brokers have made loans to program

participants thus far. As shown in Exhibit 1, the loan products available to program participants vary

in terms of restrictions on neighborhood of purchase, fixed versus adjustable interest rates, rate 

amounts, loan terms, down payment requirements, and private mortgage insurance requirements. The 

loans made through this program include both fixed and adjustable rate mortgages, typically with 

terms of 30 years. 

A loan officer interviewed during the site visit noted that different loan products (both conventional 

and below-market) have varying down payment thresholds and that these differences are critical for 

low-income borrowers with modest savings. Selecting the best loan product involves balancing 

tradeoffs between the down payment requirements, private mortgage insurance requirements, and the 

borrower’s income and credit. 

Green Bay program staff have not set a limit on the percentage of income that participants can spend 

on monthly homeownership expenses. Instead, the program relies primarily on the lenders’

underwriting guidelines to keep the purchases affordable. Program staff explained that all interest 

rates and terms on the loans made to program participants are reviewed by NHS of Green Bay staff. 

Current NHS lending guidelines place a cap on acceptable interest rates for loans made through this 

program. The BCHA Administrator, also an NHS board member, explained that only loans with an 

interest rate up to 1.5 percent above the current WHEDA lending rate are acceptable, so acceptable 

interest rates in this program are capped at the treasury securities rate plus 4.25 percent.2

 In addition, 

NHS has adopted Fannie Mae’s predatory lending guidelines and uses these guidelines when 

reviewing all loans made through this program. One NHS counselor said that they have sent clients 

to different lenders when the initial offers were not good enough. ICS’s Program Coordinator further 

explained that both balloon payment and prepayment-penalty mortgages are strongly discouraged and 

would require specific justification to be used. 

The site visitor asked one of the loan officers who had made several adjustable rate mortgages 

(ARMs) to program participants whether she or her bank had any concerns that borrowers would not 

be able to afford their mortgage payments if interest rates increased significantly. She responded that 

the major benefit of her bank’s ARM product is that it does not require private mortgage insurance, 

which increases the borrower’s buying power. The bank also has mechanisms in place to deal with 

situations where the interest rate has increased significantly and borrower incomes have not kept 

pace. First, borrowers can convert to a fixed rate mortgage at any time. There is a fee for this 

process, but the loan officer reported that if the fee was too much for the client, the bank could be 

flexible and lower or waive the fee. Alternatively, the bank may be willing to readjust the interest 

rate below their pre-set caps on the ARMs to make sure that payments stay affordable. 

 2 The WHEDA lending rate equals the current treasury securities rate plus 2.75 percent (see Exhibit 1

below), so the current WHEDA lending rate plus 1.5 percent equals the current treasury securities rate plus

4.25 percent (= 1.5 + 2.75). The WHEDA lending rate fluctuates with the treasury securities rate, but the 

rate is “locked” for 45 days at the time a borrower qualifies for a WHEDA loan. 

4-6 
Several purchasers in Green Bay’s program have used the statewide below-market loan product 

offered by WHEDA. As of May 31, 2002, two purchasers have used FHA loans, but none have used 

Federal or state VA loans, which are available to qualifying borrowers. The lender interviewed 

during the site visit commented that thus far FHA loans have generally not been as attractive for 

program purchasers because of the relatively high down payment and mortgage insurance required. 

Rural Housing Service loans are also available for small portions of Brown County. 

The regional Fannie Mae office in Wisconsin pledged $1 million to buy voucher-backed mortgages 

from banks for the voucher homeownership program, but so far no bank or mortgage broker from this 

site has sold a loan to Fannie Mae. During the design phase, BCHA staff thought that the 

commitment from Fannie Mae would be critical to lender participation. However, the lender 

interviewed during the site visit reported that 

Fannie Mae’s commitment did not affect her 

bank’s decision to participate in this program

because the bank is happy to hold loans made to 

voucher program participants in portfolio. This is 

good news for program staff, who were 

concerned that banks would not want to keep 

such loans in portfolio. In addition, the bank is 

not set up to do business with Fannie Mae. In 

order to sell loans to Fannie, the bank needs new 

software. The lender further reported that the 

bank is willing to accept fewer lines of credit and 

somewhat more tarnished credit histories than 

Fannie is willing to accept. In general, that 

lender believes banks participating in the Green 

Bay program are able to offer more flexibility

than Fannie when making loans. 

Sample Purchase Transaction 

Buyer’s Annual Income: $23,388 

Costs to Buyer: 

− Purchase Price: $96,000 

− Closing Costs: $1,044 

Sources of Financing: 

− 1st Mortgage: $92,500 (7% 30 yrs., private lender) 

− Forgivable Loan: $3,500 (0%, lender) 

− Buyer Cash Down: $1,044 

Monthly Mortgage Payments: 

− Total monthly PITI: $824

− Monthly HAP to offset PITI: $357 

− Buyer’s share of monthly PITI: $467 

− Buyer’s share of PITI as a percent of gross monthly 

income: 24%

According to this same lender, a more significant challenge for her bank was setting up the servicing 

structure for these loans. Her bank deposits a monthly payment from the buyer and the monthly HAP 

from ICS into an account, cuts a check from that account, and sends the check to their affiliated 

mortgage company. While not an efficient process, this was the easiest way to service payments from

multiple sources without incurring the cost of programming a new automatic payment transfer 

system. 

The lender reported that voucher homeownership program participants appear prepared and well 

informed. She commented that loans through this program are always more time-consuming, but that 

her bank is happy to make them. She sometimes advises borrowers that they may qualify for better 

loan terms if they increase their savings, build new lines of credit, and repair prior credit blemishes. 

Most borrowers, however, do not choose to wait. 

4-7 
Exhibit 1 

Summary of Loan Products Currently Available to Green Bay Voucher Homeownership Purchasers

Product name 

Limited purchase area? Rate type Interest rate Loan term 

Minimum dowpayment? 

Impact area purchase Yes Adjustable: 5/1 

ARM 

6.9% 15-30 years 5% (2% gift ok) 

Neighborhood home loan program 

No Adjustable: 3/1 or 

5/1 ARM 

6.4% - 3/1 ARM 7% - 5/1 ARM 

30 years Greater of 3% o

$1,000 (100% g

Alt 97 (alternative to FHA product) 

No Fixed Slightly higher than 

market 

30 years 3% (100% gift o

Conventional fixed rate No Fixed Market 30 years 5% (no gifts) 

Good Neighbor loan (max. loan is $20K)3

Yes Fixed 4.9% Max 10 years No 

WHEDA loan (max purchase price $111K) 

No Fixed Treasury securities

rate + 2.75% 

30 years 3%; if 3% gifted 

5% total require

3 Good Neighbor loans are available as second mortgages in amounts ranging from $1,000 to $20,000. Given that these loans, usually us

never in first position, there are no down payment or PMI requirements. 

4-8 
Several down payment and closing cost assistance programs are available to voucher homeownership 

participants. Both NHS and CDBG/HOME funds are used to fund a zero percent second mortgage of 

up to $3,000 that does not have to be repaid until the home is sold. This program is available for 

homes purchased in one of Green Bay’s “Original Neighborhoods.” These neighborhoods include 

about 37 percent of the city population and are focused around the downtown area. Buyers must 

contribute two percent of the sales price from their own funds (gifts are acceptable) and the interest 

rate of the first mortgage cannot be more than 1.5 percent above the WHEDA rate. The counseling 

and inspection requirements of this program overlap those of the voucher homeownership program. 

A Federal Home Loan Bank (FHLB) program offers $3,000 in assistance with the same terms as the 

NHS and CDBG/HOME funds described above, except that the $3,000 is a five-year forgivable loan 

that can be used in conjunction with the NHS and CDBG/HOME programs. The State of Wisconsin 

also offers a five-year forgivable loan called Downpayment Plus. This program provides $3,500 and 

requires as a minimum down payment the higher of $1,000 or one percent of the purchase price. 

Finally, Options helps to coordinate resources from programs that offer down payment assistance and 

resources for repairs or accommodating renovations needed for clients with disabilities. While these 

down payment and closing cost assistance programs are of significant help to program purchasers, 

program funds are limited on an annual basis and run out quickly each year. 

 

Despite the availability of such assistance, affordability is often an issue for program participants. 

The ICS Homeownership Coordinator noted that a number of interested families qualify for a twobedroom voucher, but the voucher payment standard for a two-bedroom unit (already set at 110 

percent of the Fair Market Rent) adds relatively little to their buying power. Most families want to 

buy a house with at least three bedrooms (and this size is typical of the stock available). BCHA and 

ICS staff agreed that although the vouchers increase their clients’ buying power, the voucher payment 

standards are not adequate for the cost of housing in Green Bay.

NHS is in the process of applying for NR administrative and capital funds to support voucher 

homeownership. This would allow the possibility of a two-mortgage model, and BCHA and NHS 

staff expressed interest in trying this. Both BCHA and NHS are experienced second mortgage 

lenders and are currently servicing a large volume of loans, so either would be able to make second 

mortgage loans.4

 

Post-Purchase Activities 

The Green Bay program is in the process of developing a post-purchase counseling component. Eight 

hours of post-purchase counseling are required and all purchasers commit to this obligation when 

signing an agreement of participation. NHS will provide the post-purchase counseling. 

BCHA/ICS is planning to conduct brief post-purchase inspections on an annual basis (with no stated 

limit on the number of years these inspections will be conducted). According to the ICS 

Homeownership Coordinator, inspection staff will drive by the purchased property annually to do a 

visual inspection of the exterior. If the unit exterior is in compliance, there will be no inspection of 

the interior. If the unit exterior fails this inspection, however, a full interior HQS inspection will then 

 4 NHS learned in June 2002 that they were not awarded any capital funds but received $25,000 in operating 

funds from NR in the form of a “pre-development” grant. 

4-9 
be conducted. If the unit fails HQS and the homeowner does not address the HQS deficiencies, the 

homeowner can lose the voucher assistance. 

There is currently no information system or database in place for tracking program participants. NHS 

and ICS staff only hear about participants’ mortgage payments if 

there is a problem. Otherwise, they assume that all payments are 

being made on time. NHS staff are not in regular contact with 

clients after purchase. This “hands-off” monitoring of client 

financial obligations has worked thus far, but program staff 

acknowledge they need a more formal monitoring system. This 

may be particularly true for Hmong clients, with whom program

staff have not developed personal relationships due to language 

barriers. Program staff would like to communicate more 

effectively with these clients rather than just hoping for the best. 

Post-Purchase Activities 

The Green Bay program requires eight hours

of post-purchase counseling but is still in the 

process of developing this component. 

Annual inspections of unit exteriors are 

required after purchase, with full HQS 

inspections required if the unit exterior fails 

this inspection. 

Program Management, Staffing, and Partnerships 

BCHA and its partners have a history of providing homeownership opportunities to people with low 

incomes. In 1974, BCHA was one of the experimental housing allowance program sites, and ICS was 

created by BCHA to administer this program. The housing allowances offered were also available to 

qualifying homeowners. NHS has promoted homeownership by using CDBG and HOME funds to 

acquire, rehabilitate and market more than 100 affordable units for rent and purchase. In addition, 

NHS of Green Bay has a history of providing homeownership counseling to residents. 

BCHA, ICS, NHS, city planning, city redevelopment and other local agencies and organizations also 

have a long history of working together. Under the mayor’s leadership, all of these organizations are 

involved in the “Urban Partnership,” an initiative to encourage reinvestment in Green Bay’s city

neighborhoods. Increasing levels of homeownership is a central goal of the Urban Partnership. All 

key players viewed the proposed voucher homeownership 

program as an opportunity to help achieve this greater goal. 

Green Bay submitted an application to be one of the HUD’s 

voucher homeownership pilot sites, but was not selected. Led 

by BCHA’s Administrator, BCHA’s Executive Director (who is 

also the Green Bay City Planner), ICS’s Homeownership 

Coordinator, NHS’s Executive Director, Options’ Executive 

Director, and Fannie Mae representatives were all involved in 

program design discussions. BCHA staff were pleased at the 

PHA discretion allowed in the final rule for the program and generally believe that the requirements 

allowed them to design an effective program. 

Program Staffing 

The level of effort by BCHA and ICS staff is 

equivalent to one half of a full-time staff person. 

NHS devotes about the same amount of staff 

time. The total level of effort is thus roughly 

equivalent to one full-time staff person. Program

staff reported that more clients could participate 

in the program if staff time were not so limited. 

Since becoming fully operational, the program requires less staff resources than during the design 

phase. BCHA’s Administrator reported that he only spends a couple of hours per week on this 

program. The Homeownership Coordinator spends 10 to 15 hours a week on the program, but would 

like to devote more time on it. ICS’s Director of Rental Assistance spends about hour a week 

monitoring activities of this program. The two NHS counselors estimate that they each spend six to 

eight hours per week with clients, with some additional time for monitoring on the part of NHS’s 

4-10 
Executive Director. The HQS inspections for the homeownership program are conducted by ICS 

inspectors. The combined level of staff effort required to run Green Bay’s program is roughly

equivalent to one full-time staff person. 

To date, staff time has been funded in various ways. The BCHA Administrator’s time is paid out of 

general BCHA administrative funds. Because ICS contracts with BCHA to administer the housing 

choice voucher program, ICS staff who work with homeownership program participants are funded 

primarily by voucher administrative fees. ICS’s Homeownership Coordinator is also the FSS 

Coordinator, and is currently funded by FSS Coordinator funds from HUD. NHS charges $250 per 

household for the two intensive homeownership counseling sessions, and this fee is currently covered 

by a $6,000 counseling grant made by BCHA to NHS for the counseling of voucher program

participants. 

Program Outcomes 

Green Bay staff set a goal of eight to 10 closings per year for the voucher homeownership program. 

Having closed 11 loans in 10 months, the program is doing better than staff predicted. At the time of 

the site visit, about 23 households had enrolled in the program and had begun counseling, including 

the four purchasers. Few people have dropped out of the program. Program staff are pleased with the 

number of applicants and the proportion of participants who have succeeded in purchasing. They do 

not plan to alter the marketing strategy or make major changes to program administration. 

The four homes purchased though this program as of March 2002 were all located in well-maintained 

residential neighborhoods, three relatively close to downtown 

and one in a small town 25 minutes to the south. The homes 

purchased by program participants were in good condition and 

looked like any other homes in the neighborhood. None of the 

homes purchased thus far have been new construction. 

Commenting on the good condition of the purchased homes 

and surrounding neighborhoods, NHS and BCHA staff 

reported that Green Bay does not have severely distressed 

urban neighborhoods. An extensive drive through the city

during the site visit bore out this observation. A few areas 

known locally as less desirable neighborhoods are situated near the train tracks and railroad yards in 

some parts of the city and along several streets that have reputations for higher crime. In general, 

however, housing conditions tend not to be a problem—affordability is the greater issue. Several 

program staff noted that for the values of the homes purchased, taxes are relatively high in Green 

Bay, thus reducing affordability. 

Program Outcomes 

• Number of households enrolled: 23 

• Number of homes purchased: 11 

• Average income of purchasers: $19,818* 

• Average purchase price: $84,000* 

• Instances of loan default: 0 

*Based on data on four purchases available at time 

of site visit. 

The two program purchasers interviewed during the site visit gave generally positive feedback about 

the program. Both were single mothers with four children who came into this program with focus 

and determination. For years they had wanted to purchase homes to help stabilize their families and 

build assets for the future. One participant reported that she thinks this program offers the assistance 

that motivated people need to help themselves. Owning a home has made her feel like she really

belongs in the neighborhood and in the greater community. 

4-11 
The other participant interviewed reported that the training was informative and that program staff 

and others treated her well. She was less satisfied, however, with her financing terms. She also 

expressed some concerns about maintenance and was hoping that someone would teach her how to 

perform repairs herself because she thinks she cannot afford to pay others to do so. Lastly, this 

Hmong-speaking interviewee echoed the concern expressed by English-speaking program staff about 

language barriers: she has no contact with program staff right now, she does not feel connected to 

them, and does not know whom to call if there is a problem. 

Lessons Learned 

Green Bay program staff attribute much of their success to four factors: 

• The receptiveness of both public and private housing assistance organizations to the benefits 

of homeownership for voucher program participants; 

• The long-standing and very close partnerships among all involved agencies; 

• The quality of counseling services available at NHS; and 

• The use of the full HAP to offset mortgage costs. 

Most program staff find the mortgage terms and down payment and closing cost assistance programs 

are adequate for borrowers in this program—others would like to see exclusively fixed rate mortgages 

for program participants rather than some adjustable rate mortgages. This program is not dependent 

on below-market financing or other deep layers of subsidy. Although the availability of WHEDA 

loans certainly adds to affordability, purchasers can finance a home without this below-market 

assistance. Still, program staff would appreciate any new below-market loan programs that would 

increase participants’ buying power and minimize risk. 

That eight of the 11 purchasers to date are Hmong, one is Hispanic and three are persons with 

disabilities suggests that advocates have played an important role in this program. In particular, the 

Hmong realtor has assisted the Hmong clients to purchase by helping them to work with Englishspeaking lenders and program staff. In addition, Options has provided search assistance to program

participants with disabilities. 

The major challenge facing this program is the availability of affordable housing. However, staff 

capacity is also an issue. Thus far, the program has been able to produce a significant number of 

closings without overextending staff capacity. Program staff are clear, however, that it would be 

easier if ICS’s Homeownership Coordinator could focus exclusively on homeownership. The small 

number of staff at NHS also limits the number of counseling hours available for this program. 

BCHA’s Administrator noted that if the program is to increase in scale, staffing changes will be 

necessary. As of March 2002, there were no plans for program expansion. 

4-12 
BCHA and ICS staff offered the following advice for PHAs considering the voucher homeownership 

option: 

• Cooperative partnerships are key to the success of the program. In Green Bay, each partner 

organization has a wealth of homeownership experience and is well informed about the voucher 

program. Program staff feel strongly that it pays to trust each partner organization to do the job 

they are trained to do. All successes are seen as joint successes in Green Bay.

• It is helpful for the PHA to have or develop a close relationship with City and County planning 

and redevelopment agencies. In Green Bay, the mayor’s support for investment in urban 

neighborhoods has created a civic environment ripe for this program. Single-family homes in 

Green Bay have been gaining about four percent in value per year and are widely seen as a good 

investment for people of all income levels. 

• Sending interested households a thorough packet of background materials can lessen the 

burden on the program Administrator. ICS’s Homeownership Coordinator noted that this has 

made her job much easier, because applicants’ initial questions can usually be answered by

referring to the information packet. 

Green Bay Program Summary 

Number of homes purchased: 11 

Average income of purchasers: $19,818 

Average purchase price: $84,000 

Average monthly HAP payment: $308 

Financing model: HAP as Offset 

PHA program staffing: 0.5 full-time staff equivalent 

4-13 
Milwaukee, Wisconsin 

Housing Authority of the City of Milwaukee 

Introduction 

The Housing Authority of the City of Milwaukee (HACM) began offering the voucher 

homeownership program in April 2001 under the final rule. HACM administers approximately 4,900 

housing choice vouchers in the city of Milwaukee. Since 1994, HACM has assisted over 150 public 

housing residents to purchase houses—approximately 50 of these through HACM’s 5(h) program—

which converts existing public housing rental units into homeownership units. HACM saw voucher 

homeownership as a natural extension of its existing homeownership programs and part of the 

agency’s broader strategy of contributing to economic revitalization in Milwaukee. HACM’s Board 

of Commissioners approved the implementation of the voucher homeownership program in October 

2000, shortly after the publication of the final rule. Beyond assisting additional families to purchase 

houses, HACM’s leadership believes the program has the potential to increase city tax revenue and to 

assist voucher participants to address income and credit issues and reduce their need for housing 

assistance. 

HACM’s voucher homeownership program has had somewhat of a slow start. As of May 2002, only

three households had purchased through the program. HACM expected a greater number of closings 

in the first year of the program and attributes the lag in closings to a combination of factors, including 

the lack of lender participation in the early stages of the program and significant credit issues among 

the pool of homeownership applicants. In addition, HACM had to stop referring households to 

homeownership counseling as the agencies that had been providing the counseling did not have the 

funds to serve additional voucher program participants. As of March 2002, HACM staff felt that they

had resolved the major lender issues and had a pool of eight to 10 homeownership candidates who 

would be able to purchase over the next six months. However, the lack of funding for counseling 

continues to restrict the number of households who can pursue homeownership through the program. 

Housing Market Conditions 

Milwaukee has one of the most affordable housing markets among the 12 sites in the study. 

According to the 2000 Census, the median house value for the City of Milwaukee as a whole was 

$80,400, approximately 48 percent less than the national median house value. Prices in the 

Milwaukee metropolitan area have increased over the past year. According to the National 

Association of Realtors, the median sales price in the Milwaukee metropolitan area increased by 12 

percent between the first quarter of 2001 and the first quarter of 2002, from $142,400 to $159,000. 

Houses are generally less expensive within the city limits. For example, house prices in North 

Milwaukee range from $40,000 to $70,000. South of downtown, houses typically sell for over 

$100,000. The two most recent voucher homeownership participants to close purchased homes for 

$61,525 and $81,000. 

HACM staff report that the voucher payment standard is adequate for purchasing existing homes in 

the City of Milwaukee, although new construction units are generally unaffordable unless they have 

been subsidized for the low-income market. Both HACM and Wisconsin Housing and Economic 

Development Authority (WHEDA) have been involved in the construction of new affordable housing 

5-1 
through neighborhood revitalization programs. The first voucher participant to purchase bought a 

house in a neighborhood where WHEDA has built single-family homes as part of a neighborhood 

revitalization plan. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

units in the City of Milwaukee. Approximately 73 percent of the units in the state are valued below 

$100,000, within the potential price range of HACM voucher program participants. Ninety-four 

percent of Milwaukee’s housing units are valued below $150,000. 

Value of Owner-Occupied Units in the City of Milwaukee, Based on 2000 Census 

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants 

range from $42k to $81k 

Value of Units

Number of 

Units 

Program Design 

Targeting and Outreach 

HACM makes the voucher homeownership option available to existing participants in its rental 

voucher program who are in good standing with the agency and who meet the homeownership 

program’s minimum income and employment requirements (as established by the final rule). 

Recognizing that poor credit may be a barrier to homeownership for many voucher participants, 

HACM did not want to limit applications to the homeownership program by imposing additional 

requirements or targeting a subgroup of voucher participants. In addition, HACM staff view the 

homeownership counseling as beneficial for clients even if they do not end up purchasing, because it 

offers clients an opportunity to learn about budgeting and to begin to address credit problems. 

5-2 
HACM announced the homeownership option in April 2001 through its Resident Advisory Board 

newsletter. The response to the announcement was overwhelming. HACM received 500 applications 

to the program, many more than anticipated. Because HACM did not target a particular population 

within its pool of rental voucher program participants, the incomes of the 500 applicants to the 

homeownership program varied significantly, ranging from $11,000 to $30,000. With 500 initial 

program applicants, HACM has not felt the need to conduct any further marketing of the program. 

However, during the annual reexamination process for the 

rental voucher program, HACM staff explain the 

homeownership option. In addition, HACM highlights new 

homeowners in its Resident Advisory Board newsletter. 

Although the homeownership option is available to any

current participant in HACM’s rental voucher program who 

meets the program’s basic income and employment 

requirements, HACM gives priority to persons with 

disabilities referred by its partner agency, Independence 

First (IF). IF is a nonprofit agency that assists persons with 

disabilities through referrals, training, and advocacy. 

HACM and IF had previously partnered to provide rental housing for persons with disabilities. For 

the case of the voucher homeownership program, they were able to negotiate a Memorandum of 

Agreement through which IF may refer up to 10 clients to the homeownership program. 

Target Population and Outreach Methods 

HACM’s voucher homeownership option is available 

to existing voucher participants. In addition, HACM 

has partnered with a nonprofit agency serving 

persons with disabilities to refer clients to the 

homeownership program. 

Since conducting initial outreach to about 500 rental 

voucher participants in April 2001, HACM has relied 

primarily on word of mouth to market the program. 

Homeownership Counseling 

In developing the mandatory pre-purchase counseling component of the voucher homeownership 

program, HACM drew upon the existing relationships that it had developed with local nonprofit 

agencies through its 5(h) homeownership program. HACM had worked with two HUD-approved 

counseling agencies for the 5(h) program: Housing Resources Inc. (HRI) and Neighborhood Housing 

Services (NHS). These two organizations have provided pre-purchase homeownership counseling to 

participants in HACM’s voucher homeownership program. 

Both HRI and NHS are experienced agencies that have a track record of assisting low to moderate 

income families to purchase houses. With a six person staff, HRI operates a high volume counseling 

business, registering about 100 clients and “graduating” 50 each month. Both agencies receive 

funding from the City of Milwaukee through the CDBG program, from the State of Wisconsin, from

private foundations, and from lender fees. HACM does not pay either agency for counseling 

provided to program participants. 

Of the 391 voucher homeownership applicants that HACM has referred for homeownership 

counseling, approximately 40 have completed counseling through HRI and another 70 have 

completed counseling through NHS. (HACM does not track what happens to people who are referred 

to counseling but either do not begin or do not complete the counseling.) HRI and NHS offer a 

similar homeownership counseling curriculum, requiring clients to complete six to eight hours of 

counseling over three or four sessions. Voucher program participants complete the classes alongside 

the other low-income first-time homebuyers that HRI and NHS serve. NHS invites referred 

applicants to orientation sessions. Once the individuals attend the orientation, NHS pulls credit 

reports and tracks participants into two groups: those ready to buy homes within six months and those 

in need of more intensive credit counseling. 

5-3 
Milwaukee Voucher Homeownership Purchase Process 

HACM verifies family’s 

eligibility and runs credit

report

Family

pursues 

credit repair 

with HRI

Family meets with lenders 

for preapproval

Family contacts HACM

If family has

poor credit

Family enters into 

contract of sale

HACM conducts HQS 

inspection

Family obtains approval 

of lenders for mortgage 

loans and grants

Family schedules 

independent inspection

Family selects realtor

and begins searching 

for a home

HACM reviews 

inspection reports and 

financing

Family receives 

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If repairs are not required

If family has a 

disability

If family is not 

disabled

Family completes 6-8 

hours of group 

counseling with HRI

If program eligible, family

is referred to one of two 

counseling agencies

Family

pursues 

credit repair 

with NHS

If family has

poor credit

Family completes 6-8 

hours of group 

counseling with NHS

5-4 
Voucher participants in need of credit repair work with counselors individually over a period of 

months or even years. HRI also assesses clients’ credit standing and works out a long-term plan for 

those who are not yet able to obtain a mortgage. Although HACM does not pay for counseling 

provided to voucher program participants, HRI staff estimate that the basic pre-purchase education 

(for those who are more or less ready to purchase) costs about $200 per person. For clients who 

require six to 12 months of counseling in addition to the homebuyer education classes, the cost of the 

counseling is about $600. For clients requiring 12 to 18 

months of counseling, the cost is about $1,400. These costs 

are absorbed entirely by the counseling agency. 

HACM provides a basic screening of program applicants 

before referring them to HRI and NHS. HACM checks that 

applicants are in good standing with the voucher program and 

meet the homeownership program’s income and employment 

requirements. In addition, HACM staff run a credit report on 

each applicant. In theory, this procedure should provide good 

information on applicants’ ability to purchase before they are referred to the counseling agencies. In 

practice, however, HACM staff have had difficulty interpreting the credit report and have found that 

the credit report that they request often conflicts with that used by the lender. As a result, HACM 

relies heavily on the counseling agencies to assess voucher participants’ readiness to purchase and 

establish a plan of action to get them to that point. 

Pre-Purchase Counseling 

HACM has partnered with two counseling 

agencies to deliver pre-purchase counseling 

to program participants. These agencies 

provide six to eight hours of classroom 

sessions and individualized counseling for 

credit repair and other issues as needed.

Having initially received a large number of referrals from HACM, HRI and NHS are no longer 

willing to provide counseling to voucher participants without additional funding. As mentioned 

above, both agencies rely to a large extent on fees generated from lenders when their clients purchase 

houses. As of April 2002, only three of the nearly 400 voucher homeownership clients referred for 

counseling had purchased houses. In addition, due to clients’ credit issues and HACM’s stillevolving relationship with local lenders, it can take longer than usual for voucher clients to purchase 

once they have been through counseling. These factors have placed a financial strain on the 

counseling agencies. At present, HRI and NHS will only accept new voucher homeownership clients 

who were pre-approved for a mortgage and, therefore, very likely to purchase in the near term. As a 

result, homeownership applicants that have poor credit or are otherwise unable to qualify for a 

mortgage cannot proceed with the program at this time. 

HRI and NHS have recommended that HACM conduct better screening of program applicants before 

referring them to counseling so as to ensure that a greater proportion of those referred end up buying 

homes. However, HACM has been resistant to the idea of limiting access to homeownership 

counseling, and has instead been working to access new sources of funding for the counseling 

component (for example, through the HOME program) as well as pursuing partnership agreements 

with additional counseling agencies to accommodate the large volume of applicants. 

5-5 
Home Search and Inspections 

The two counseling agencies, HRI and NHS, discuss the home search process as part of the 

homebuyer education curriculum. However, neither counseling agency nor HACM provide any

formal search assistance to voucher participants. Participants with disabilities may get some

assistance in locating affordable and accessible units from IF. 

HACM voucher program staff conducts the pre-purchase HQS inspection of voucher homeownership 

units. The inspection process is no different from that followed in the rental voucher program. The 

HQS inspection on homeownership units typically takes place before the independent inspection. If 

the unit does not pass the initial HQS inspection, the HACM voucher program staff sends a letter to 

the property owner outlining the repairs needed. Once the repairs are made, HACM will schedule a 

re-inspection of the home. 

Financing Model 

HACM staff has struggled to gain the support of local lenders for its voucher homeownership 

program. HACM announced the homeownership option to its voucher program participants prior to 

discussing the details of the program with lenders—HACM had assumed that the same lenders that 

had been working on the 5(h) program would also be willing to make loans to voucher 

homeownership participants. The number of applications that HACM received for the 

homeownership program forced the agency to act quickly to secure lender partnerships. Although 

they had expressed general interest in the program, most local lenders lost interest in the program

when they reviewed its details and understood that the mortgage would be paid from two separate 

sources. In addition, lenders were concerned that the 

loans would not be able to be sold on the secondary

market. 

In the late Spring 2001, HACM met with members of 

NOHIM (New Opportunities for Homeownership in 

Milwaukee), a citywide consortium that encourages 

lenders to provide financing to low-income Milwaukee 

homebuyers, to garner support for the voucher 

homeownership option. The lenders continued to 

show reluctance until the Wisconsin Housing and 

Economic Development Authority, the State Housing 

Finance Agency, and Fannie Mae confirmed that their 

affordable loan products could be combined with the 

voucher subsidy. Since then, three lenders have agreed 

to participate in the program, using different methods 

of applying the subsidy to the mortgage. Interested, above all, in securing lender support for the 

program, HACM has not attempted to dictate the choice of financing model. 

Sample Purchase Transaction 

Buyer’s Annual Income: $13,773 

Costs to Buyer: 

− Purchase Price: $42,000 

− Closing Costs: $6,713 

Sources of Financing: 

− 1st Mortgage: $41,857 (FHA, 7.5% 30 yrs) 

− Grant: $10,000 (Independence First) 

Monthly Mortgage Payments: 

− Total monthly PITI: $381

− Monthly HAP to offset PITI: $254 

− Buyer’s share of monthly PITI: $127 

− Buyer’s share of PITI as percent of gross monthly 

income: 11%

Central States Mortgage Company has made first mortgage loans to two of the three voucher 

homeownership purchasers. Central States primarily originates FHA-insured loans and sells all of its 

loans on the secondary market. Central States was reluctant to get involved with the voucher 

homeownership program until FHA published its mortgagee letter in September 2001, which 

indicated that the voucher subsidy could (and must) be treated as income in determining the 

5-6 
homebuyer’s qualifying ratios. Central States has treated the voucher HAP as income for the two 

loans that it has originated through the program. Because of the two payments, the lender sets up a 

“dummy” account. Both HACM and the borrower deposit separate checks for the HAP and borrower 

portion into the account. The lender then sweeps the account to collect both payments as a 

consolidated payment. 

The other lender that has made a first mortgage loan to a voucher homeownership participant is North 

Shore Bank. North Shore Bank has a close partnership with WHEDA and originates loans using 

WHEDA’s affordable loan products. Specifically, WHEDA offers 30-year, fixed rate loans with 

below-market interest rates set at the current Treasury securities rate plus 2.75 percent. These loans 

have a maximum purchase price of $111,000 and require a minimum down payment of three percent 

of the purchase price (or five percent if three percent is gifted). The loan can also be used to finance 

$1,000 of the closing costs. WHEDA has agreed that the HAP can be applied as a direct mortgage 

offset for this loan product. Like Central States, North Shore Bank receives two separate checks for 

the monthly mortgage—one from HACM and one from the borrower. 

A third lender—Mutual Savings Bank—has agreed to participate in the voucher homeownership 

program but at the time of the site visit had not yet originated a loan to a program participant. Mutual 

Savings has partnered with Fannie Mae to offer three Fannie Mae loan products to program

participants. Mutual Savings has also set aside $2.5 million to hold loans for low- and moderateincome buyers in portfolio and to service these loans in-house. However, Fannie Mae has pledged to 

buy the loans within 30 to 60 days and to provide a servicing consultant to assist in working through 

the two payments issue. At the time of the site visit, Mutual Savings was working with one voucher 

program participant who had found a house and was near closing. Mutual Savings was also 

reviewing an additional six applications to the program. 

Participants in HACM’s voucher homeownership program have access to several sources of down 

payment and closing cost assistance through state and Federal programs. In addition, IF provides 

grants of up to $10,000 for the down payment and closing costs of purchasers with disabilities. The 

first purchaser in the program was a person with disabilities and received a $10,000 down payment 

grant from IF. IF also provides grants to make homes accessible for purchasers with disabilities. The 

availability of these funds is critical to making the program feasible to persons with physical 

disabilities, because many of the existing homes in Milwaukee that are affordable to program

participants are not accessible. 

HACM’s Special Projects Manager reviews the financing of each purchase transaction, including 

estimated closing costs, as a check against predatory lending. Although HACM does not set specific 

criteria for evaluating the loans, the Project Manager reviews the loans for features, such as balloon 

payments, adjustable rate mortgages, and unusually high interest rates. Beyond these basic criteria, 

however, HACM relies on the lenders to determine that the loan will be affordable to program

participants. HACM does not provide any financing assistance for home repairs, but does provide 

referrals to other agencies, such as IF for persons with disabilities. In addition, lenders can refer the 

residents to resources that will allow them to meet their mortgage obligations in the event of 

significant changes in income or expenses. 

5-7 
Post-Purchase Activities 

At the time of the site visit, HACM did not require post-purchase counseling. However, the agency

had recently received a $20,000 Local Housing Organization Grant through the State to provide postpurchase counseling to program participants. HACM plans to use the grant to offer a post-purchase 

inspection session, in which a home inspector will go to the home shortly after the purchase to advise 

the homeowner on home repair and maintenance issues. 

The inspector will also show the homeowners how the 

major systems operate in the home and how to make simple 

repairs. 

The lenders interviewed for this case study offered differing 

opinions on the importance of post-purchase counseling. 

The loan officer for Central States Mortgage Company,

who had worked with two program participants, did not 

believe that post-purchase counseling should be required 

but suggested that purchasers needed to take the initiative to call the lender, counseling agency, or 

HACM if they feel they need help making their mortgage payments. This loan officer expressed 

some concern about participants’ ability to meet their payments at the end of the term of voucher 

assistance, but suggested it was likely that participants’ incomes would increase over time, reducing 

the burden of the mortgage. 

Post-Purchase Activities 

HACM does not require post-purchase counseling 

or HQS inspections. However, HACM offers a 

service to advise homeowners on repairs and 

home maintenance. HACM also plans to review 

budgeting and maintenance issues with 

homeowners as part of the annual reexamination 

process. 

By contrast, the loan officer at Mutual Savings Bank was emphatic about the need for proactive postpurchase counseling in order to reduce the likelihood of loan default. He also suggested that the 

annual reexamination process should include a detailed review of participants’ budget and of the 

possible repairs and maintenance needed in the following year. 

HACM does not have a formalized tracking system to monitor participants’ mortgage payment 

history and is relying on the lenders to intervene in the event of a late payment. However, HACM 

sees the annual reexaminations for the program as an opportunity to follow-up with purchasers who 

indicate that they are encountering problems with their houses or mortgage payments. HACM does 

not plan to conduct post-purchase HQS inspections. 

Program Management, Staffing, and Partnerships 

HACM has taken an approach to the homeownership program that minimizes the amount of time 

devoted to the program by PHA staff. Outside partners fulfill program functions such as eligibility

screening, counseling, and financing, with HACM essentially playing a coordinating role to assist 

program participants through the purchasing process. For example, although HACM staff review the 

final terms of the financing, they do not necessarily meet with individual participants during the 

purchase process or attend loan closings. 

The principal HACM staff working on the homeownership program on a day-to-day basis are 

HACM’s Special Projects Manager and a Clerk. These staff were hired to administer HACM’s 5(h) 

homeownership program and fulfill other agency functions including managing HACM’s risk control 

and insurance policies, safety issues, and other special projects. The Special Projects Manager 

currently spends approximately 15 percent of his time on the voucher homeownership program, while 

5-8 
the Special Projects Clerk spends about 75 percent of her time on the program, processing 

applications, making referrals, and answering phone calls. The salaries of both the Special Projects 

Manager and the Clerk are paid out of the 5(h) 

homeownership program budget. 

The Special Projects Manager and Clerk communicate 

almost daily about the program on a case-by-case basis. 

Staff from HACM’s Housing Choice Voucher Program

(HCVP) Department fulfill specific functions in the program

such as conducting the HQS inspections and initiating HAP 

payments. With only three closings thus far, however, the 

level of effort required of HCVP staff has been fairly

minimal. HACM estimates that the total level of staff effort dedicated to the voucher homeownership 

program is slightly less than one full-time staff person. HACM believes that this level of staffing is 

appropriate at this stage in the program’s development; however, a significant increase in the number 

of purchasers may entail additional staff resources and more sophisticated management procedures. 

Program Staffing 

HACM devotes slightly less than one full-time 

staff person to administering the program. 

Homeownership counseling is provided by 

partner agencies free of charge. HACM 

primarily relies on existing staff from its 5(h) 

and rental voucher programs. 

Program Outcomes 

Out of the initial 500 program applicants, HACM referred 391 applicants to HRI and NHS for 

homeownership counseling. As of April 2002, 40 voucher homeownership candidates had received 

counseling from HRI, and approximately 70 had received counseling from NHS. Out of these, three 

participants had purchased houses. 

At the time of the site visit in March 2002, only one of the three program purchasers had closed on 

the purchase and moved into her house. This participant grew up in HACM public housing and 

wanted to purchase a house in the neighborhood where she had lived for most of her life. She joined 

the rental voucher program five years ago and learned of the homeownership option during her annual 

reexamination in 2001. She received counseling from NHS and was highly satisfied with the classes, 

commenting that she “learned a lot from those classes. Some things I forgot, but one thing stuck, 

‘pay the mortgage on time’.” Her goal was to find a stable home where she and her daughter could 

stay for some time. She received some search assistance through IF and support and encouragement 

from her lender. She looked at several properties and ultimately purchased a house that HACM had 

rehabilitated in 1995. She was attracted to the unit because it is a single-family detached house in a 

nice neighborhood, with big windows, a driveway, and a 

large backyard. She obtained $10,000 in down payment 

and closing cost assistance from IF to finance the purchase, 

which was finalized in December 2001. 

The participant reported that she has been happy with her 

purchase and is beginning to think of decorating the house 

and yard. She also wants to get to know her neighbors and 

start a Neighborhood Block Watch. Based on the site visitor’s assessment, the neighborhood 

appeared to be in fair condition. Most houses are well maintained, but about 10 percent of properties 

are seriously dilapidated or boarded up. Trash is visible in the streets but is not a major problem. 

HACM and the homeowner reported that the neighborhood was once thought of as a decaying “inner 

Program Outcomes 

• Number of households counseled: 110 

• Number of homes purchased: 3 

• Average income of purchasers: $20,434 

• Average purchase price: $61,508 

• Instances of loan default: 0 

5-9 
city” neighborhood but is now experiencing a turnaround. Several new homes have been built two 

blocks away and a new YMCA is under construction one block away. 

In addition to the three closings through April 2002, HACM staff anticipate that another eight to 10 

program applicants will purchase over the next six months. Ten to 15 voucher homeownership 

candidates have been pre-approved by a lender and are completing homeownership counseling or 

looking for houses. HACM reports that most of these pending applicants are single parents with 

children and incomes in the mid-$20,000s. Most have been looking to buy older, existing homes in 

Milwaukee, some with assistance from IF. 

The small number of closings to date reflects the credit issues facing most of HACM’s program

applicants. HACM reports that it can take between six months and two years for homeownership 

candidates to address the unpaid judgments, bankruptcies, and poor payment histories that prevent 

them from qualifying for mortgages. Now that HACM has a pool of applicants actively working on 

repairing their credit, program staff expect closings each month. In addition, since HACM is 

currently referring applicants with high credit scores directly to lenders for pre-approval prior to 

sending them to counseling, the lag between application and purchase will likely continue to be 

shortened. 

 

Lessons Learned 

Although HACM had experience with homeownership programs for public housing residents, such as 

the 5(h) program, the housing agency found that the voucher homeownership program presented a 

different set of challenges, particularly in handling the volume of interest in the program and securing 

the support of the local lending community. HACM staff feel that they underestimated the amount of 

marketing required to partner agencies prior to program implementation. The housing agency

announced the program before solidifying its partnerships with counseling agencies and lenders, and 

found that it could not rely on existing relationships developed through the 5(h) program but needed 

to create new partnerships (even with the same entities) specific to the voucher homeownership 

program. In particular, HACM has had to balance its desire to offer homeownership counseling to all 

program applicants against the limited capacity of its partners to provide the counseling. In addition, 

HACM is just starting to get commitments from local lenders to participate in the program—this can 

be expected to increase with the number of closings. 

HACM continues to pursue partnership opportunities with lenders, counseling agencies, and other 

nonprofit organizations. For example, HACM is in discussions with a women’s organization that 

focuses on developing Individual Development Accounts. Because HACM’s partners have taken on 

key programmatic functions, the level of PHA staff resources required to run the program has thus far 

not been as much of a concern as it has been at other study sites. In addition, local housing costs have 

not been a primary barrier for HACM’s program. 

 

5-10 
HACM’s Special Projects Manager recommends the following for PHAs considering the voucher 

homeownership option: 

• Market the program to potential partners—particularly counseling agencies and lenders—

during the program design and development phase. Establish a clear referral process and 

continuously educate lenders, brokers, and counseling agencies about the program. Once the 

program is running, have the overall team (possibly through a Strategic Planning Committee) 

meet quarterly to discuss implementation issues. 

• Recognize the needs of the lenders. Lenders are primarily concerned with risk mitigation and 

therefore have an interest in structuring loans so that they can be sold on the secondary market. 

Lenders are also interested in ensuring borrowers’ ongoing credit worthiness, which can be 

enhanced through programs such as post-purchase counseling. 

• The voucher homeownership program requires more ongoing monitoring and up-front 

assistance than the 5(h) program or existing voucher program resources may allow. As a

result, PHAs may have to depend heavily on the resources and commitment of an outside partner. 

HACM recommends having all of the partner agencies on board and the internal infrastructure in 

place before recruiting participants to the program. 

• Be clear with homeownership candidates about the reality of buying a house and the time it 

can take. Most program applicants are interested initially, but may not realize the long-term

commitment involved in becoming ready for homeownership as well as maintaining a home. 

Remind participants of the incremental steps such as clearing up credit and learning about new 

neighborhoods. 

Milwaukee Program Summary 

Number of homes purchased: 3 

Average income of purchasers: $20,434 

Average purchase price: $61,508 

Average monthly HAP payment: $254 

Financing model: HAP as Income 

PHA program staffing: 0.9 full-time staff equivalent 

5-11 
Missoula, Montana 

Missoula Housing Authority 

Introduction 

The Missoula Housing Authority (MHA) began offering the voucher homeownership program in 

April 2001 under the final rule. MHA administers 713 housing choice vouchers in the city of 

Missoula and within a 10-mile radius surrounding the city. As of May 2002, five households had 

purchased homes through MHA’s program, with two additional households expected to close on 

homes by September 2002. MHA has set a goal of using 30 vouchers, or approximately four percent 

of its total voucher program, for homeownership. 

The main challenge facing MHA’s program is escalating house prices in the Missoula metropolitan 

area. To allow voucher participants to purchase in the current housing market, MHA’s lender 

partners have chosen to finance the purchases using the voucher subsidy as a direct offset to the 

monthly mortgage payment. This allows purchasers to qualify for higher mortgages than would be 

possible using voucher subsidy as an addition to income. However, FHA’s policy—announced in 

September 2001—that the voucher subsidy must be treated as an addition to income for FHA loan 

products has presented a stumbling block for MHA’s program. MHA has sent a request to FHA for a 

waiver to allow the voucher subsidy to be applied as a direct offset to the monthly mortgage payment 

with FHA loans in Missoula. Preparing the request and awaiting a response from FHA has resulted in 

a slowdown of program activities. MHA staff report that had they been able to continue treating the 

voucher subsidy as a direct mortgage offset, as many as twice the actual number of participants would 

have purchased homes by May 2002. 

Housing Market Conditions 

The City of Missoula has one of the most expensive housing markets among the 12 sites in the study, 

due in part to the presence of the University of Montana. According to a market study by Montana 

State University, the median sales price of new and existing homes in Missoula in 2001 was 

$143,000, up six percent since 2000.1

 In the University area of the city, the median sales price was 

$172,000, compared to the $144,474 in the South Hills neighborhood and $97,797 in the city’s near 

west and north side.2 The purchase prices of the five houses purchased by voucher homeownership 

program participants range from $95,000 to $120,000, with an average purchase price of $105,780. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

units in the city of Missoula. A majority of units in Missoula (66 percent) are valued below 

$150,000, within the potential price range of Missoula voucher program participants. However, only

19 percent of Missoula housing units are valued below $100,000. Although at present there is 

sufficient housing stock within the price range of program participants, the local housing market in 

Missoula may present a barrier to the future growth of the program at this site. 

 1 The Price of Housing in Montana, 2001. Compiled by The Center for Applied Economic Research, 

Montana State University—Billings. April 29, 2002. 

2

 Realty Times website. Downloaded in February 2002 (www.realtytimes.com). 

6-1
Value of Owner-Occupied Units in the City of Missoula, Based on 2000 Census 

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

$0 to $49k $50k to $99k $100k to $149k $150k to $199k $200k to $299k $300k and

above

Units purchased by voucher 

homeownership participants range 

from $95k to $120k 

Number of 

Units 

Value of Units 

Program Design

Targeting and Outreach 

The homeownership option is available to families in good standing with MHA who have been 

participating in the rental voucher program or have been living in MHA public housing for at least 

one year. Households are also required to pay one percent of the purchase price towards down 

payment and closing costs. MHA has chosen not to impose PHA eligibility requirements in addition 

to the HUD eligibility requirements in the final rule. In particular, MHA has not required that 

voucher homeownership participants participate in the 

Family Self Sufficiency (FSS) program. MHA staff 

believes that the one-year tenancy requirement allows 

the housing agency to track participant’s income and 

employment stability sufficiently to avoid setting 

families who are unprepared for homeownership up for 

failure. The housing agency resisted imposing 

additional eligibility requirements that would further 

refine the pool of eligible participants because they

wanted to open the program as widely as possible, 

while viewing the lenders as the final decision makers 

during the loan approval step. 

Target Population and Outreach Methods 

MHA’s voucher homeownership option is available to 

households who have participated in the rental voucher 

program or public housing for at least a year and are in 

good standing with the agency. 

Initially, MHA sent letters to all voucher participants 

meeting the one-year participation requirement, inviting 

them to apply. Since then, outreach has been conducted 

primarily through discussions with eligible voucher 

participants at annual reexamination. 

6-2
During the first two months of the program, MHA conducted a program-wide outreach by sending 

letters to all rental voucher program participants, Shelter Plus Care participants, and public housing 

residents who met the income, employment, and program tenure requirements of the homeownership 

option. The letters invited eligible families to attend an orientation meeting and if interested to 

complete a program application and meet with MHA’s Homeownership Coordinator. MHA held two 

such group orientations (with about 45 people attending each one), plus one session designed 

especially for Russian-speaking program participants. There is a fairly substantial proportion of 

Russian-speaking families participating in MHA’s programs and staff wanted to make sure that the 

homeownership option was presented to these families in Russian. A translator from a local nonprofit, 

The Refugee Assistance Center, worked with MHA staff to translate the orientation materials and to 

present the session in Russian. 

This broad outreach generated interest in the program and resulted in several applications. In general, 

however, program staff believe it has been more effective to focus recruitment efforts on in-person 

contact with existing voucher program participants during annual reexaminations. Given the 

relatively small size of MHA’s rental voucher program, the two voucher program staff who conduct 

reexaminations know many of the program participants personally and are well versed in the 

requirements of the homeownership option. The voucher staff report being able to identify good 

candidates for homeownership during this individual contact more effectively than through largescale outreach. Another source of recruitment is word of mouth from existing homeownership 

program participants who have encouraged friends and relatives to apply. 

Program staff at the housing agency and partner organizations believe that there is a great deal of 

demand for the homeownership option among voucher participants and that it will not be difficult to 

achieve the desired 30 closings using individual marketing efforts by program staff and by word of 

mouth. MHA’s Homeownership Coordinator processes applications for the homeownership program, 

verifies eligibility, determines the value of the voucher and approximate financing arrangements, and 

then refers clients to homeownership counseling. 

Homeownership Counseling 

MHA staff consider homeownership counseling to be an integral component of the program and one 

that will prove vital to the long-term success of homebuyers. MHA has entered into a partnership 

with Missoula Housing Corporation, an umbrella organization for all nonprofit housing activities in 

the city, to provide counseling to voucher participants. MHC is an affiliate of Neighborhood Housing 

Services of Great Falls. MHC in turn provides funding to HomeWORD to offer group homebuyer 

education sessions to homeownership program participants. HomeWORD is a nonprofit developer of 

affordable rental housing and HUD-approved counseling agency. Voucher homeownership 

candidates are required to attend a total of 10 hours of classroom training, offered in four separate 

evening sessions (twice a year HomeWORD offers sessions on weekends). The counseling is free for 

the program participants. 

The HomeWORD counselor and a local realtor lead the sessions, with a recent first-time homebuyer 

also in attendance to give first-hand information to potential buyers. The counseling curriculum is 

based on the Neighborhood Reinvestment Institute’s national class format and includes: the pros and 

cons of homeownership; understanding credit reports; establishing credit or repairing credit; 

homeownership financing terminology; how to look for a lender; the components of a buy-sell 

agreement; finding a realtor; home inspections; and preventing foreclosure. 

6-3
Missoula Voucher Homeownership Purchase Process 

MHA coordinator prescreens family for 

program eligibility

Family meets with MHA

coordinator and program

eligibility is verified

Family meets with MHC 

counselor to assess 

mortgage readiness

Family

referred to 

credit

counseling

Family meets with lender 

and applies for special

financing

Family contacts 

MHA homeownership

coordinator

If family is not

mortgage ready

Family completes 10

hours group counseling 

with HomeWORD

Family enters into 

contract of sale

MHA conducts HQS 

inspection

Family obtains lender

approval for mortgage 

and grants

Family schedules 

independent inspection

Family selects a realtor 

and searches for a home

MHA reviews inspection 

reports and financing

Family receives 

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If no repairs are required

Family meets with MHA

coordinator and receives 

certificate of eligibility

6-4
Participants who need additional individual assistance with credit repair are either referred to 

consumer credit counseling agencies or meet individually with the HomeWORD counselor. 

HomeWORD offers the homebuyer education classes to any interested individual with income less 

than 80 percent of area median income, with a new four-session class beginning each month. 

Voucher homeownership participants attend the sessions 

along with other first-time homebuyers, and the session 

leaders often do not know which participants are enrolled in 

the voucher program. Future plans are to conduct separate 

homebuyer education for voucher participants so that the 

particular arrangements for financing the home purchase 

with the voucher assistance can be addressed in detail 

during the group sessions. At present, the unique financing 

arrangements for voucher participants are not explicitly

addressed during the classes, because they are substantially

different than for other buyers. 

Pre-Purchase Counseling 

MHA requires that participants complete a one-hour 

individual homeownership assessment and a 10-hour

homebuyer education class taught by HomeWORD, 

a nonprofit HUD-approved counseling agency. 

The classroom instruction includes an overview of the

pros/cons of homeownership, advice on finding a 

lender and realtor, discussion of credit issues, and 

financing the home purchase. 

Voucher program participants attend the homebuyer education classes prior to being pre-qualified for 

a mortgage by a lender, but after confirmation of their eligibility by the MHA homeownership 

coordinator. Another activity conducted prior to the homebuyer education classes is an individual 

homeownership assessment with a counselor from the Missoula Housing Corporation. The purpose 

of this one-hour session is to assess the individual’s readiness for homeownership, based on credit 

situation, income, and knowledge of the purchase process. If the assessment reveals credit problems 

or other issues that will prevent the individual from obtaining a mortgage, he/she will be referred to 

credit counseling specifically designed for first-time homebuyers before homebuyer education. 

Program staff also expect that some people will screen themselves out of the program after the 

assessment once they have a better understanding of the responsibilities of homeownership. 

After completing the homeownership assessment and the homebuyer education class, participants 

receive a certificate of completion and, after meeting again with the MHA coordinator, go to a lender 

to be pre-qualified for a mortgage. Participants may request additional assistance from the counselors 

at HomeWORD, but there is no formal arrangement for follow-up counseling. HomeWORD also 

offers foreclosure prevention counseling services. 

MHA staff and program participants reported that the quality of the counseling is excellent and that it 

prepares participants well for the purchase process. In particular, program staff believe the timing of 

the counseling prior to loan pre-qualification is important because only participants who are good 

candidates for homeownership meet with lenders and this helps MHA to maintain good relations with 

participating lenders. The two program participants interviewed said that they found the counseling 

materials and instruction to be very helpful in preparing them to purchase. 

Home Search and Inspections 

Beyond the homeownership counseling, MHA does not provide program participants with any

additional assistance as they search for a home to purchase. Program participants are encouraged to 

work with a realtor, but neither MHA nor HomeWORD provides referrals to specific realtors. Thus 

far, finding houses that are affordable has been difficult for participants. Two participants purchased 

the houses they had previously rented through the voucher program because they were unable to find 

other units. However, these purchasers reported that they are satisfied with the houses and with their 

6-5
decision to purchase in place. MHA initially allows 120 days search time for homeownership 

participants, but extensions are available, up to a maximum of one year, to search for a home. 

Overall, most purchasers have found their homes in three to four months, with one participant looking 

for nine months before purchasing in place. 

MHA uses its team of rental program inspectors to conduct the pre-purchase HQS inspections on 

voucher homeownership units. The HQS inspection is done prior to the independent inspection to 

save the participant the cost of the independent inspection if the unit does not meet minimum HQS 

requirements (and the seller is unwilling or unable to make the necessary repairs). Of the five homes 

purchased, only one passed HQS on the first inspection. MHA staff suggested that the repairs 

required have been relatively minor (addition of egress windows in two cases, addition of hand rails 

on steps, and minor repairs to sewer lines). There has not been a situation in which the independent 

inspection revealed flaws that prevented a sale. 

Financing Model 

During the program design phase, the MHA acting Executive Director worked closely with the 

Missoula Housing Corporation to develop the financing model for the homeownership program. It 

was also helpful that two members of MHA’s board are vice presidents of local banks and were able 

to give insight into potential lender concerns about the program. MHA and its partners together 

determined that the mortgage-offset model would give program participants the most buying power. 

In the mortgage offset model, the maximum amount of the mortgage is calculated based on adding the 

full amount of the HAP to the monthly principal, interest, taxes, and insurance (PITI) that the 

participant can afford on the basis of his/her own income. MHA determined that most voucher 

participants could not afford to buy homes in Missoula if the HAP were applied in any other way.

Although the offset model is typically associated with more risk than when the HAP is considered an 

addition to income because households potentially face a higher housing cost burden at the end of the 

term of assistance, MHA’s emphasis on pre-purchase counseling and availability of assistance after 

purchase may help to mitigate this risk. In addition, MHA staff believe it is crucial that program

staff screen voucher homeownership candidates carefully to avoid “setting them up for failure.” In 

addition, it is important that homeownership candidates clearly understand the implications of the 

expiration of the voucher term before they purchase. 

MHA began using the mortgage-offset model at the start of the program. In September 2001, 

however, FHA issued its mortgagee letter stating that the HAP must be treated as income (and not as 

a mortgage offset) in determining the homebuyer’s qualifying ratios. This has presented a stumbling 

block for MHA’s program. MHA has sent a request to FHA for a waiver to allow the mortgage offset 

model to be used with FHA loans in Missoula. In the meantime, program staff are exploring the 

possibility of qualifying participants using the HAP as an addition to income. However, 

approximately seven voucher homeownership candidates who originally pre-qualified for loans using 

the mortgage offset model can no longer qualify for a loan when HAP is applied as income. 

MHA has placed some restrictions on the types of financing that families can use to purchase homes 

through the voucher homeownership program. Program participants must pay one percent of the 

purchase price from their own resources for the down payment and/or closing costs. This may

include the cost of appraisals or earnest money but may not include the cost of the independent home 

inspection. MHA also requires the mortgage financing to comply with secondary mortgage 

underwriting requirements or with generally accepted private sector underwriting standards. The 

6-6
agency has not placed any additional restrictions on the financing that participants use to purchase 

homes through the program. All of the purchases to date have been financed through one lender, 

Heritage Bank, and the agency developed a close working relationship with the loan officer at that 

institution (who has since left the bank to start her own mortgage company). This individual has 

become a sort of “financing advisor” to the program, offering her opinions about the types of loan 

products and additional assistance available to participating families. If future participants choose to 

use lenders other than Heritage Bank, MHA staff will likely seek the advice of the former loan officer 

to help ensure that families avoid predatory lending situations. 

During the initial months of the program, MHA held information sessions with local lenders to 

explain the program. Three lenders expressed interest in the program several others took a “wait and 

see” approach. However, only Heritage Bank has made first mortgage loans to program participants. 

These have all been FHA loans. In addition, two of the five purchasers have used the U.S. 

Department of Agriculture’s Rural Housing Service’s 

Section 502 Direct Loan Program (commonly known 

as Section 502 loans) as second mortgages in 

combination with the FHA loans. The 33-year Section 

502 loans are financed through the Montana Board of 

Financing, with interest rates ranging from one to six 

percent depending on the borrower’s income.

3

 

In addition to the FHA and Section 502 loan products, 

there are several other sources of financing for closing 

cost and down payment assistance and second 

mortgages. MHC is a source of second mortgage 

financing in designated parts of the city, through its 

affiliation with Neighborhood Housing Services of 

Great Falls. First-time homebuyers can borrow up to 

$20,000 from MHC for 30 years at a two percent 

interest rate. In addition, the Human Resource 

Council, which administers rental vouchers throughout the state of Montana, can provide up to 

$25,000 in deferred, interest-free second mortgage loans (these are funded through HUD’s HOME 

program). MHC also operates a savings program called Homestart, in which homebuyers put earned 

income into a savings account that is then matched at a 3:1 ratio by the Federal Home Loan Bank of 

Seattle, and can be used for down payment or closing costs. (Homestart requires that buyers remain 

in the home for five years). To date, none of the homeownership voucher program participants has 

used the Homestart funding, but one has used Neighborhood Housing Services funding and one has 

used funding from the Human Resource Council (HOME funds). 

Sample Purchase Transaction 

Buyer’s Annual Income: $22,270 

Costs to Buyer: 

− Purchase Price: $100,000 

− Closing Costs: $1,822 

Sources of Financing: 

− 1st Mortgage: $91,500 (FHA, 6.1% 30 yrs.) 

− 2nd Mortgage: $9,322 (NHS, 2% 30 yrs.) 

− Buyer Cash Down: $1,000 

Monthly Mortgage Payments: 

− Total Monthly PITI: $832

− Monthly HAP to offset PITI: $682 

− Buyer’s Share of monthly PITI: $150 

− Buyer’s share of PITI as a percent of gross monthly 

income: 8%

 3

 See the case study on Vermont for more detail on Section 502 loans. 

6-7
One of the critical factors in the results achieved thus far is the personal relationship MHA has 

developed with Heritage Bank. One loan officer worked on all five purchase transactions, ensuring 

that the details about the voucher assistance, family contribution, and mortgages were well 

understood, and necessary information was shared with all parties prior to closing. Even with only

five purchases to date, it is clear that each purchase is a custom transaction, requiring a high level of 

commitment and knowledge on the part of the lender. Heritage Bank contends that the voucher 

homeownership program fits extremely well into the bank’s commitment to community development 

and its mission to increase homeownership opportunities for lower-income families. The bank has 

been willing to process two separate payments each month for the buyers (one from the buyer and one 

from MHA) and to provide MHA with up to date reporting if a buyer’s payment is more than five 

days late in any month. Heritage Bank services all of the loans it originates and is therefore willing to 

take on these extra steps, perhaps because they do not have concerns about selling the loans on the 

secondary market. The Section 502 loan must be paid with only one payment, so either the family or 

MHA pays the entire monthly payment for those loans. 

Post-Purchase Activities 

MHA has worked with Heritage Bank to establish procedures for monitoring the payment of the 

mortgage loans so that MHA can respond quickly if any participants encounter problems meeting the 

monthly payments. If a payment is more than five 

days late in any month, Heritage will inform MHA 

and MHA will contact the family immediately to 

discuss the situation. Similar arrangements are in 

place with Rural Housing Service. 

MHA does not require any formal post-purchase 

counseling for program participants. Annual postpurchase HQS inspections of the properties is 

offered as an option to buyers, and MHA staff 

believe that the annual reexamination process will 

allow MHA to monitor the participants’ financial situations and to intervene if necessary with 

referrals to HomeWord or other sources of counseling. In addition, any voucher homeownership 

participant who receives down payment assistance loans through the Missoula Housing Corporation 

is contacted by telephone every three months for one year after purchase, according to MHC’s regular 

follow-up process. 

Post-Purchase Activities 

• MHA does not require any additional counseling once 

participants have purchased 

• Annual, post-purchase HQS inspections are optional 

• Participants receiving down payment assistance from 

MHC are contacted every three months by telephone 

• Heritage Bank’s servicing staff monitor participants’ 

mortgage payments on a monthly basis 

6-8
Program Management, Staffing, and Partnerships 

MHA had not operated a homeownership program prior to the voucher homeownership program. In 

recent years, the agency has sold several of its scattered site public housing properties and would have 

liked to be able to offer the right of first refusal for these properties to voucher participants or public 

housing residents. However, MHA did not have a resident council in place as required by HUD 

regulations for such housing disposition efforts. When the voucher homeownership option came 

along, MHA viewed it as an effective mechanism for the agency to pursue its goal of encouraging 

long-term self-sufficiency among its clients. MHA’s leadership believes that homeownership 

benefits to individuals and families by giving them an asset and housing stability, and benefits 

communities by strengthening neighborhoods. Missoula program staff also noted that the 

homeownership program has given MHA an opportunity to strengthen its ties to local nonprofits and 

private sector lenders and to cement its role as a local leader in affordable housing issues. 

The design of MHA’s voucher homeownership program required an intensive effort by MHA and its 

partners at the Missoula Housing Corporation, HomeWORD, and Heritage Bank. MHA’s Acting 

Executive Director and MHC’s Director (also officially a staff member of MHA) each played a key

role in planning the program. In its early stages, MHA’s Deputy Executive Director and Housing 

Specialist, who is designated as the Homeownership Coordinator, each spent approximately 25 

percent of their time working on the voucher homeownership program. In addition, a staff member 

from MHC, who is formally an employee of the housing agency, spent approximately 20 percent of 

her time on the program at the outset. Creating a new set of policy documents and forms was 

somewhat labor intensive, as was conducting outreach to potential lenders and developing the 

financing model. MHA staff attribute the strong network of housing nonprofits in Missoula, the 

willingness of lenders to sign on to the program, and the commitment of individuals in the partner 

organizations as critical to the success of the design phase. In addition, MHA relied on input from

other homeownership programs (particularly the Colorado 

SHHP program) to help them settle on key design issues, as 

well as the knowledge and support from their board 

members. 

Since becoming fully operational, the program has required 

a somewhat lower level of staff resources from MHA. 

MHA’s Homeownership Coordinator continues to spend 

approximately 25 percent of her time on the program. She 

is responsible for client intake and monitoring all phases of 

the purchase process and is the key liaison between all of the partners involved in the program. She is 

also directly involved with each purchase transaction and maintains a computer database to monitor 

participants’ progress at each stage of the program, both pre- and post-purchase. MHA’s Deputy

Executive Director, who worked intensively on the program during the start-up phase, now spends 

much less time on the program.

4

 

Program Staffing 

MHA devotes slightly more than one half-time 

staff person to administering the program. 

Homeownership counseling is provided by 

partner agencies free of charge. MHA believes 

this level of staff effort is adequate to operate a 

successful program. 

In addition to the functions performed by the Homeownership Coordinator, other MHA voucher 

program staff play key roles in administering the homeownership program by conducting the pre-

 4 A new Executive Director joined the agency in April 2002. During the planning phase, the Deputy

Executive Director served as Interim Director of the agency. 

6-9
purchase HQS inspections and income reexaminations (as they do in the rental program) and by

acting as the first point of contact with potential program participants. Given the high degree of 

coordination among the MHA staff, the voucher program intake and inspection staff understand the 

homeownership program well and are able to respond to voucher participants who have questions, 

referring them to the Homeownership Coordinator as necessary. A staff person from MHA’s Finance 

Department spends about 10 percent of his time on the program, and the two voucher program staff 

together spend about 25 percent of their time on the program. The total level of effort that MHA staff 

devote to the program (not including the work done by program partners) is slightly more than one 

half-time person (or 0.55 full-time equivalent, assuming a 40-hour work week). MHA does not view 

the level of staff effort required to run the program as a concern or limitation on the program’s growth 

to its full target of 30 vouchers. 

Because the MHA is currently undergoing a transition in leadership and may pursue new staffing 

arrangements and new priorities, the staffing level for the voucher homeownership program may shift 

in the coming months. Thus far, MHA staff resources for the program have been funded entirely

through housing choice voucher program administrative fees. MHA has applied for FSS coordinator 

funds and for a grant from the Neighborhood Reinvestment Corporation, both of which would be 

used in part to offset administrative costs. 

Program Outcomes 

MHA has designated a total of 30 housing choice vouchers for the homeownership program.

5

 

Through the first year of program operations, MHA has completed five closings. The program staff 

believe that if FHA allowed the voucher to be used as an offset to monthly mortgage payments, there 

would have been approximately 10 closings by this time. 

Supporting this observation, the loan officer reported that seven 

families had been pre-approved for a mortgage under the 

mortgage offset model but are no longer eligible if the HAP is 

counted as income. The program currently has two households 

who have completed homebuyer education, have been preapproved for a mortgage, and are searching for homes. MHA 

expects them to close on purchases by September 2002. In 

addition, three households have completed homeownership counseling but are working to address 

credit issues before going to a lender for mortgage pre-approval. 

Program Outcomes 

• Number of households counseled: 14 

• Number of homes purchased: 5 

• Average income of purchasers: $18,087 

• Average purchase price: $105,780 

• Instances of loan default: 0 

There are no other households currently “in the pipeline,” although programs staff continue to 

identify potential program participants who meet the income, employment, and program tenure 

requirements during annual reexamination interviews. The agency would like to resolve the issues 

regarding the financing model before preparing a substantial number of families to obtain loan preapproval, so they can be more certain as to the purchase price participants can afford. Given their 

ability to identify appropriate homeownership candidates on an ongoing basis, and the fact that 

homebuyer education can be completed within a four-week period, staff believe they can prepare 

additional families for loan approval and purchase relatively quickly, once their request to FHA to 

allow the voucher subsidy to be counted as a direct offset to the monthly mortgage is approved. 

 5 This is MHA’s current goal for the life of the voucher homeownership program, but could be revised once 

the target is reached. 

6-10
The units purchased to date have all been single-family detached houses. All except one are located 

within the Missoula city limits in residential neighborhoods. One participant purchased in a rural area 

at the outskirts of MHA’s jurisdiction. Four of the five homes were purchased from individual 

sellers, while one property was a former public housing property sold as part of MHA’s property

disposition efforts. Based on a visual assessment of three of the five homes, all appear to be in good 

condition, with ample yards and garages, and located in quiet neighborhoods. Two purchasers 

purchased the units they had previously rented under the voucher program. 

MHA has not imposed a limit on the percentage of income that participants can spend on monthly

homeownership expenses. Instead, the agency relies on the lenders’ underwriting guidelines to keep 

the purchases affordable. Based on the five purchase transactions, the monthly PITI on the mortgage, 

less the subsidy provided by MHA, represents, on average, 10 percent of purchasers’ gross monthly

income. However, as part of the program requirements, MHA also develops an estimate of monthly

homeownership expenses for each program participant, which includes the maintenance and repair 

reserve, an estimated amount for utilities (based on the utility allowance schedule developed for the 

rental voucher program), and other required expenses. When these additional costs are factored in, 

total monthly homeownership expenses represent, on average, 58 percent of purchasers’ gross 

monthly income. Thus far, however, there have been no instances of late payments. Most purchasers 

have been in their homes six months or less. 

One of the participants interviewed during the site visit purchased a house through MHA’s voucher 

homeownership program in November 2001. At the time of the interview, she was extremely pleased 

with her new home, both because it represents a substantial improvement over the conditions of her 

previous housing unit and because she feels she is building financial security for her son and herself. 

She considers the voucher homeownership program to have helped her provide a more permanent and 

stable living environment for her son, as well as the prospect of building a financial asset. She 

praised the personal commitment and involvement of all of the program staff—voucher program staff 

at MHA, the loan officer at Heritage Bank, and the homebuyer education counselors—and believes 

that everyone gave her personalized attention and assistance at every step in the process. She 

commented that this guidance and encouragement was crucial to her ultimate success in purchasing 

her house. 

Lessons Learned 

MHA’s leadership and program staff consider the strength of the agency’s relationships with partner 

organizations, including lenders and counselors, as the key ingredients to the success of the program

thus far. The availability of first-mortgage loans and additional down payment, closing cost, and 

second mortgage financing are other key factors that have allowed participants to purchase through 

the program. The major challenge is the rising cost of housing in Missoula and the inability of 

participants to purchase if the HAP is treated as an addition to income in determining the maximum

amount of the mortgage. According to program staff, the use of the HAP as a direct offset is critical 

to the ability of voucher homeownership candidates to purchase given their low incomes and the 

relatively high cost of housing in Missoula. For this reason, they believe that FHA’s policy that the 

HAP must be treated as income threatens the future growth of MHA’s program. 

6-11
MHA’s Deputy Executive Director and program staff offered the following advice to PHAs 

considering the voucher homeownership option: 

• Develop a network of partners within the community. This is particularly important for small 

PHAs, for whom offering counseling in-house might be inefficient or impossible given limited 

staff resources. 

• Recruit a group of lenders who are committed to the program. This is a great asset in resolving 

the challenges that each purchase transaction presents, regardless of the client base served. 

Missoula Program Summary 

Number of homes purchased: 5 

Average income of purchasers: $18,087 

Average purchase price: $105,780 

Average monthly HAP payment: $553 

Financing model: HAP as Offset 

PHA program staffing: 0.55 full-time staff equivalent

6-12
Montgomery County, Pennsylvania 

Montgomery County Housing Authority 

Introduction 

The Montgomery County (Pennsylvania) Housing Authority (MCHA) administers approximately

2,600 housing choice vouchers. MCHA was one of the first housing authorities authorized to pilot 

the voucher homeownership option under HUD’s proposed rule. MCHA was primarily attracted to 

the homeownership option as an opportunity for innovation within the housing choice voucher 

program and to expand the housing options of its clients. MCHA also viewed the program as an 

opportunity to support some of the communities within the county that have suffered from declining 

homeownership rates. The homeownership rate for the county as a whole is high (74 percent) and has 

increased since 1990. Some parts of the county, however, have been steadily losing homeowners and 

today have homeownership rates under 50 percent. 

The homeownership option is available to existing participants in MCHA’s voucher program and to 

households off the voucher program waiting list who meet the basic eligibility criteria established by

the final rule. Although it was originally a HUD pilot site, MCHA operates the program under the 

final rule. As of April 2002, at the time of the site visit, 11 households had purchased homes through 

the program. A twelfth household purchased in May 2002. One of the distinctive features of 

MCHA’s program is its pre-purchase counseling component, which includes five two-hour 

homeownership workshops led primarily by MCHA staff. Another noteworthy feature of MCHA’s 

program is the relatively high degree of lender participation. As of April 2002, seven different 

lenders had made first mortgage loans to program participants. Close attention during the program

design phase to the needs of private market lenders has facilitated lender participation in MCHA’s 

program. 

Housing Market Conditions 

Montgomery County is a large county located 20 miles northwest of Philadelphia. The county as a 

whole is affluent, but it contains some very low-income communities. About half of the county’s 

area is considered rural—most of the population lives in towns in the southeastern portion of the 

county. Housing costs are generally high in Montgomery County. According to the 2000 Census, the 

median house value in Montgomery County was $160,700, approximately 34 percent higher than the 

national median. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

housing units in Montgomery County. Less than half of the units (44 percent) are valued below 

$150,000, and only 13 percent are valued below $100,000. The majority of units in Montgomery

County are valued at $150,000 and over, suggesting that this is a relatively difficult housing market 

for voucher program participants, especially without significant subsidies (such as down payment and 

closing cost assistance) in addition to the voucher. However, program staff report that there are parts 

of the county where good quality houses are available in the $70,000 to $100,000 range. These 

properties are generally located in the older, more urbanized areas of the county and are much less in 

demand than more expensive units. Thus far, MCHA voucher homeownership participants have 

purchased units ranging from $65,000 to $130,000, with an average purchase price of $89,990. 

7-1 
Value of Owner-Occupied Units in Montgomery County, Based on 2000 Census

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants range 

from $65k to $130k 

Number of 

Units 

Value of Units

Program Design 

Targeting and Outreach 

The homeownership option is available to all participants in MCHA’s rental voucher program who 

are in good standing with the agency and meet the minimum income and employment requirements 

specified in the final rule. MCHA also makes the homeownership option available to households 

admitted to the voucher program from the waiting list. Households coming off the waiting list who 

express an interest in homeownership are given a total 

of nine months to purchase a home. 

MCHA has not set any limit on the number of 

households that may attend homebuyer education or 

pursue homeownership through the program. MCHA 

anticipates that relatively few voucher participants will 

ultimately be able to purchase homes through the 

program; as a result, the agency does not want to set 

limits on which families could try to do so. For 

example, MCHA has a preference for, but does not 

require, participation in its FSS program. (The FSS 

program is discussed in the homeownership program briefing as a good way to begin saving toward a 

down payment and/or to access employment-related services.) Furthermore, MCHA does not 

formally screen participants for program eligibility on the basis of income and employment until after 

Target Population and Outreach Methods 

MCHA’s voucher homeownership option is available to 

existing participants in its rental voucher program in 

good standing with the agency and to households 

newly admitted to the voucher program from the 

waiting list. 

To date, MCHA has marketed the program primarily by

sending out mass mailings to new and existing voucher

participants with incomes over $10,000.

7-2 
they have completed the third workshop. Households found to be ineligible for the program may

nonetheless attend the additional workshops. 

Thus far, MCHA has marketed the program primarily through direct mailings. When it first started 

offering the program in November 2000, MCHA sent letters to all participants in its rental voucher 

program inviting them to attend a briefing on homeownership. This mailing was expensive and timeconsuming and ultimately yielded a modest response—out of 1,650 families contacted, 157 (10 

percent) ended up attending a program briefing session. MCHA thought it was important, however, 

at the start of the program to let all voucher participants know about the homeownership option. 

MCHA has since limited its mailings to voucher participants earning at least $10,000, but has not 

achieved a much better response rate. Of the 649 households that received letters in June 2001, 77 

(12 percent) attended a briefing. In November 2001, MCHA again sent letters to 922 households, of 

which 76 (8 percent) attended a briefing. Although these mailings may not be the most focused way

of marketing the program, they ensure that MCHA is reaching out to all potential participants. Thus 

far, MCHA has attracted a sufficient number of households to the program to achieve its goal of 10 

closings in the first year, with more purchasers in the pipeline. 

Homeownership Counseling 

MCHA conducts all of the homeownership counseling required for the program in-house. MCHA 

had originally planned to provide the counseling through an outside partner, but was unable to 

identify a HUD-approved counseling agency that MCHA’s staff felt comfortable using for this 

purpose. In addition, MCHA’s Deputy Executive Director and Homeownership Program

Administrator felt strongly that they needed a way to develop a personal relationship with program

participants and offer a pre-purchase counseling program tailored to meet participants’ needs. As a 

result, MCHA opted to develop the counseling program in-house and include guest speakers where 

available at no cost to MCHA. 

In addition to a preliminary briefing on the program, MCHA requires program participants to 

complete five two-hour homeownership workshops prior to looking for a home. The subjects of these 

mandatory workshops are: 1) Budgeting and Money Management; 2) Credit; 3) Fair Housing; 4) How 

to Buy a House; and 5) Home Maintenance. In addition, MCHA offers an optional credit repair 

workshop for households with poor credit. MCHA developed this 

workshop after it discovered that credit was a significant barrier 

preventing households from purchasing homes. 

MCHA offers the homeownership workshops in cycles of one or 

two workshops per month over a four- to five-month period. 

MCHA offers each workshop three or four times over a two-week 

period with morning, afternoon, and evening times offered. Thus 

far, all of the workshops have been held at MCHA’s central offices, 

although in the future, MCHA plans to hold program briefings in other locations around the county as 

well. All of the workshops are done as group sessions, although MCHA’s Homeownership Programs 

Administrator and FSS Coordinator work with families on a one-on-one basis as needed. MCHA

Pre-Purchase Counseling 

MCHA requires that participants complete 

five two-hour homeownership workshops. 

The workshops are provided by MCHA inhouse and are taught by MCHA staff and 

guest speakers.

7-3 
Montgomery County Voucher Homeownership Purchase Process 

Family attends two-hour

homeownership briefing

at MCHA

Family completes three 

homeownership

workshops with MCHA

Family

attends

credit repair 

workshop

Family meets with lenders 

for preapproval

Family contacts MCHA

or receives invitation to

attend briefing

If family has

credit concerns

After the third

workshop, MCHA

verifies the family’s 

program eligibility

Family enters into

contract of sale

MCHA conducts HQS 

inspection prior to

independent inspection

Family obtains approval 

of lenders for mortgage 

loans and grants

Family schedules

independent inspection

Family selects realtor 

and begins searching 

for a home

MCHA reviews 

inspection reports and

financing

Family receives

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If no repairs are required

Family completes fifth

homeownership

workshop with MCHA

Family completes fourth

homeownership

workshop with MCHA

At some point during the 

home search process

7-4 
believes that group workshops generally work better because families motivate each other to stick 

with the program. 

MCHA staff conduct the workshops on budgeting and money management, how to buy a house, and 

home maintenance. The mandatory credit workshop is conducted by TransUnion Credit Bureau, 

which runs a free credit report for program participants at the same time. Four nonprofit 

organizations offering credit counseling in the county conduct the optional credit repair workshop. 

Representatives from Fannie Mae and Freddie Mac conduct the workshop on Fair Housing. Each of 

these organizations contributes their time to the workshops at no expense to MCHA or to program

participants. 

MCHA’s Homeownership Program Administrator believes that the five pre-purchase workshops give 

staff an opportunity to develop a personal bond with program participants, one that may become

important should participants have difficulty meeting their mortgage payments. This bond was 

clearly apparent in the workshop observed for this study and in 

the interactions between MCHA’s Homeownership Program

Administrator and the individuals who had purchased homes 

through the program. Moreover, interviews with the purchasers 

revealed a high degree of understanding of the lending and home 

purchase process. The lenders interviewed also suggested that 

having been through the five workshops, program participants 

generally have a better understanding of the challenges of 

homeownership than other first-time homebuyers. 

“The workshops showed me that it was 

possible to purchase a home. The credit 

repair workshop was really helpful 

because my credit was bad. I started 

making payments on my credit in 

December 2000 and bought my home in 

October 2001.” 

- MCHA program participant 

One of the most innovative aspects of MCHA’s homeownership counseling is that program

participants who have purchased homes are invited to share their experiences with prospective 

homebuyers during the “How to Buy a Home” workshop. In the workshop observed for this study, 

the program participant shared her experiences selecting a realtor, finding a home, interpreting the 

independent inspection, and working with a lender. The other participants in the workshop seemed to 

value this first-hand account of the process from someone who was in their position only a few 

months before. 

Home Search and Inspections 

Beyond the workshops, MCHA does not provide program participants with any additional assistance 

as they search for a home to purchase. Program participants are encouraged to work with a buyer’s

agent, but MCHA does not provide lists of recommended realtors. Thus far, finding homes has not 

been a problem for those program participants who have qualified for mortgages. Most program

participants have taken eight to 10 months to complete the prepurchase workshops (which can take five months or more), obtain 

financing, and purchase a home. 

Given the age of the affordable housing stock in Montgomery

County, the two required pre-purchase inspections are a key

component of MCHA’s program. MCHA conducts the HQS 

inspection within a week of receiving the participant’s agreement of 

sale, prior to the independent inspection. The HQS inspection is 

conducted by one of MCHA’s regular inspectors, accompanied by

“I was so excited about that first home I 

looked at, and if I hadn’t had the 

inspection I definitely would have 

bought it. But then the inspection 

showed that it had asbestos and 

termite damage, and I knew it wouldn’t 

work.” 

- MCHA program participant 

7-5 
the Homeownership Program Administrator. Participating in the initial HQS inspection familiarizes 

the Program Administrator with the property and helps her to interpret the results of the independent 

inspection. If the HQS inspection does not reveal any major flaws in the property, and the seller is 

willing to make the needed repairs, the participant arranges for the independent inspection. 

Participants purchasing in certain parts of the county may be required to have an inspection by the 

local Borough. In addition, the U.S. Department of Agriculture’s Rural Housing Service (RHS) 

conducts a separate inspection on the property if the participant is purchasing with an RHS Section 

502 loan. 

MCHA’s Homeownership Program Administrator reviews the independent inspection report and goes 

through it with the participant. Although most of the homes inspected thus far have required only

minor repairs—participants learn in the workshops to look for houses in good condition—at least two 

participants have cancelled their agreements of sale as a result of major problems revealed by the 

independent inspection. The program participants interviewed said that in retrospect they were very

grateful that the independent home inspection was mandatory because they would not have paid for it 

otherwise. Several participants also noted that they found the detailed independent inspection 

reports—which they kept for the homes they purchased—to be very useful as home maintenance 

reference guides. 

Financing Model 

MCHA’s voucher homeownership program uses the single mortgage model in which the HAP is 

considered as an addition to the participant’s monthly income. MCHA chose this financing model 

because it did not have access to a source of second mortgage financing and felt that using the HAP 

as a direct offset to the monthly mortgage payments was too risky. In addition, the agency believed 

that treating the HAP as income would be the simplest model for lenders to implement and therefore 

the most likely to gain their support. In most cases, MCHA sends the HAP payment directly to the 

participant in advance of when the monthly mortgage is due and the participant writes one check for 

the full amount of the mortgage. This eliminates the servicing concerns associated with receiving 

mortgage payments from two different sources. If a particular lender prefers to receive the HAP 

directly from the housing authority, however, MCHA will do so. This is the case with RHS, which 

had provided a first mortgage loan through its Section 502 Direct Loan Program to one MCHA 

purchaser as of April 2002. 

MCHA does not require any minimum down payment (beyond what may be required by the lender) 

and imposes relatively few restrictions on the type of loan package that participants can obtain. 

However, MCHA does not allow balloon mortgages, adjustable rate mortgages, or prepayment 

penalties. In addition, MCHA’s affordability criteria require that the monthly homeownership 

expenses minus the HAP be less than 50 percent of the participant’s monthly adjusted income. The 

monthly homeownership expenses include the principal, interest, taxes, and insurance on the 

mortgage (PITI), a $150 reserve for maintenance and replacement, the utility allowance appropriate to 

the size of the unit, and other required expenses. MCHA’s Homeownership Program Administrator 

reviews the financing terms of each purchase transaction (running the numbers herself as a double 

check) and reserves the right to disapprove any transaction that does not meet the program’s

affordability criteria. MCHA’s Homeownership Program Administrator was a realtor for many years 

prior to joining MCHA and has experience in banking, as well as title conveyance. 

7-6 
MCHA requires that participants obtain fixed rate loans, preferably with zero points and competitive 

interest rates. If the financing is affordable, MCHA may, on a case-by-case basis, approve a loan 

with a higher interest rate or a short-term prepayment penalty or allow seller financing with an 

independent appraisal. Of the 10 purchase transactions sampled at the time of the site visit, the 

interest rates on the first mortgage loans range from one percent (for the Section 502 loan) to 7.875 

percent. The average rate of interest across the loans—not including the Section 502 loan—is 7.26 

percent. 

The lender interviewed during the case study reported that voucher homeownership program

participants typically do not meet the credit criteria, reserve requirements, or down payment 

requirements to qualify for a conventional loan on 

their own. The lender reported that some of the 

participants he has seen have had low credit scores, 

with collection accounts, judgments, and late 

payments on their credit reports. As he put it, these 

are typically “very difficult loans that would 

largely be sub-prime loans were it not for the 

subsidy.” In addition, MCHA’s voucher 

homeownership purchasers typically need 

assistance from the seller to make the purchase 

affordable. Ten of the 11 program purchasers 

received some contribution from the seller toward 

their closings costs, ranging from $500 to $5,000. 

As of May 2002, nine of the 11 purchasers in 

MCHA’s program purchased with FHA-insured 

mortgages. Thus far, the lenders participating in 

the program have found FHA loan products to be the best suited to voucher program participants 

because of the participants’ typically low credit scores and because of FHA’s allowance of seller 

contributions in excess of three percent of the purchase price.1 MCHA’s Homeownership 

Coordinator reported that FHA’s mortgagee letter of September 2001 was critical to the willingness 

of local lenders to count the HAP as income in determining program participants’ qualifying ratios. 

Prior to FHA’s letter, three households had purchased homes with FHA-insured mortgages where the 

HAP was not treated as income but as a compensating factor. These participants were more limited 

in the homes they could purchase than subsequent FHA borrowers for whom the HAP was counted as 

income. 

Sample Purchase Transaction 

Buyer’s Annual Income: $26,993 

Costs to Buyer: 

− Purchase Price: $92,500 

− Closing Costs: $3,892 

Sources of Financing: 

− 1st Mortgage: $89,725 (7.25% 30 yrs.) 

− Seller Contribution: $4,125 

− Buyer Cash Down: $2,542 

Monthly Mortgage Payments: 

− Total monthly PITI: $766

− Monthly HAP to offset PITI: $314 

− Buyer’s share of monthly PITI: $452 

− Buyer’s share of PITI as a percent of gross monthly 

income: 20%

Thus far, seven different lending institutions, mainly mortgage companies, have provided first 

mortgage loans to MCHA program participants. Some of these lenders are holding the loans in 

portfolio, but others have sold the FHA-insured loans on the secondary market (one mortgage 

company has made a commitment to hold the loans in portfolio for one year). MCHA continues to 

work hard to expand the pool of lenders willing to work with the program, because the agency

believes that program participants should have the same options as non-subsidized purchasers. In 

addition, two lenders that offer down payment assistance matching grants through the Federal Home

 1

 Fannie Mae and Freddie Mac guidelines limit seller contributions to three percent of the purchase price. 

7-7 
Loan Bank are not yet prepared to work with voucher homeownership participants, although they

have expressed interest in the program. 

This is a concern because program participants currently have few sources of down payment and 

closing cost assistance available to them. Some municipalities within the county offer down payment 

assistance grants to attract first-time homebuyers to purchase in their communities, and there are also 

some funds available at the county level for participants who meet certain eligibility criteria. Thus 

far, however, only three of the 11 purchasers have received down payment assistance from an outside 

source (two from Norristown Borough, and one from a nonprofit housing developer). In addition, as 

mentioned, 10 purchasers have required between $500 and $5,000 in assistance from the seller in 

order to make the purchase affordable. That sellers have been willing to contribute to the down 

payment and closing costs reflects the relatively loose housing market for homes in the price range 

affordable to program participants. MCHA is nevertheless concerned that the scarcity of down 

payment and closing costs assistance will ultimately limit the number of households able to purchase 

through the program.

2

 

Post-Purchase Activities 

MCHA does not require post-purchase HQS inspections or post-purchase counseling. On at least an 

annual basis, however, at the time of reexamination, program participants are required to provide 

MCHA with a statement from their lender saying that they have been making their payments on time, 

current utility bills, and a current tax bill. These documents, along with the standard income

verifications, will help MCHA to recalculate the level of subsidy and to confirm that the monthly

homeownership expenses continue to be affordable. 

As part of the paperwork associated with the mortgage, MCHA has created a form that gives lenders 

permission to inform the housing authority if a program

participant is delinquent on their payments. Should this 

happen, MCHA plans to bring the participant in for one-onone counseling and may begin to send the HAP directly to the 

lender. Thus far, there have been no instances of delinquency;

however, the lenders interviewed expressed some concern that 

if the process of notifying the housing authority of late 

payments is not automated, servicers may neglect to do it. 

Most of the lenders participating in the program thus far have 

been mortgage companies who sell their loans on the 

secondary market and do not retain the servicing component. 

As the loans get sold and serviced by different entities, there is some concern that a given servicer 

may not know to get in touch with MCHA prior to the participant going into default. 

Post-Purchase Activities 

MCHA does not require post-purchase HQS 

inspections or post-purchase counseling. 

MCHA is relying on the lenders to track 

participants’ mortgage payments and notify 

MCHA in the event of a late payment. MCHA

will also review participants’ mortgage status 

on an annual basis at the time of 

reexamination.

MCHA is also concerned that program participants may become vulnerable to predatory lending as 

their equity increases. Participants may be especially vulnerable if they no longer receive the voucher 

assistance as result of increased earnings. This matter is addressed in the Fair Housing Workshop and 

MCHA has developed a brochure on the dangers of lending. The funding that MCHA received in 

July 2002 for down payment and closing cost assistance creates a second lien against the property that 

 2

 In July 2002, Montgomery County approved a $88,000 grant, through the Housing Trust Fund, for down 

payment and closing cost assistance for MCHA voucher homeownership program participants. 

7-8 
will mitigate the risk that predatory sales tactics result in future liens. MCHA would have to be 

contacted to subordinate new loans, requiring review of the lender’s terms and intent of the proceeds. 

This will prevent some participants from being affected by predatory lenders, even if they are no 

longer receiving MCHA assistance, because the down payment assistance funds come with an eightyear lien. 

Program Management, Staffing, and Partnerships 

As one of the first sites authorized to pilot the voucher homeownership option, developing the 

program was a highly labor intensive process. As MCHA’s Deputy Executive Director put it, “HUD 

told us what we had to do, but not how to do it.” Beginning in 2000, MCHA went through a lengthy

planning and design phase, during which MCHA’s Deputy Executive Director and Homeownership 

Program Administrator worked closely with a staff person from HUD’s Homeownership Center in 

Philadelphia to develop policies and procedures documents and to recruit lenders to the program. 

One of the biggest challenges that MCHA had to overcome was the skepticism among local lenders 

about the concept of a subsidized mortgage. The HUD staff person had already spent a lot of time 

working with Fannie Mae and others to figure out how the program could be made attractive to the 

private lending community. He was therefore able to provide useful technical assistance to MCHA in 

developing a program that would satisfy the needs of private lenders. For example, he identified that 

lenders are mainly concerned with understanding the sources of borrower income and the risk that 

these sources will disappear before the loan is repaid. As a result, MCHA developed preliminary and 

final certification documents that tell the lender approximately how much monthly subsidy the 

borrower can expect to receive from MCHA, affirm that the subsidy is likely to continue for at least 

three years, and explain MCHA’s right to disapprove any financing terms that do not meet its 

affordability criteria. 

Another stumbling block that MCHA encountered in the early stages of the program was that the 

lenders, through the pre-approval process, were 

discovering income information that the participants had 

not revealed to the housing authority. The lenders were 

reluctant to proceed with the loan until the full information 

had been disclosed to MCHA. MCHA ultimately resolved 

the issue by requiring program participants to sign a form

authorizing the exchange of financial information between 

lenders and the housing authority. If discrepancies are 

discovered, MCHA requires full income disclosure and 

resolves any inconsistencies prior to closing. 

Program Staffing 

MCHA devotes the equivalent of one and a half 

full-time staff to administering the program. This 

includes managing the homeownership 

counseling in-house, and actually conducting 

three of the five homebuyer workshops. The 

other workshops are provided by outside 

partners free of charge. 

Even after overcoming these initial stumbling blocks, many lenders remained reluctant to participate 

in the program. Therefore, MCHA’s Deputy Executive Director of Management and Administration, 

Homeownership Program Administrator, and the HUD staff person invited each of the major lenders, 

usually the CRA officer and a senior underwriter, to meet in person to discuss the program. These 

meetings ultimately helped MCHA to garner the support of a relatively high number of lending 

institutions. The extra work required to process the loans, however, together with their low 

profitability and concerns about servicing, continue to limit lender participation, such that program

participants do not yet have the same range of options as unassisted borrowers. 

7-9 
Developing the policies and procedures documents for the program and recruiting lenders required an 

intensive staff effort. Now fully operational, the program continues to require significant staff time. 

MCHA estimates that it needs the equivalent of one and a half full-time staff to run the program

(assuming a 40 hour work week). MCHA’s Homeownership Program Administrator spends 

approximately 80 percent of her time on the program (the remaining 20 percent is spent managing 

MCHA’s 5H Homeownership program).3

 Her position is currently funded through the 5H program, 

but will ultimately need to be funded through the voucher program. A clerical staff person supports 

the Homeownership Program Administrator and spends approximately 60 percent of her time on the 

program. MCHA’s Deputy Executive Director of Management and Administration, who worked 

intensively on the program in the startup phase, now spends an average of three to four days a month 

on the program. Finally, MCHA’s FSS Coordinator and Deputy Executive Director for Maintenance 

each run one homeowner workshop, which requires about 10 percent of their time overall. Fannie 

Mae, Freddie Mac, and TransUnion Credit Bureau conduct their workshops on a volunteer basis. 

In addition to the staff time required, MCHA also emphasizes the importance of the staff 

qualifications. In particular, MCHA believes that the person running the program on a daily basis—

in MCHA’s case, the Homeownership Program Administrator—should have a background in lending 

or real estate because of the complexity involved in calculating how much subsidy the participant can 

receive and in evaluating the affordability of a given loan package. Training in HUD regulations for 

income calculations and program eligibility are necessary if the Administrator has no prior PHA 

experience. 

Program Outcomes 

MCHA held its first program orientation in December 2000 and had its first closing in June 2001. As 

of April 2002, 11 households had purchased homes through the program, exceeding MCHA’s goal of 

10 purchasers per year. In addition to the 11 participants who had purchased, 69 households had 

completed all five homebuyer workshops, and 18 households have been pre-approved for mortgages. 

About 120 households have attended one or more homebuyer workshops but not completed the full 

five-part series. According to MCHA’s Homeownership Program Administrator, many of these 

households dropped out after the first workshop on budgeting 

and money management, which acts as something of a 

“reality check” on what is expected of them. In addition, as 

of April 2002, 23 households were determined to be 

ineligible for the program and chose not to complete the 

workshops. Some of those determined to be ineligible have 

since met the income and/or employment requirements and 

have proceeded with the program. 

Program Outcomes to Date 

• Number of households counseled: 80 

• Number of homes purchased: 12 

• Average income of purchasers: $26,004 

• Average purchase price: $89,990 

• Instances of loan default: 0 

 

Overall, MCHA has been satisfied with the number of applicants to the program and the proportion of 

participants who have succeeded in purchasing homes. The number of households who begin but do 

not complete the homebuyer workshops is high, but this largely reflects MCHA’s desire to open the 

workshops to any voucher participant interested in pursuing homeownership, regardless of whether 

they will be able to purchase in the near term. According to MCHA’s Homeownership Program

 3

 MCHA has a 35 hour work week. 

7-10 
Administrator, some families have completed homebuyer education but failed to find homes in the 

areas in which they wanted to live. For example, many families do not want to change school 

districts, which can limit their housing options. Thus far, however, MCHA’s Homeownership 

Program Administrator has not had enough contact with qualified families who did not purchase to 

understand all of the reasons why families may not be successful in the program. 

The incomes of the households who have purchased homes to date range from $15,500 to $31,600, 

with an average income of approximately $26,000. This is significantly higher than the average 

income of participants in MCHA’s rental voucher program, which in May 2001 was approximately

$11,700.4 Two of the purchasing households have been elderly or disabled, thus qualified to receive 

the voucher subsidy for the full term of the mortgage. 

MCHA program participants have purchased homes throughout Montgomery County, with purchase 

prices ranging from $65,000 to $130,000. In general, MCHA believes that participants in the 

homeownership program are purchasing better quality homes in better quality neighborhoods than 

they lived in as renters, although two purchasers thus far purchased the units that they had previously

been renting. Out of a sample of 10 purchase transactions, six of the homes purchased were in older, 

more urbanized parts of the county where the housing is generally most affordable. The average 

purchase price of the homes purchased in these areas was $85,500. The homes purchased in the more 

rural parts of the county were slightly more expensive, with an average purchase price of $96,700. 

Based on a tour of five homes conducted during the site visit, program participants appear to be 

purchasing in fairly good neighborhoods with no obvious negative features. However, given their 

incomes and the voucher payment standard, there are some parts of the county where program

participants cannot afford to purchase. 

Most of the homes purchased have been three-bedroom single-family homes, either detached or row 

homes. One participant purchased a condominium. Reflecting the affordable housing stock in 

Montgomery County, most of the homes were built before 1950. Among the 10 purchases examined 

in detail for this study, the average age of the homes was 81 years. As might be expected given their 

age, all of the homes failed the initial HQS inspection. The most common fail items were cracked 

ceilings, minor plumbing issues, the lack of ground-fault circuit interrupter (GFCI) outlets in the 

kitchens and bathrooms, and faulty smoke detectors. In all cases, the seller agreed to make the 

necessary repairs prior to closing. Of the 10 transactions sampled, eight of the sellers were private 

owners and one was a nonprofit organization; one participant purchased a HUD foreclosure. 

Based on the sample of 10 purchase transactions, homeownership expenses represented, on average, 

35 percent of the purchasers’ gross monthly incomes, well within MCHA’s affordability threshold of 

50 percent. Interviews conducted with program participants, however, suggest that few purchasers 

have been able to set aside the $150 for maintenance and replacement that MCHA has determined is 

necessary given the age of the homes being purchased and the fact that some may have maintenance 

issues that arise after purchase.5 For example, one program participant, a single mother of two, 

described herself as living “paycheck to paycheck,” with very little money left over for unanticipated 

 4

 Based on data collected by HUD’s Multifamily Tenant Characteristics System (MTCS). 

5 Based on the recommendation of the home inspector regarding future maintenance issues, program

participants are required to sign a written acknowledgement that these issues will be planned and budgeted 

for. 

7-11 
expenses. She was confident, however, that her income would continue to increase over time, thereby

reducing the burden of the mortgage. As she put it, “I have a lot less cash for now, and I haven’t been 

able to put aside anything. But it’s worth it every day that I come

home. And every time I get a raise it will get better. I am thinking 

that this will be my last move in a long time.” Another purchaser 

interviewed had a similar attitude. When asked whether it was 

harder or more expensive to be a homeowner, she responded: “More 

expensive, maybe. Harder, no. It just pushes me more to do well in 

life.” 

“I have a lot less cash for now, and I 

haven’t been able to put aside 

anything. But it’s worth it every day 

that I come home.” 

– MCHA program participant 

Lessons Learned

MCHA attributes the success of its program to date to the dedication of its staff and to its innovative 

approach to homeownership counseling. The agency believes that doing the majority of the 

counseling in-house has led program participants to be better prepared for homeownership than their 

counterparts in programs where the counseling is done only by outside agencies. Providing the 

counseling in-house also allows gives MCHA’s Homeownership Program Administrator an 

opportunity to develop a personal bond with program participants. Program staff believe that this 

bond may be especially valuable over the long-term if participants feel more comfortable notifying 

the housing authority (as they are required to do) if they fall behind on the mortgage. This is an 

important assumption given that MCHA does not yet have a reliable system for tracking loan 

delinquencies. 

Program staff stress the level of staff effort that the program has required. MCHA’s Deputy

Executive Director and Homeownership Program Administrator have put in a lot of hours to get the 

program off the ground and ensure that households continue to complete the workshops and purchase 

homes at a steady pace. These staff also spend time promoting the program to other housing agencies 

by sharing policies and procedures documents and speaking at conferences. The Deputy Executive 

Director suggests that the effort has been invigorating for agency staff and has strengthened the sense 

of teamwork among those staff that have participated. 

As the program grows, however, the level of staff effort required and the lack of resources (in the 

absence of a special administrative fee for voucher homeownership) to compensate that effort might 

become an issue. Providing the homeownership counseling in-house requires a major staff 

commitment that few of the other sites in this study have been willing to make. Indeed, MCHA’s 

Deputy Executive Director anticipates requiring additional staff—beyond the one and a half full-time 

equivalents already in place—should the program expand to 20 or 30 closings a year. 

Another issue for MCHA is the resistance that the agency has encountered in the community to 

affordable housing initiatives. MCHA has faced significant opposition over the years in some parts 

of the county to its rental voucher program. A vocal minority of county residents and political leaders 

has attempted to prevent additional voucher participants from moving to some communities. MCHA 

is concerned about similar resistance to the homeownership program. Thus far, the program has been 

well received by the community. MCHA, however, has felt the need to keep a low profile so as not to 

risk limiting the housing choices of program participants. 

7-12 
MCHA staff offered the following advice for PHAs considering the voucher homeownership option: 

• The program is a huge undertaking in terms of staff effort and PHAs must have a strong desire 

to offer the program. There needs to be some dedication of staff—it will not work to fold the 

program into the duties of the Housing Choice Voucher Program Director. Moreover, this staff 

person must have, or be willing to acquire, knowledge of lending and real estate. This is not a 

skill set that PHAs typically have in-house, so it may be necessary to hire new staff or make an 

investment in staff training. PHAs may also want to consider identifying a partner in the 

community or mentor to help its staff work through the lender issues that inevitably arise with the 

program. 

• The independent inspection is one of the keys to the success of the program, particularly in 

housing markets where the stock is old and future maintenance may be a problem. It is important 

that PHA staff be familiar enough with the properties to be able to interpret the independent 

inspection correctly. Having the Homeownership Program Administrator participate in the HQS 

inspection is an efficient way to get to know the property.

• Providing the homeownership counseling in-house gives PHAs a greater degree of control over 

the content of the counseling, including the ability to modify the curriculum in response to 

emergent participant needs. Although it is time-consuming to develop the materials and deliver 

the training, providing the counseling in-house may also be an opportunity for PHA staff to 

develop a long-term relationship with program participants. The potential for developing a longterm relationship is likely to be stronger if the PHA requires multiple counseling sessions over a 

period of months. 

Montgomery County Program Summary 

Number of homes purchased: 12 

Average income of purchasers: $26,004* 

Average purchase price: $89,990* 

Average monthly HAP payment: $430* 

Financing model: HAP as Income 

PHA program staffing: 1.5 full-time staff equivalent 

*Based on a sample of 10 purchases. 

7-13 
Nashville, Tennessee 

Metropolitan Development and Housing Agency 

Introduction 

The voucher homeownership program in Nashville, Tennessee is run jointly by the Metropolitan 

Development and Housing Agency (MDHA) and Affordable Housing Resources (AHR), a Home

Ownership Center and NeighborWorks Organization affiliated with and funded in part by the 

Neighborhood Reinvestment Corporation (NR). Nashville’s voucher homeownership program began 

as a pilot approved by HUD and funded by NR in 1999. 

MDHA, the lead agency for this program, administers roughly 4,600 housing choice vouchers in 

Davidson County, which includes the city of Nashville. For the voucher homeownership program, 

MDHA is responsible for recruitment, assisting with orientations, conducting HQS inspections, 

facilitating financing, and ongoing voucher administration. AHR’s responsibilities for this program

include running orientations, meeting with clients to create action plans, conducting pre- and postpurchase training, assembling financing components, and originating, underwriting and servicing 

second mortgages.1

The voucher homeownership option is available to MDHA voucher program participants throughout 

Davidson County. At the end of May 2002, 33 families had purchased homes through the program. 

Nashville program staff expect a rate of roughly two closings per month for the foreseeable future. 

Their goal is to achieve a total of 50 closings by the end of 2002, and while a challenge, this goal 

appears within reach. 

Nashville has a well-connected and well-seasoned program. MDHA and AHR staff have been 

involved with the national development of the voucher homeownership program since beginning the 

pilot program and remain in touch with a number of key HUD staff. For the past few years, MDHA 

and AHR staff have provided advice to many PHAs and nonprofits trying to develop voucher 

homeownership programs. They have hosted a number of visiting delegations that have come to 

learn about Nashville’s program. AHR staff in cooperation with MDHA staff developed a two-day

training curriculum and host training sessions for interested parties on how to create and run a 

voucher homeownership program. 

The main challenges for the Nashville program are managing a large backlog of program participants 

with very limited staff, and, more generally, helping those with inadequate financial skills and credit 

problems prepare for homeownership. The availability of second mortgage capital is also a potential 

limiting factor for the program, but so far, the funds available for second mortgages have been 

sufficient to meet the demand. 

 1 Besides partnering with MDHA, AHR has started a new partnership with the Tennessee Housing and 

Development Agency (THDA) to offer the homeownership program to THDA voucher program

participants in 10 counties surrounding Nashville. THDA voucher program participants go through the 

same program components at AHR that MDHA voucher program participants do, but MDHA only tracks 

participants in its voucher program. 

8-1 
Housing Market Conditions 

Nashville program staff report that the local housing market is well suited for the voucher 

homeownership program. In general, the Nashville metropolitan area is growing and house prices are 

appreciating, but there is enough stock in the price range of voucher participants so that the housing 

market does not present a major barrier to program growth. According to the National Association of 

Realtors, the median sales price of existing homes in the Nashville metropolitan area in 2001 was 

$130,000, up approximately 12 percent since 1999.2

 Program staff report that there are houses 

available in the $70,000 to $100,000 price range that are seen as good investments. The difficulty for 

program participants is not so much finding a home they can afford, but instead deciding what they

want in terms of amenities, neighborhood, and existing housing versus new construction, among other 

factors. MDHA voucher homeownership participants have purchased units ranging from $54,000 to 

$111,000, with an average purchase price of $84,590 (based on a sample of ten purchase 

transactions). 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

housing units in Davidson County, where the voucher homeownership program is offered. More than 

half of the units in the county (69 percent) are valued below $150,000, and approximately 39 percent 

are valued below $100,000. As the chart suggests, the largest share of units in Davidson County are 

valued between $50,000 and $99,000. 

Value of Owner-Occupied Units in Davidson County, Based on 2000 Census

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants 

range from $54k to $111k 

Number of 

Units 

Value of Units 

 2

 Comparable data were not available for 2000. 

8-2 
Program Design

Targeting and Outreach 

When it began as a pilot program under HUD’s proposed rule, Nashville’s program was targeted to 

participants and graduates of its large Family Self Sufficiency (FSS) program. Over time, program

staff made the requirements more stringent in order to give participants a better chance to obtain a 

mortgage and purchase. MDHA and AHR decided that voucher homeownership participants must 

have a minimum annual income of $15,000, have been employed for three years, and be active in the 

FSS program or contribute at least $300 towards monthly rent.3

 (These income and employment 

requirements would not be permitted for PHAs operating under the final rule.) Staff report that now 

that FSS participation is not a requirement, the majority of people attending program orientations are 

not FSS participants. 

When asked about their motivation to eliminate the FSS requirement, MDHA staff reported that 

although there were a number of FSS participants ready for homeownership, there was also 

significant untapped potential among non-FSS participants. Program staff analyzed data on all 

voucher program participants and learned that more than a third had relatively high incomes and a 

strong employment history, which made them good candidates for homeownership. Approximately

1,800 MDHA voucher program participants met the 

PHA’s revised eligibility requirements. When asked 

why a three-year work history was required, MDHA 

staff responded that it is important for lenders to see 

steady income because it is an indicator of income

growth potential. 

MDHA staff predict that the Nashville client pool is 

large enough for the program to continue at its current 

size for at least five more years without significant lags 

in the interest or preparedness of potential program

participants. Because of the current backlog of 

program participants, MDHA is not actively marketing 

the program. At this point, MDHA’s voucher program

caseworkers identify interested and qualified 

candidates during annual reexaminations. MDHA then 

refers qualified candidates to AHR, and AHR compiles 

a list of candidates in order of their referral. AHR continues to receive self-referrals from interested 

parties who have heard about the program from friends, family members, loan officers, or other 

sources, but everyone needs to pass through MDHA first. Most people hear about the program by

word of mouth. 

Target Population and Outreach Methods 

Nashville’s homeownership option is available to voucher 

program participants who: 

 Have annual incomes of at least $15,000 and 

 Have been employed for at least 3 years and 

 Contribute at least $300 to their monthly rent or are active

in the FSS program.

The income and employment requirements are waived for 

elderly and disabled households. MDHA’s income and 

employment requirements would not be permitted for PHAs 

operating under the final rule. 

MDHA is not actively marketing the program given the 

current backlog of program participants. 

 3 In practice, most voucher program participants earning $15,000 will be paying over $300 in rent by virtue 

of their income, unless they have a large deduction for childcare. For non-elderly, non-disabled 

households, MDHA will count one year of schooling toward the employment requirement if that schooling 

has contributed to the applicant’s current job. For elderly and disabled households the employment

requirement is waived and the minimum income requirement is $10,300 as established in the Final Rule. 

8-3 
Nashville Voucher Homeownership Purchase Process 

MDHA verifies family’s

program eligibility and 

refers family to AHR

Family contacts MDHA

Family completes 9 hours 

group counseling with 

AHR

MDHA gives 

family credit and

savings tips

while they wait

If AHR wait

list is long

Family attends orientation 

by AHR and MDHA

Family meets with AHR 

director to review credit 

report and create action plan

If family has poor

credit or limited 

Family works savings

with AHR or

subcontractor

Family meets with 1st

mortgage lender for 

preapproval

Family meets with AHR 

loan officer for 2nd

mortgage preapproval

Family selects realtor

and begins searching 

for a home

Family enters into 

contract of sale

MDHA conducts HQS 

inspection

Family obtains approval 

of lenders for mortgage 

loans and grants

Family arranges for

independent inspection

MDHA and AHR staff 

review inspection

reports and financing

Family receives

financing and closes

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If repairs are not required

8-4 
AHR holds program orientation sessions on a quarterly basis. Both AHR and MDHA staff present 

material at the sessions. The orientation sessions are limited to approximately 35 people. AHR 

invites candidates to the orientation sessions in the order that they were referred to the program. 

MDHA staff report that a family interested in the program today would have to wait at least six 

months before there would be space at an orientation session. Staff try to give families basic hints on 

saving and credit repair so they will be more ready for homeownership when there is space for them

in the program. 

When asked what drew them to this program, the program participants interviewed responded that 

they really wanted to own their own home. Rather than continuing to pay rent, they wanted to build 

an asset that would benefit their children. The program orientation sessions went over well with these 

participants. The participants reported that the sessions were clear, informative, and realistic. 

MDHA staff concur that the atmosphere is ripe for this program in Nashville—many people are very

eager to become homeowners. 

Homeownership Counseling 

After the orientation session, interested candidates fill out a program application and have a one-onone meeting with AHR’s Program Director. During this meeting, the candidate’s goals, financial 

situation, and buying power are discussed. An action plan is written listing the steps needed to bring 

each client to their homeownership goal. When clients need significant credit repair or need help 

learning how to save, they are referred to AHR’s subcontractor, Woodbine, which runs a 

homebuyer’s club. Because these clients typically have a year or more of credit repair work ahead of 

them, AHR staff think of these clients as long-term. AHR’s Program Director noted that he is seeing 

an increase in credit problems among all AHR clients, both voucher program participants and others. 

AHR staff are currently assessing how to manage their medium-term candidates—those who are 

roughly six months away from being financially prepared 

for homeownership. The challenge with these clients, 

according to AHR, is both to provide the financial training 

they need and to maintain their interest in the program

given limited staff time for check-in phone calls and 

meetings. AHR is in the process of implementing a 

financial fitness-training course. This course would meet 

twice per month for six months with the goal of providing 

basic skills and regular contact with others working toward 

the goal of homeownership. 

Short-term, or fast track, clients who have some savings 

and relatively clean credit sign up for nine hours of 

intensive financial and homebuyer training at AHR. NR 

counseling materials are used for this training. All long- and medium-term candidates also have to 

complete the intensive training when they are more prepared for homeownership. The nine hours of 

training is conducted by AHR over the course of one week. Local lenders and realtors make 

presentations during the training. The curriculum includes how to look for a house, how the 

financing process works, and the basics of home maintenance. 

Pre-Purchase Counseling 

All participants must complete nine hours of homebuyer 

education plus additional counseling as necessary: 

• Participants in good financial shape go directly to 

homebuyer education. 

• Participants requiring significant credit repair 

participate in homebuyer clubs before homebuyer 

education. 

• Participants requiring about six months of savings 

and credit repair attend financial fitness classes 

before homebuyer education. 

8-5 
Participants in the voucher homeownership program attend classes with AHR’s non-voucher clients 

and meet individually with the Program Director as needed. AHR staff believe strongly in integrating 

voucher program participants into their regular homebuyer training classes. In addition, AHR thinks 

it important not to coddle their clients by making the home buying process too easy for them. AHR 

staff believe that a person who is going to take out a mortgage has to be able to stay on top of things, 

ask questions when they do not understand, and follow up on issues of concern. 

Home Search and Inspections 

AHR generally encourages program participants to begin the housing search once they have 

completed pre-purchase counseling, are mortgage-ready (based on their income, debts, and credit 

rating), and have saved at least half of the amount that they will contribute to the home purchase. 

Most participants use a realtor to help them through this process. AHR maintains a list of realtors for 

participants and provides listings of new and rehabbed homes that are available for purchase through 

Nashville’s HOPE VI program and other affordable housing programs. MDHA and AHR staff note 

that they had to educate realtors about the voucher homeownership option to get them interested and 

informed. 

There are a number of low-priced homes for sale in Nashville in very poor repair; thus, pre-purchase 

inspections are very important. The lead HQS inspector at MDHA conducts all initial HQS 

inspections for Nashville’s voucher homeownership program. HQS inspections are usually

conducted before the independent inspection to save the client the fee of the independent inspection if 

the HQS inspector reports serious problems. The independent inspectors must be state certified. 

Program participants interviewed during the site visit reported that they had been encouraged by

program staff to be realistic about how nice a house and neighborhood they could afford for this first 

purchase. A number of participants see their new house as a first step and hope to “trade up” later as 

their income and equity increase. 

Financing Model 

Nashville’s voucher homeownership program uses a two-mortgage financing model with a 

conventional or FHA first mortgage based on the household’s income and a second mortgage held by

AHR and paid off by the HAP. AHR originates, underwrites, and services the second mortgages with 

HAP payments sent directly from MDHA. Most second mortgages are loaned at a rate of 6 to 7 

percent with a term of 10 years or fewer. AHR’s second mortgage pool totals almost one million 

dollars, with $296,000 coming from NR and $700,000 coming from Fannie Mae. AHR has borrowed 

the Fannie Mae funds at 5.78 percent (and then lends the funds back out at 7 percent to cover costs). 

At the time of the site visit, almost $650,000 from the total pool had been committed for second 

mortgages, which average just under $20,000 each. 

AHR staff mentioned that they plan to experiment with a single mortgage model in the near future. 

As a starting point, they want to put together a single mortgage deal for a purchaser with disabilities 

in order to get more buying power from the longer-term nature of the voucher. 

AHR staff report that they have not had difficulty developing relationships with financial institutions 

for this program. They originally invited 10 lenders to participate and have established relationships 

with several. Lenders are reportedly very interested in giving loans to program clients to get credit 

8-6 
toward Community Reinvestment Act (CRA) goals. However, AHR and MDHA staff reported that 

they still have to educate the lenders about how the voucher program and homeownership option 

work. 

Lenders from three institutions interviewed during the site visit concurred that their partnership with 

AHR is strong. The lenders interviewed were already making loans to low-income households, so 

serving program clients was not a significant change for them. They noted that it takes more time to 

make loans to voucher program participants because of the paperwork involved, but that they find it 

very satisfying. MDHA staff and a lender noted that sometimes the borrower’s income needs to be 

recertified several times before the loan is made to pin down affordability and the split between the 

first and second mortgages. Small changes in borrower income affect all loan amounts, especially

with the two-mortgage model, according to MDHA staff. 

Nashville program staff have not imposed a limit on the percentage of income that participants can 

spend on monthly homeownership expenses. Instead, the program relies primarily on the lenders’

underwriting guidelines to keep the purchases affordable. The program staff and lenders interviewed 

reported that AHR staff carefully review the 

interest rates of the first mortgages before 

approving the financing package. In general, 

program staff seem very aware of predatory

lending issues and have controls in place to 

prevent any predatory loans in this program. 

Only fixed rate mortgages are accepted. 

The lenders interviewed noted that the first 

mortgages they originate for this program tend 

to be FHA loans because FHA products are well 

suited to first-time homebuyers with lower credit 

scores. The lenders were unsure of how to deal 

with multiple mortgages and multiple down 

payment and closing cost assistance programs 

using Fannie Mae or Freddie Mac products. In 

addition, the lenders noted that FHA offers more 

lenient credit qualifying criteria than either Fannie or Freddie. 

Sample Purchase Transaction 

Buyer’s Annual Income: $22,184 

Costs to Buyer: 

− Purchase Price: $83,900 

− Closing Costs: $3,609 

Sources of Financing: 

− 1st Mortgage: $56,700 (7%, 30 yrs., local bank) 

− 2nd Mortgage; $29,950 (6%, 10 yrs., AHR) 

− Buyer Cash Down: $859 

Monthly Mortgage Payments: 

− Total monthly PITI on 1st mortgage: $496

− Monthly HAP to offset PITI on 2nd mortgage: $373 

− Buyer’s share of monthly PITI: $496 

− Buyer’s share of PITI as a percent of gross monthly 

income: 27%

The Nashville program allows closing costs to be financed as part of the first mortgage. Purchasers 

are required to make a down payment equal to at least one percent of the purchase price from their 

own resources. There are some resources available in Nashville to offset down payments and closing 

costs. HOME funds and Tennessee Housing Development Authority (THDA) grants and forgivable 

loans are available to reduce the down payment for qualified buyers. Lenders noted that there are 

other grants and assistance programs available through MDHA and other organizations. AHR has 

repair and rehabilitation loans available when the need arises, as well as emergency rehabilitation 

assistance. MDHA has some funds available to assist with lead-based paint abatement. 

All first mortgages include a third-party agreement with AHR stipulating that AHR will be able to 

buy the home prior to foreclosure. To date there has been one delinquency among voucher 

homeownership purchasers. This purchaser lost her job and was unable to make the payment on her 

first mortgage for one month. AHR arranged short-term assistance while the purchaser drew 

8-7 
unemployment for several weeks. After receiving her tax refund, the purchaser made her mortgage 

payment and covered the delinquency fee. She now has a new job and is back on track with her 

payments. 

The MDHA staff interviewed were not very concerned about borrowers making their payments; the 

AHR staff were somewhat more concerned. They reported that homeownership costs represent a 

stretch for most purchasers and they worry that these purchasers are not used to having increased 

housing cost burdens. At the same time, AHR staff agreed that compared to other low-income

borrowers without vouchers, voucher purchasers were less likely to walk out on their obligations. 

When asked why, the staff responded that most voucher purchasers never thought that they would be 

able to own their own home, and as such they tend to view the voucher homeownership program as 

their “one big chance” that will not present itself again. 

Post-Purchase Activities 

The Nashville program requires eight hours of post-purchase training on basic maintenance and how 

to protect the investment value of the home. AHR holds one post-purchase class available per month, 

with each class lasting an hour and a half. Classes cover different topics and generally follow the NR 

curriculum. AHR currently has post-purchase classes on foreclosure prevention, predatory lending, 

financial maintenance, insurance, record keeping, predatory home improvers and various maintenance 

topics. At the time of the site visit, four buyers from this program had completed the post-purchase 

training. 

AHR staff are also in contact with some clients post-purchase by virtue of the two-mortgage model. 

As client incomes increase, the HAP amount decreases, which leads to the client having to cover part 

of the monthly payment on the second mortgage from their own 

resources. As a result, AHR receives monthly checks from a 

number of program purchasers to cover portions of the second 

mortgages. 

MDHA inspectors conduct annual HQS inspections of homes for 

two years after purchase. Any deficits found during these 

inspections are submitted to the owner and to AHR for attention, 

but there is no threat of the loss of voucher assistance based on 

the condition of the home. AHR’s Program Director reported that purchasers generally want privacy

and independence and find the post-purchase HQS inspections intrusive. In addition, AHR staff 

noted that some purchasers have not understood that they were responsible for attending to all postpurchase HQS deficiencies. Staff have thus learned that it is important to emphasize this 

responsibility during pre-purchase counseling. Aside from post-purchase counseling and HQS 

inspections, program staff generally do not contact purchasers. Some purchasers call in with 

questions, which is fine with program staff. 

Post-Purchase Activities 

The Nashville program requires 8 hours of 

post-purchase counseling. This counseling 

is delivered in monthly workshops at AHR 

that cover a variety of topics. In addition, 

MDHA requires annual HQS inspections for 

two years after purchase. 

AHR staff reported that data from the reexaminations of program purchasers indicates that most 

household incomes have increased somewhat. The Program Director also noted that some purchasers 

were surprised when they were notified for their annual reexamination and claimed that they were no 

longer part of the voucher program. It was surprising to program staff that such a misunderstanding 

could occur with all of the counseling and discussions about how the program works. This was a 

8-8 
reminder to program staff that participants may not always absorb what the staff knows to be critical 

information. 

Program Management, Staffing, and Partnerships 

For MDHA it was an easy decision to apply to be a HUD pilot site and NR-demonstration site for the 

voucher homeownership program, with AHR as a partner. MDHA and AHR have a history of 

cooperation and contractual relationships for a number of ongoing development projects. Further, 

MDHA voucher program staff thought that many voucher program participants were ready for 

homeownership. MDHA management did not perceive any real risks to offering the program because 

they were confident that program participants would be well supported through the FSS program. In 

addition, there was significant support for this program from Nashville’s Mayor, which further 

encouraged MDHA to move forward. 

MDHA staff involved in the voucher homeownership program include the Director and Assistant 

Director of Rental Assistance, and the lead HQS inspector. To a lesser extent, MDHA’s interim

Executive Director, voucher program caseworkers, and FSS directors are also involved. AHR staff 

involved in the voucher homeownership program include the Executive Director and the Program

Director and, to a lesser extent, the loan director and the loan servicer. In addition, AHR has hired a 

new post-purchase counselor who will be involved in the program. 

Since becoming fully operational, this program requires less staff time than during the design phase, 

but continues to be labor intensive. MDHA’s Director of Rental Assistance spends half of her time 

on the program, with the Assistant Director of Rental Assistance spending a quarter of his time on it. 

The level of staff effort by MDHA staff is approximately three-quarters of a full-time staff person. At 

AHR, the Program Director spends more than half his time on 

the voucher homeownership program. The AHR Executive 

Director spends ten percent or less of his time on the program. 

AHR’s loan director, loan servicer and post-purchase 

counselor also spend time on this program. Together, the 

combined level of staff effort by MDHA and AHR staff is 

between one and a half and two full-time staff equivalents. 

Staffing changes at both MDHA and AHR have affected 

Nashville’s program. MDHA’s former Executive Director, an 

active supporter of the program, recently retired. Given the 

Mayor’s interest in voucher homeownership, MDHA staff are confident that a new Executive 

Director will be supportive of the program. The previous Program Director left AHR in the winter 

and has not been replaced. Instead, the former training director has assumed the Program Director 

role. In addition, AHR lost its previous post-purchase counselor. AHR and MDHA staff reported 

that staff turnover slowed their progress somewhat, but also allowed AHR to develop a new staffing 

structure where multiple staff are involved with program participants. 

Program Staffing 

The level of effort by MDHA staff is equivalent to 

three quarters of a full-time staff person. AHR 

devotes about the same amount of staff time. 

Both MDHA and AHR staff report that they have 

more program participants than they can 

adequately support. Neither organization 

currently has available capacity to add to this 

program. 

More significantly, both MDHA and AHR staff report that they have more program participants than 

they can adequately support. Neither MDHA nor AHR has the staff or funding to increase capacity in 

the program. For example, MDHA staff do not have enough time to help plan and participate in more 

than one orientation per quarter. In addition, AHR staff are struggling to find the time to follow up 

8-9 
with the backlog of medium-term program participants who are in various stages of saving and credit 

repair. 

To date, staff time spent on the program has been funded in various ways. PHA administrative funds 

and voucher administrative fees fund MDHA staff. AHR has funding from NR to help cover the 

administrative costs. 

Program Outcomes 

In general, Nashville staff are very pleased with the success of their program. As of April 2002, 204 

people had enrolled in the program, among whom 24 had dropped out and 180 were active. The 180 

active participants include 33 purchasers, two participants very close to closing, and another 20 

participants who are mortgage-ready and currently looking for homes to purchase. This leaves 

roughly 125 program participants in various stages of training, credit repair, and saving. Among this 

group of 125, some have already completed fast track counseling and will likely be financially

prepared to purchase in about six months. AHR staff are in the process of contacting these 

participants and checking on progress with their action plans. 

Now that there is a significant backlog of program participants, a major real challenge for AHR is 

managing this backlog with limited staff time. The concern is that if follow-up with medium- and 

long-term clients is not strong enough, then the program stagnates and the initial investment in 

orientations and counseling is lost as people drop out. MDHA staff noted that they never thought 

they would have so many purchases so quickly. AHR staff also reported that they thought this 

program would become “just one of our other programs” and blend into AHR’s other available 

services. On the contrary, it has become necessary to designate a point person at AHR who deals 

specifically with issues related to this program. 

The homes purchased through this program are located throughout the city and inner-ring suburbs. 

Two of the three homes visited during the site visit are located in new construction, single-family

developments a good distance from downtown. These 

residential developments were in excellent condition, if 

somewhat removed from commercial areas with services. 

Another home visited during the site visit is a newly

constructed, in-fill home located in an older, less affluent, and 

more urban neighborhood currently experiencing a significant 

amount of reinvestment. The purchased home brightens the 

block and is surrounded by several properties being rehabbed. 

It was important to this purchaser to buy in the neighborhood 

where she grew up and where her family still lives. She has 

been very happy with her decision. 

Program Outcomes 

• Number of households enrolled: 204 

• Number of active participants: 180 

• Number of homes purchased: 33 

• Average income of purchasers: $23,180* 

• Average purchase price: $84,590* 

• Instances of delinquency: 1 

• Instances of default: 0 

*Based on a sample of 10 purchases.

Program staff report that most participants want to purchase in neighborhoods with better schools and 

less crime than the neighborhoods in which they were renting. Interviews with staff and participants 

suggest that the purchase neighborhoods are generally meeting these expectations. AHR staff report 

that most purchases are in “up and coming neighborhoods” of Nashville where the housing is 

predominantly owner-occupied. 

8-10 
According to MDHA staff, purchases have been split evenly between newly built houses and existing 

stock. Five of the 33 houses purchased were newly built by AHR. Aside from a few cases of homes 

in very poor condition, most of the existing homes identified by the purchasers have been in good 

shape. Half of existing homes pass HQS on the first inspection and the others typically only require 

minor repairs. 

When asked what they thought the program had done for them, participants spoke of the positive 

influence the program has had on their outlook, expectations, and behavior. One homeowner 

commented that before joining the program, she never thought it would be possible for her to own a 

home as a single mother. She is grateful for and proud of this investment that she can pass on to her 

children. Another homeowner commented that she is now much more cautious about spending. 

Another participant who has had a lot of ups and downs over the course of the program commented 

that the program has taught her discipline and helped her through her mistakes. One participant 

reported that being a homeowner has had a positive effect on her siblings and mother. Her home is 

now a place where the whole family comes together. 

Lessons Learned 

Nashville program staff attribute much of their success to the following factors: the long-standing and 

strong partnership between MDHA and AHR; the quality of counseling services available at AHR; 

the affordability of the housing market; and the availability of second mortgage capital. Most 

program staff find the mortgage terms and down payment and closing cost assistance programs 

adequate for borrowers. The program is not particularly dependent on below-market financing or 

other deep layers of subsidy. 

Now that the program has been running for several years, the major challenges in Nashville are 

getting clients financially prepared for homeownership, finding enough staff time to manage the 

backlog of clients, and finding enough second mortgage capital. While the availability of second 

mortgage capital is not an immediate problem, the task of arranging for and negotiating the terms of 

new allocations of second mortgage capital is ongoing. The Nashville program is likely to continue 

to produce a steady number of closings—about two per month. As of April 2002, there were no plans 

for program expansion. 

The main piece of advice given by MDHA and AHR staff to organizations considering such a 

program is to develop and take advantage of strong public/private partnerships. All staff credited the 

long-standing and highly cooperative partnership between MDHA and AHR as key to the success of 

their program. Each partner organization has a great deal of experience and is well informed about 

this program. 

In addition, MDHA and AHR management reported several factors that can contribute to program

success: 

• Staff expertise in housing development and the home purchase and financing process; 

• A robust FSS program, which can provide a well-prepared client base for the program (even if 

the program is not limited to FSS participants); 

8-11 
• Strong relationships with nonprofit partners with experience in homeownership counseling and 

affordable housing development and a solid funding base. For MDHA, the partnership with AHR 

relieved the strain of starting a new program and brought additional resources to the effort; and 

• Reinforcement of critical information about homeownership and about the voucher program

through post-purchase counseling and ongoing communication. 

Nashville Program Summary 

Number of homes purchased: 33 

Average income of purchasers: $23,180* 

Average purchase price: $84,590 

Average monthly HAP payment: $315* 

Financing model: Two-Mortgage 

PHA program staffing: 0.75 full-time staff equivalent 

*Based on a sample of 10 purchases. 

8-12 
San Bernardino, California 

Housing Authority of the County of San Bernardino 

Introduction 

The Housing Authority of the County of San Bernardino (HACSB) administers approximately 7,800 

housing choice vouchers. HACSB began offering the voucher homeownership option in October 

2000 under the final rule. As of April 2002, three households had purchased houses through the 

program. HACSB and its partners had expected a greater number of households to purchase in the 

first year and a half of the program. However, HACSB has had trouble securing the participation of 

local lenders due to underwriting and loan servicing issues. The lack of lender participation led the 

agency to adopt a conservative stance toward recruiting participants to the program. In addition, 

HACSB has taken some time to work through procedural issues with its principal partner, 

Neighborhood Housing Services of the Inland Empire (NHSIE), a nonprofit organization that 

received funding through the Neighborhood Reinvestment Corporation (NR) to provide counseling 

and financing to voucher homeownership program participants. Finally, a number of program

applicants had significant credit issues to work through before being able to qualify for a mortgage. 

Some of these households are now at a stage where they can go to lenders and begin looking for 

houses. HACSB expects the number of closings to increase over the next year. 

Housing Market Conditions 

Located within the Los Angeles metropolitan area, San Bernardino County is the largest county in the 

continental United States.1

 San Bernardino County is the most affordable county in the Los Angeles 

metropolitan area, but—like the rest of Southern California—it has experienced a rapid escalation in 

house prices over the past few years. In March 2002, the median home sales price in San Bernardino 

County was $156,000, up 7.6 percent from March 2001.2

 According to HACSB staff and program

partners, there is housing available in the price range affordable to participants in the voucher 

homeownership program, but finding a home in the more desirable neighborhoods can be 

challenging. To date, HACSB’s three voucher homeownership purchasers have bought houses for 

$101,000, $114,000, and $110,000. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

housing units in San Bernardino County. According to these Census data, more than half of the units 

in the county (63 percent) are valued below $150,000. However, the more recent data cited above 

suggest that units in this price range now make up a smaller share of the total housing stock. San 

Bernardino program staff believe that there is still sufficient stock in the price range affordable to 

 1 The Cities of Upland and Needles are the only political units within the county that are outside of 

HACSB’s jurisdiction. Both of these cities have independent housing authorities. 

2 “Home Prices at Record Level in County.” North County Times, 4/20/02. Downloaded from North 

County Times web site (http://www.nctimes.net). By contrast, the median home sales price in Riverside 

County in March 2002 was $202,000. 

9-1 
homeownership voucher participants, but are concerned that participants could find themselves priced 

out of the market if prices continue to escalate. 

Value of Owner-Occupied Units in San Bernardino County, Based on 2000 Census 

-

20,000

40,000

60,000

80,000

100,000

120,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants 

range from $101k to $114k 

Number of 

Units 

Value of Units

Program Design

Targeting and Outreach 

HACSB began by marketing the voucher homeownership option exclusively to participants in its 

Family Self Sufficiency (FSS) Program. HACSB staff thought that FSS participants, many of whom

had accrued sizeable escrow accounts, would be ideal candidates for homeownership. In October 

2000, program staff sent flyers to HACSB’s FSS participants announcing the homeownership option. 

Fifty of the 450 FSS participants responded. Following this modest response, and an internal analysis 

revealing that many non-FSS voucher participants had good incomes and work histories, HACSB 

decided to market the program to a broader population. 

HACSB’s voucher homeownership program is open to households who meet the minimum income

and employment requirements established in the final rule. However, given San Bernardino’s 

increasingly tight housing market, program staff believe that most program applicants will need to 

have incomes above the program minimum in order to qualify for a mortgage large enough to be able 

to purchase. As a result, HACSB markets the program to households earning at least two times the 

voucher payment standard and with at least 24 months of continuous employment (for non-elderly,

non-disabled households only). For households qualifying for a two-bedroom unit, this translates to 

an annual income of $17,300, well above the program minimum of $10,300. 

9-2 
In addition to the initial outreach that HACSB conducted, HACSB’s partner, NHSIE, has also 

marketed the program. NHSIE mailed 250 flyers to voucher participants in early 2001 who met the 

PHA’s income and employment targets. NHSIE also held a promotional event in July 2001 to attract 

applicants to the program. This event was intended to highlight the program’s initial success as two 

of the voucher participants who had completed NHSIE’s counseling were close to purchasing homes. 

Several local politicians attended the event, which was 

covered by a local newspaper. This exposure brought 

an unanticipated influx of applicants to the program, 

and HACSB and NHSIE became concerned about 

creating a backlog of potential homebuyers for whom

mortgage financing might not be available. As 

HACSB’s Development and Acquisition Manager 

noted, “We were in danger of putting the cart before the 

horse because the amount of funds reserved to finance 

mortgages for participants was limited.” Shortly after 

this event, HACSB and NHSIE agreed to stop actively

marketing the program and to conduct outreach 

primarily through the briefings and annual 

reexaminations required by the voucher program. 

Target Population and Outreach Methods 

HACSB’s program is open to households who meet the

minimum income and employment requirements

established in the final rule. However, HACSB markets

the program to households earning at least two times

the voucher payment standard and with at least 24

months of continuous employment (for non-elderly,

non-disabled households). 

HACSB and NHSIE conducted initial outreach through 

flyers and a public event but have since stopped 

actively marketing the program until the financing 

details of the program are fully worked out. 

 

Homeownership Counseling 

HACSB requires voucher homeownership candidates to complete 8 to 16 hours of pre-purchase 

homebuyer education, depending on the mortgage product used.3

 NHSIE provides the 

homeownership counseling through its Homeownership Center in the City of San Bernardino. 

NHSIE received $80,000 in 2001 from NR to provide pre- and post-purchase homeownership 

counseling. The Homeownership Center is staffed by six NHSIE employees and provides pre- and 

post-purchase homebuyer education courses for a variety of first-time homebuyer programs. The 

Homeownership Center is equipped with a classroom for group sessions, meeting rooms for 

individual counseling sessions, and a resource center with training materials, periodicals, and videos 

on topics such as credit repair, debt reduction, and how to buy a house. 

Voucher homeownership candidates go through the pre-purchase counseling alongside the other firsttime homebuyers that NHSIE serves. The required component of the pre-purchase counseling is 

NHSIE’s Homebuyer Education Learning Program (HELP), which is comprised of two eight-hour 

classroom sessions held on consecutive Saturdays. The topics covered in HELP include: budgeting, 

the loan process, fair housing, title and escrow, home search, home maintenance, inspections, 

predatory lending, and homeowner’s insurance. Although NHSIE staff lead each session, the classes 

also include presentations by guest speakers such as realtors, lenders, and escrow officers. 

 3 The final rule for the program requires that participants complete a homeownership counseling program. In 

addition, lenders require first-time homebuyers to attend homebuyer education. The number of hours of 

counseling that HACSB participants receive (over the minimum of 8 hours) reflects different lender 

requirements. 

9-3 
San Bernardino Voucher Homeownership Purchase Process 

HACSB verifies family’s 

eligibility and reviews 

family’s credit report

Family has individual 

assessment meeting with 

NHSIE

Family completes 

NHSIE’s Financial 

Fitness Program

Family meets with 1st

mortgage lender for 

preapproval

Family meets with NHSIE 

loan officer for 2nd

mortgage preapproval

Family is 

referred to 

NHSIE for 

credit 

counseling 

Family contacts HACSB

or NHSIE

If family has

poor credit

If family is not

mortgage ready

Family completes 16 

hrs group counseling 

with NHSIE

Family enters into

contract of sale

HACSB conducts HQS 

inspection

Family obtains approval

of lenders for mortgage 

loans and grants

Family schedules

independent inspection

Family searches for a 

home with realtor

HACSB reviews 

inspection reports and 

financing

Family receives 

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If repairs are not required

9-4 
Voucher homeownership candidates follow one of two counseling tracks. “Fast track” applicants, 

who have good credit and have pre-qualified for a mortgage, go directly into the HELP program. 

Candidates who have poor credit or are otherwise unable to qualify for a mortgage are placed on a 

“slow track” and invited to enroll in NHSIE’s Financial 

Fitness program. This program begins with a two and a half 

hour group orientation that covers credit repair and the goal 

of homeownership. “Slow track” candidates also receive 

individualized credit counseling. Once they have completed 

the Financial Fitness program and repaired their credit, these 

candidates are required to complete the HELP program. 

NHSIE’s Executive Director expressed confidence in his 

organization’s ability to prepare participants for 

homeownership. “Buying a house is complicated for 

everyone,” he commented, “but our homeownership education leaves participants better prepared 

than the average college graduate.” Both HACSB and CalFED Bank, HACSB’s principal lending 

partner, concurred that NHSIE delivers effective homebuyer education. CalFED’s Vice President for 

Community Banking was particularly supportive of the 16-hour requirement, citing research that 

shows that borrowers with homebuyer education have lower default rates. Although the HELP 

program is free for voucher program participants, Financial Fitness participants pay a $25 fee to cover 

the cost of running a credit report. CalFED Bank also provides free credit reports to HACSB 

homeownership participants. 

Pre-Purchase Counseling 

Neighborhood Housing Services of the Inland 

Empire provides the homeownership education 

for program participants at its Homeownership 

Center in San Bernardino. HACSB requires 

voucher homeownership candidates to complete 

a minimum of 16 hours of pre-purchase 

homebuyer education. 

Home Search and Inspections 

Other than a discussion of the home search process in the pre-purchase counseling, HACSB provides 

no additional assistance to participants in finding a house to purchase. HACSB conducts HQS 

inspections prior to the independent inspection to minimize the risk that the family will pay for an 

independent inspection on a unit that will not be able to pass HQS (either because of its poor 

condition or because the seller is unable or unwilling to make the necessary repairs). Currently, HQS 

inspections are assigned to HACSB inspectors based on the location of the unit. However, as the 

homeownership program matures, program staff may assign HQS inspections of homeownership 

units to a single inspector. The three properties purchased to date all passed the first HQS inspection. 

In the event that major physical deficiencies are identified, HACSB staff will meet with the buyer to 

discuss the options, including not going through with the purchase. 

Financing Model 

As of April 2002, three voucher program participants had purchased through the program. All three 

purchases were financed using the two-mortgage model, in which the first mortgage is based on the 

participant’s own income and the second mortgage is paid off by the voucher subsidy, the monthly

HAP. The first two purchasers received first mortgages from CalFED and second mortgages from

NHSIE. The first mortgages are 30-year loans with fixed interest rates of 6.25 percent and 5.75 

percent. One of the second mortgage loans has a 10-year term and a fixed interest rate of 4.5 percent 

and the other second mortgage has a 15-year term and a fixed interest rate of 3.25 percent. The third 

purchase through the program was an in-house transaction, with both first and second mortgages 

financed by HACSB. The house was previously owned by HABSC through a non-HUD scattered 

9-5 
site program. The first mortgage has a 30-year term and a 7 percent interest rate and the second 

mortgage (based on the HAP) has a 15-year term and the same interest rate. 

HACSB has placed several restrictions on the types of financing that program participants can obtain. 

First, program participants must obtain fixed rate mortgages, and balloon payments are prohibited on 

down payment assistance. Seller financing is permitted on a case-by-case basis if an independent 

appraisal supports the purchase price. Finally, the participant’s share of the monthly mortgage 

payment cannot exceed 40 percent of the participant’s adjusted monthly income. 

Program financing is an area of ongoing concern for HACSB and NHSIE. The main concern is that 

NHSIE has a limited pool of funds from which to make second mortgage loans to program

participants. NHSIE received $260,000 from NR to provide second mortgage loans to program

participants. However, replenishing these funds by selling the loans on the secondary market is 

difficult. At present, neither Fannie Mae nor Freddie Mac will purchase second mortgage loans. 

NHSIE might be able to sell the loans to its parent organization, Neighborhood Housing Services of 

America (NHSA), which buys the other loans that NHSIE makes to first-time homebuyers. However, 

NHSA is only willing to purchase the second mortgage loans made to voucher participants if the 

average interest rate across all of the loans that NHSIE sells to NHSA (including but not limited to 

loans made to voucher participants) is at least five percent. 

Thus far, NHSIE has made second mortgage loans of $40,700 and $45,000 to participants in the 

voucher homeownership program. This amounts to about one third of the total capital funds that 

NHSIE has set aside for the program. These loans also make up a significant share of NHSIE’s total 

loan pool, because NHSIE’s other loans are typically around $6,000 or $7,000. NHSIE agreed to 

make second mortgage loans to the first two 

voucher program participants at interest rates of 

three and five percent, but needs to make future 

loans at a higher interest rate in order to meet the 

five percent average needed to sell the loans to 

NHSA. 

The interest rate on the second mortgage loans 

has been an ongoing source of tension between 

NHSIE and HACSB. NHSIE’s interest rates 

reflect community and secondary lending 

requirements and are not set by HACSB. 

However, HASBC program staff would like to get 

the best possible interest rate for program

participants. In addition, FHA and conventional 

financing do not allow the interest rate on a 

community lending second mortgage to exceed 

the interest rate on the first mortgage. At the 

same time, NHSIE’s would like to sell the loans to NHSA so as to be able to replenish its capital 

funds and make loans beyond the initial $260,000 provided by NR. If NHSIE continues to offer 

second mortgage loans to program participants at an interest rate below five percent, the agency will 

not be able to recycle the loan capital to finance additional purchases. 

Sample Purchase Transaction 

Buyer’s Annual Income: $21,258 

Costs to Buyer: 

− Purchase Price: $110,000 

− Closing Costs: $3,246 

Sources of Financing: 

− 1st Mortgage: $51,300 (6.25%, 30 yrs., CalFED) 

− 2nd Mortgage; $45,000 (5%, 10 yrs., NHS) 

− Buyer Cash Down: $3,334 

Monthly Mortgage Payments: 

− Total monthly PITI on 1st mortgage: $454

− Monthly HAP to offset PITI on 2nd mortgage: $451 

− Buyer’s share of monthly PITI: $454 

− Buyer’s share of PITI as a percent of gross monthly 

income: 26%

9-6 
Although HACSB and NHSIE continue to wrestle with this issue, HACSB has been exploring 

alternative financing models for the program. In particular, HACSB is interested in the single 

mortgage model in which the HAP is counted as a direct offset to the monthly mortgage payment. 

According to HACSB officials, this model might increase the mortgage financing available to 

participants, because Fannie Mae and Freddie Mac have expressed a willingness to purchase first 

mortgage loans that use the HAP in this manner. Under the single mortgage model, voucher 

homeownership participants could access county and municipal first-time homebuyer programs that 

provide additional down payment and closing cost assistance. However, using this model would 

require more extensive participation by private mortgage lenders, who would assume the full risk of 

the loan, and thus far HACSB has struggled to attract local lenders to the program due to 

underwriting and loan servicing concerns. 

At the time of the site visit, only one private lender, CalFED, was willing to make loans to voucher 

program participants. HACSB had a longstanding relationship with CalFED, having previously

partnered with the bank to finance the development of some senior housing units. CalFED quickly

became a steadfast partner in the voucher homeownership program, pledging $1 million in capital 

funds to finance first mortgages for program participants using the two-mortgage model and to hold 

these loans in portfolio. CalFED’s Vice President of Community Banking has also assisted HACSB 

in its successful application to the Federal Home Loan Bank for a grant to provide down payment 

assistance to FSS program participants. 

CalFED has been working with HACSB to develop a single mortgage product for program

participants to help reduce the program’s dependency on second mortgage financing from NHSIE. 

Although most of the details have been worked out, CalFED still has concerns about how to service 

the loans with separate payments coming from the borrower and the PHA. HABSC and CalFED have 

agreed that the HAP should be paid directly to CalFED, and CalFED will likely create a designated 

receiving account for both the HAP and the borrower’s payment so that the loan servicer can draw 

one amount from the account per borrower. 

Several sources of down payment assistance are available to voucher homeownership program

participants. First, HACSB received a $150,000 grant from the Federal Home Loan Bank’s (FHLB) 

Individual Development Empowerment Account (IDEA) program to provide down payment 

assistance to voucher homeownership participants who are also in HACSB’s FSS program. The 

IDEA program matches FSS participants’ escrow accounts on a three to one ratio, up to a maximum

match of $10,000 per household. In Spring 2002, HACSB applied for an additional $200,000 in 

down payment assistance funds from the FHLB for voucher homeownership participants not enrolled 

in the FSS program. 

In addition to these sources of down payment assistance, program participants can access closing cost 

assistance from CalFED through the FHLB’s Affordable Housing Program (AHP). Finally, HACSB 

has reserved $300,000 of its discretionary funds to assist voucher homeownership participants to 

purchase homes.4

 HACSB plans to use these funds for down payment assistance once the singlemortgage model is fully operational. 

 4 These non-HUD monies were drawn from the sale of vacant land owned by Housing Partners, Inc., a 

nonprofit subsidiary of the housing agency. 

9-7 
Post-Purchase Activities 

HACSB plans to require all voucher homeownership program participants to attend one postpurchase counseling session with NHSIE on an annual basis. However, given that there have only

been three purchases to date, this aspect of the program has not been implemented. Nevertheless, this 

requirement is included in the statement of obligations signed by program participants. 

In addition to post-purchase counseling, HACSB has several procedures in place to promote the longterm success of participants who purchase homes through the program. First, HACSB requires all 

homebuyers in the program to provide a copy of their Annual 

Mortgage Analysis Statement to the housing agency upon 

notification of their annual reexamination. HACSB’s Real 

Estate Specialist reported that she will use this document to 

review participants’ payment history and assess the need for 

additional intervention. 

In addition, HACSB has a Memorandum of Understanding 

with CalFED that stipulates that CalFED’s loss mitigation 

department will inform program staff if a program participant 

is 30 days late in making a mortgage payment. Participants 

in this situation are required to seek out additional postpurchase counseling from NHSIE. Program staff will follow up with the participant to ensure that 

he/she completes the counseling and develops a plan of action to avoid foreclosure. 

Post-Purchase Activities 

HACSB plans to require all participants who purchase 

a home through the program to attend one postpurchase counseling class on an annual basis. 

HACSB will monitor participants’ progress in making 

their mortgage payments by requiring purchasers to 

provide a copy of their Annual Mortgage Analysis 

Statement at the time of their annual reexamination. 

Finally, HACSB plans to conduct post-purchase HQS inspections on an annual basis for all homes 

purchased through the program. 

Program Management, Staffing, and Partnerships 

The three main actors in San Bernardino County’s voucher homeownership program are HACSB, 

NHSIE, and CalFED Bank. Although all three partners play important roles in the program, HACSB 

is the facilitator and gatekeeper among the various partners and acts as the first point of contact for 

program participants. The process that participants follow on their path to homeownership has been 

altered since the program was first implemented. In particular, HACSB has taken on a larger role in 

applicant screening. According to HACSB and NHSIE staff, there were significant growing pains 

during the initial stages as each organization strived to define and understand their role in the 

program. Both HACSB and NHSIE staff reported that their organizations were satisfied with the 

partnership as of Spring 2002. 

 

HACSB did not have extensive homeownership experience prior to offering the voucher 

homeownership option. However, the agency had real estate, development, and transaction 

experience. For example, HACSB employs a Development and Acquisition Manager who purchases, 

develops, and manages real property for the housing agency, including 670 non-public housing units 

for the elderly. 

 

In February 2000, HACSB hired a “Real Estate Specialist” to help design and manage the voucher 

homeownership program. With over 30 years of experience in the real estate industry, this new staff 

person added to HACSB’s existing real estate expertise. As HACSB’s Development and Acquisition 

9-8 
Manager noted, “We were more comfortable hiring someone with an extensive real estate background 

because we felt it was easier for a housing agency to teach someone about the voucher program than 

trying to teach real estate to a voucher program staff person.” CalFED’s Vice President of 

Community Banking was part of the hiring committee for this position. 

HACSB funds the Real Estate Specialist position entirely through the agency’s administrative budget, 

and not from the administrative fees generated by the housing choice voucher program. In addition, 

HACSB’s Executive Director made the strategic decision to house the Real Estate Specialist in 

HACSB’s main administrative offices instead of in the voucher program department, which is 

dispersed across the county in four district offices. The Real Estate Specialist spends 100 percent of 

her time on the voucher homeownership program. With the 

program fully operational, HACSB’s Development and 

Acquisition Manager spends less than 10 percent of her time on 

the program. However, during the first year of the program, 

she estimated that she spent about 50 percent of her time on the 

program. Overall, HACSB now devotes about 1.1 full-time 

staff equivalents to the voucher homeownership program, 

assuming a 40-hour work week. 

The Real Estate Specialist and the Development and 

Acquisition Manager took the lead in planning and 

implementing the program. The team worked closely with CalFED. HACSB’s Executive Director 

commented that the housing agency’s prior relationship with CalFED was an asset because, “There 

was a trust between us. We knew each other. In new programs, there is always a learning curve, and 

this was no exception. The nature of the voucher program subsidy did not fit into any particular box. 

However, once you have a history and pattern, it is easier to work in new areas together.” 

Program Staffing 

HACSB hired a new staff person with 

extensive experience in the real estate 

industry to administer the program. This 

position is funded entirely through HACSB’s 

discretionary funds. HACSB devotes 1.1 in 

full-time staff equivalents to the voucher 

homeownership program. 

In addition to working with CalFED, HACSB began developing the partnership with NHSIE in early

2000. In September 2000, NHSIE applied for funds from the Neighborhood Reinvestment 

Corporation (NR) to participate in NR’s voucher homeownership demonstration. In mid-2001, NR 

awarded NHSIE $80,000 in operating funds to hire a voucher homeownership program coordinator 

and the aforementioned $260,000 in capital funds to finance second mortgages for program

participants. 

There were problems in the partnership between HACSB, NHSIE, and CalFED early on. When 

HACSB began implementing the program, HACSB’s Real Estate Specialist referred voucher 

homeownership applicants directly to NHSIE for counseling before screening them for their readiness 

to purchase. Under this system, NHSIE provided homeownership counseling to candidates regardless 

of their credit histories. In addition, many voucher homeownership candidates with poor credit went 

directly to CalFED after completing the counseling to apply for a mortgage. This created a burden 

for loan officers at CalFED, who had to spend significant time with program participants who were 

not purchase-ready. Another management issue was that many participants would overestimate their 

income to the CalFED loan officers, while underreporting it to HACSB. This caused considerable 

back and forth between HACSB and CalFED staff when it came time to calculate the amount of 

mortgage for which participants could qualify.

The above concerns led HACSB and its partners to adopt the current management structure in which 

HACSB staff work more closely with program applicants on the front end. In particular, HACSB 

9-9 
verifies each applicant’s income at the time of the application and recommends some applicants for 

credit checks. CalFED staff run the credit reports free of charge, but HACSB’s Real Estate Specialist 

reviews them before referring candidates to a CalFED loan officer to pre-qualify for a mortgage. 

Applicants who pre-qualify for a mortgage move directly into the 16 hours of homebuyer education 

from NHSIE. Applicants who the Real Estate Specialist does not think will qualify for a mortgage, or 

who are referred to CalFED and turned down, work with NHSIE on the “slow track” of credit repair 

and individualized counseling before starting homeownership counseling. According to the staff 

interviewed from HACSB, NHSIE, and CalFED, this has reduced the administrative burden for all 

parties involved. 

Program Outcomes 

In April 2002, NHSIE staff reported that 97 voucher homeownership program applicants had received 

some form of counseling through NHSIE’s Homeownership Center. Of these, 32 applicants, 

including the three purchasers, had completed homeownership counseling. Ten of these households 

were either searching for homes or were working with CalFED to determine how much of a mortgage 

they could afford. 

Of the 65 program applicants who have yet to complete homeownership counseling, NHSIE staff 

estimate that about 35 households are at least a year away

from being able to qualify for a mortgage. The remaining 

30 households may be six to eight months away from

being creditworthy and ready to purchase. 

Two of the three purchasers bought houses they had been 

renting through the voucher program. One of these houses 

was owned by HACSB and, as noted above, HACSB 

financed the purchase. The other two houses were purchased from private individuals. Both of these 

purchase transactions included a conventional first mortgage through CalFED based on the 

household’s income and a second mortgage financed by NHSIE based on the HAP. 

Program Outcomes 

• Number of households counseled: 32 

• Number of homes purchased: 3 

• Average income of purchasers: $22,278 

• Average purchase price: $108,333 

• Instances of loan default: 0 

According to HACSB staff and program participants interviewed during the site visit, finding homes 

in the more desirable parts of the county can be challenging. HACSB and NHSIE staff agree that 

overall, there is sufficient housing stock in the price range affordable to homeownership voucher 

participants. However, the Executive Director of HACSB expressed concern about rising housing 

costs in southern California, suggesting that if home sales prices continue to escalate, participants 

could find themselves priced out of the market. In addition, NHSIE staff reported that many of the 

properties in the price range affordable to homeownership voucher participants require some repairs 

to pass an HQS inspection. 

The two purchasers interviewed during the site visit indicated that buying a home in good condition 

in a good neighborhood requires creativity and persistence. The first 

participant interviewed described how she drove around for four 

months on her own looking for a house that met her needs and was in 

relatively good condition. Following a tip from a co-worker, she 

finally found the “right house” in the neighborhood where she wanted 

to live. However, she could not have bought the house if NHSIE had 

“Buying my first home was kind of 

scary at first. But as a single 

parent, this program is a great 

chance to move ahead.” 

 - HACSB program participant 

9-10 
not agreed to reduce the interest rate on the second mortgage from five percent to three percent. 

The second participant interviewed also had difficulty finding a house in good condition in a safe 

neighborhood. After two months of looking, this participant approached her landlord about buying 

the house she was renting through the voucher program. The purchase was only affordable after the 

owner agreed to reduce the selling price from $135,000 to $110,000. The owner was willing to do so 

at least in part because selling the house to his tenant meant that he did not have to pay a real estate 

commission to an agent. The program participant was satisfied with her decision to purchase “in 

place” because she liked the unit and the neighborhood. As she described it, “it is a nice quiet 

location that is good for someone like me with small kids that needs to be in a safe area.” 

Lessons Learned 

Despite the considerable resources that have been made available—including a full-time staff person 

and a $1 million commitment from a private lender—HACSB and its partners have struggled to get 

the voucher homeownership program in San Bernardino off the ground. Concerns related to the 

availability of second mortgage capital and the interest rates of the second mortgage loans have been 

persistent stumbling blocks for the program. HACSB, NHSIE, and CalFED have been disappointed 

by the small number of closings to date. However, they reported that they remain committed to 

expanding San Bernardino’s voucher homeownership program. HACSB staff reported they hope to 

reach as many as 20 closings per year once the single mortgage model becomes fully operational. 

Given that there are candidates in the pipeline who either have already pre-qualified for loans or are 

in the process of repairing their credit, resolving these financing issues may be the key to growing the 

program. However, San Bernardino’s housing market may continue to be a challenge. 

HACSB’s Executive Director suggested several programmatic changes that he thought would 

promote greater lender participation in the program and ease the administrative burden on PHA staff. 

First, he suggested that the HAP should be fixed for the term of assistance, eliminating the need for 

annual reexaminations. He suggested that the lenders that he had tried to recruit had been wary of the 

annual reexamination and its potential effect on the payment of the mortgage (particularly in the 

single mortgage model where the lender receives two payments, the amounts of which may fluctuate 

although they sum to the same total). NHSIE’s Executive Director emphasized the labor intensity of 

the program for PHAs and partners, and suggested that HUD should directly fund homeownership 

positions at PHAs as well as provide financial support and capacity building to partner agencies. As 

he put it, “This is a new venture for us so capacity building would be helpful to us to sustain what we 

are doing. In fifteen years we will still need to be working with these families and no one can really

predict what will happen.” 

HACSB staff offered the following advice to PHAs considering the voucher homeownership option: 

• Foster partnerships as early in the process as possible. In particular, make sure to have lenders 

on board before recruiting program applicants. Building on preexisting lender relationships—as 

HACSB did with CalFED—may be most effective because lenders are generally skeptical of 

what is still a new program. 

9-11 
• Clarify each partner’s role in the program before full-scale implementation begins. This will 

help to avoid the confusion over roles and responsibilities among the partners that can end up 

stalling program participants’ progress toward homeownership. 

• Be prepared to allocate sufficient staff time in the initial stages of the program. HACSB staff 

report that, despite just three closings to date, the program has been “a labor intensive affair that 

takes all your time. I don’t think a lot of people realize how much effort is required.” HACSB’s 

Executive Director commented that PHAs with large voucher programs and some discretionary

funds to put into the program may be in a better position to sustain the effort than smaller 

agencies. 

San Bernardino Program Summary 

Number of homes purchased: 3 

Average income of purchasers: $22,278 

Average purchase price: $108,333 

Average monthly HAP payment: $420 

Financing model: Two-mortgage 

PHA program staffing: 1.1 full-time staff equivalent 

*Based on a sample of 10 purchases. 

9-12 
Syracuse, New York 

Syracuse Housing Authority 

Introduction 

The Syracuse Housing Authority (SHA) administers approximately 2,900 housing choice vouchers in 

Onondaga County, which includes the city of Syracuse. SHA began offering the voucher 

homeownership program in the spring of 2000 under the proposed rule as part of HUD’s pilot 

program. SHA staff viewed the opportunity to develop a voucher homeownership program as a 

logical addition to the agency’s large FSS program. In addition, the ample supply of modestly priced 

homes in Syracuse offered good homeownership opportunities for low-income buyers. SHA staff 

agreed to participate in HUD’s pilot program and teamed with Home Headquarters, a local nonprofit 

organization that provides housing counseling and financial assistance to low- and moderate-income 

homeowners and prospective homebuyers. Home Headquarters is a local affiliate of the 

Neighborhood Reinvestment Corporation (NR), and SHA and Home Headquarters became one of 

four demonstration sites for NR’s voucher homeownership demonstration. Home Headquarters was a 

particularly appropriate partner because of its strong relationships with local lenders, a key

component for success in the voucher homeownership program. 

SHA staff and partners have always believed that the voucher homeownership option should be 

targeted to voucher program participants who are nearly ready for homeownership. As a result, SHA 

has set a minimum income requirement for participation in the program that is higher than that 

specified in HUD’s final rule. In addition, SHA requires that voucher homeownership candidates be 

enrolled in its FSS program. As of April 2002, 12 households had purchased through the SHA’s 

homeownership program. Because the families admitted to the program can qualify for loans based 

on their own incomes, the voucher subsidy is not considered in the mortgage calculation and is paid 

to the family for their discretionary use in meeting their monthly homeownership expenses. SHA is 

unique among the 12 study sites in this respect. Syracuse’s housing market and the higher incomes of 

program participants make this possible. Program staff note that most participants who meet the 

program’s income requirements are receiving limited assistance from the voucher program. 

Housing Market Conditions 

Syracuse has one of the most affordable housing markets of the 12 sites in the study. According to 

the National Association of Realtors, the median sales price of existing homes in the Syracuse 

metropolitan area in the first quarter of 2002 was $80,300, up six percent from the first quarter of 

2001 but just four percent from 2000. Inside the city limits, program staff report that houses in good 

condition can be found in the $40,000 to $60,000 price range. Syracuse program participants have 

purchased houses ranging in price from $33,000 to $76,000, with an average of $56,362. 

The chart below presents data from the 2000 Census on the number and value of owner-occupied 

units in Onondaga County. Approximately 60 percent of the units in the county are valued between 

$50,000 and $99,000, within the price range of Syracuse program participants. This supports the 

view of program staff that the local housing market does not present a barrier to the program’s

growth. 

10-1 
Value of Owner-Occupied Units in Onondaga County, Based on 2000 Census

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by 

voucher homeownership 

participants range from 

$33k to $76k 

Number of 

Units 

Value of Units

Program Design 

Targeting and Outreach 

SHA’s homeownership option is available to current voucher program participants who are enrolled 

in FSS, have completed one year of full-time employment, and have incomes of at least $15,000, 

including public assistance income if the household is elderly or disabled. (This income requirement 

would not be permitted for PHAs operating under the final 

rule.) SHA staff take the lead in identifying candidates for 

homeownership by reviewing administrative files and 

sending letters to voucher program participants who meet 

the minimum income requirement for the program. 

According to program staff, as of early 2002, about 225 

recruitment letters had been mailed. Some voucher 

participants who meet the income requirements and are 

targeted for recruitment are not yet enrolled in FSS. If the 

participant is interested in pursuing homeownership, 

enrollment in FSS is required. 

Target Population and Outreach Methods 

SHA’s voucher homeownership option is available 

to FSS participants who have been employed for at 

least one year and whose annual income is at least 

$15,000. This income requirement would not be 

permitted for PHAs operating under the final rule. 

Marketing methods include mailings and promoting 

the program in newsletters, flyers, and at events 

targeted to prospective low-income buyers.

10-2 
In addition to the mailings, SHA’s voucher homeownership program is marketed by SHA and Home

Headquarters staff through newsletters, flyers posted in their offices, and at special events such as a 

recent affordable housing fair. Word of mouth is also proving to be an effective marketing tool as the 

number of closings grows. 

Although SHA’s current Administrative Plan sets a cap on the program’s size at 50 vouchers, SHA 

staff do not plan to limit the program size as long as qualified applicants continue to express interest 

in the program. There are also no plans to change the income requirement even though HUD’s final 

rule sets a lower minimum requirement (equal to 2,000 hours of annual full-time work at the Federal 

minimum wage, or $10,300) for non-pilot sites. Program staff, lenders, and participants alike are 

dismayed at the final rule provision because they believe that purchasing a home with such a low 

income (even in a lower cost market like Syracuse) puts the buyer at risk and fails to provide 

incentives for reaching self-sufficiency. 

Homeownership Counseling 

Orientation meetings are held approximately once a month and are conducted jointly by SHA and 

Home Headquarters staff. After the orientation, SHA runs criminal record checks on voucher 

participants who express interest in the program; a conviction for violent crime or drug charges would 

result in ineligibility. Those who are eligible arrange to meet one-on-one with the Home

Headquarters coordinator to review their credit histories and discuss their readiness for 

homeownership. Applicants who need to build additional savings may be referred for enrollment in 

HSBC bank’s First Home Club. Through this program, first-time homebuyers establish a savings 

account where every $1 contributed by the buyer is matched by a $3 contribution by HSBC. 

Since 1999, 174 voucher program participants have attended an orientation and 61 have enrolled in 

homebuyer education. Home Headquarters offers homeownership counseling to voucher participants 

separately from their other clients, and the customary $250 fee is waived for voucher customers. The 

two, five-hour group classes are held on successive Saturdays. This schedule generally works for the 

participants, although the Home Headquarters coordinator said 

the Saturday schedule makes it difficult to get outside speakers 

such as lenders or home inspectors to speak to the class. Thus, 

the coordinator typically delivers all the material herself. 

The classes focus heavily on financial fitness and credit issues, 

including how to repair and maintain credit and avoid 

predatory lending. Several staff associated with SHA’s 

program noted that predatory lending is an issue of great 

concern in Syracuse. Not only are unscrupulous mortgage 

lenders considered a problem, but also automobile dealers who offer unfavorable terms on car leases 

and contractors who pressure homeowners into unneeded repairs. According to the Home

Headquarters coordinator, she places heavy emphasis on teaching participants how to avoid these 

loans, noting only half-jokingly, “I beat them over the head with it!” 

Pre-Purchase Counseling 

SHA has partnered with a NR-affiliated 

nonprofit counseling agency to deliver prepurchase counseling to program 

participants. Participants complete two fivehour classes and receive individualized 

assistance as needed. 

Once a voucher homeownership candidate has completed the required 10-hour homebuyer education 

curriculum, Home Headquarters’ coordinator maintains contact with the family through the loan 

application and home search process. She helps program participants determine when they are ready

10-3 
Syracuse Voucher Homeownership Purchase Process 

Family attends an 

orientation session at 

SHA

SHA screens family for 

program eligibility

Family meets with HH 

counselor to assess 

mortgage readiness

Family works 

with HH to

build savings 

or repair credit

Family meets with lender

for preapproval

Family

enrolls in 

FSS

Family contacts 

SHA or HH

If family is not 

enrolled in FSS

If family is not 

mortgage ready

Family completes 10 

hours of group 

counseling with HH

Family enters into 

contract of sale

SHA conducts HQS 

inspection

Family obtains lender 

approval for mortgage 

and grants

Family schedules and 

pays for independent 

inspection

Family searches for a 

home, sometimes with a 

realtor

SHA and HH review

inspection reports and 

financing

Family receives 

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If no repairs are required

Family meets with HH 

counselor to discuss 

financing options

10-4 
to meet with a lender to pre-qualify for a mortgage. The coordinator noted that some participants are 

eager to meet with a lender even before she thinks they are ready. She allows these participants to go 

ahead and meet with the lender even if the outcome may be disappointing: “It’s all part of the 

learning process,” she explains. 

The two lenders interviewed reported that most of the candidates referred by Home Headquarters are 

very well-prepared for the purchase process, commenting that “If [the Home Headquarters 

coordinator] says they’re ready, they’re ready.” However, the lenders acknowledged that some

applicants are referred before they are ready, in part as a “reality check.” The lenders view these 

meetings as part of the process of preparing buyers and do not view the additional time as 

burdensome, even though the buyer may not be ready to pre-qualify.

Home Search and Inspections 

Once candidates for homeownership complete their homebuyer education, the Home Headquarters 

coordinator educates them about loan programs available from the County Community Development 

Department and local lenders, trying to “match people with programs” and making sure people are 

realistic about what they can afford. The coordinator reported that she generally discourages 

participants from working with realtors because she does not think that realtors are necessary for 

program participants to locate suitable houses in Syracuse’s loose housing market. In addition, she 

has found that realtors often pressure prospective buyers to consider homes they cannot afford. To 

help participants identify homes for sale in their price range, the coordinator helps participants review 

newspaper listings as well as explore opportunities available through local affordable housing 

developers. According to SHA’s Administrative Plan, participants have up to 90 days to locate a 

home to purchase and an additional 90 days to secure financing and close on a property, but staff 

report they are very flexible on the length of the home search and financing process. 

Once participants identify a home they hope to buy, an SHA inspector conducts the HQS inspection. 

An independent inspector is not contacted until the HQS inspector determines the house is in 

reasonably good condition. The Home Headquarters coordinator tries to be present for both the HQS 

and independent home inspections. 

Most of the homes identified for purchase at the time of the site visit were in good condition. 

Although three of the 12 homes purchased did not pass HQS on the first inspection, the deficiencies 

were described as minor. None of the problems prevented a voucher participant from purchasing. In 

one case, Home Headquarters assisted with the repairs and in the other cases the seller made the 

needed repairs. 

Financing Model 

Voucher program homebuyers may obtain mortgages from one of several local lenders. Local 

program guidelines prohibit seller financing and financing that includes balloon payments. In most 

cases, the loan products used are designed for lower income, first-time homebuyers, offering 30-year, 

fixed rate loans with interest rates at or below-market. In addition, there are flexible credit 

requirements and generous down payment and closing cost assistance provisions. Purchasers who 

buy homes renovated by the Onondaga County Community Development Department may qualify

for additional grants to reduce the purchase price of the home by as much as $20,000. Finally, Home

Headquarters has a three-year grant of approximately $213,000 from NR to provide mortgage 

10-5 
assistance to voucher program participants. Staff reported that only about $20,000 of this grant has 

been used, in most cases to provide small second mortgages to assist purchasers with needed 

improvements such as repairs to fences or driveways. 

The voucher HAP is not considered an income source in SHA’s homeownership program. The HAP 

payment goes to the program participant, who then makes the mortgage payment to the lender. 

Program staff encourage participants not to depend on the HAP as part of their household budget, but 

rather to use it to pay down principal or set it aside 

for repairs or other contingencies. These are only

recommendations, however. The participant 

ultimately decides how to use the HAP funds. It is 

worth noting that the FSS voucher participants 

with steady employment who are targeted for this 

program are often receiving limited assistance from

the voucher program by the time they actually

purchase. 

The decision to treat the HAP this way was partly

driven by lenders, according to local respondents. 

Because lenders cannot be guaranteed that the 

HAP will continue to be available, they do not 

want to count it as income. In addition, according 

to the two loan officers interviewed, excluding the 

HAP allows them to offer loan products they

already have to voucher participants. Including the 

HAP would have required developing a new product with special underwriting criteria. 

Sample Purchase Transaction 

Buyer’s Annual Income: $22,580 

Costs to Buyer: 

− Purchase Price: $33,000 

− Closing Costs: $2,593 

Sources of Financing: 

− 1st Mortgage: $31,331 (8.1% 30 yrs., private lender) 

− Deferred Loan: $3,000 (0%, deferred 30 yrs, Home 

Headquarters) 

− Buyer Cash Down: $1,243 

Monthly Mortgage Payments: 

− Total monthly PITI: $441

− Monthly HAP to offset PITI: $255 

− Buyer’s share of monthly PITI: $186 

− Buyer’s share of PITI as a percent of gross monthly 

income: 10%

Both of the loan officers interviewed for this study are associated with the community lending 

departments of their institutions, where working with low-income, first-time homebuyers is a priority. 

Both acknowledged that the potential for Community Reinvestment Act credit for loans to voucher 

participants is an incentive to work with the voucher homeownership program, but they also credit 

Home Headquarters with sending them qualified candidates who are mortgage-ready. Each loan 

officer indicated his bank offers a product that is sold to the secondary market (one to Fannie Mae 

and the other to Freddie Mac), but each also offers loan products that are held in portfolio. Private 

mortgage insurance is required by both lenders if the loan-to-value ratio is greater than 80 percent. 

SHA staff are quick to point out that the housing market in Syracuse offers plentiful opportunities for 

lower income homebuyers. Houses in poor condition can be purchased for as little as $20,000, and 

houses in reasonably good condition can be found for $40,000 to $60,000. In addition, local 

programs offer grants and deferred loans that can total as much as $30,000 to reduce the cost of a 

mortgage. Those with FSS escrow accounts may use the funds for the down payment or for other 

expenses such as appliances for the new home. The combination of available housing at reasonable 

purchase prices and generous assistance to reduce purchase prices further makes it possible for 

voucher program buyers to afford homes without including the HAP in the mortgage calculation. 

However, the HAP is still required in order for participants to meet their anticipated monthly

homeownership expenses, which include utilities, routine maintenance, and occasional major repairs, 

as well as the monthly mortgage payment. 

10-6 
Post-Purchase Activities 

Home Headquarters staff commit to working with all of their customers for up to three years after 

closing. The level of interaction depends on the customer; staff 

respond to requests for assistance but generally do not 

proactively contact customers once the buyer has closed unless 

there is a late payment. Because the voucher participant is 

responsible for making the mortgage payment, Home

Headquarters requires that the participants sign a consent form

at closing that permits the lender to notify Home Headquarters 

if a payment is 30 days late. When notified of a late payment, 

Home Headquarters staff visit the participant to identify the 

problem and determine a solution. 

Post-Purchase Activities 

Syracuse does not currently require postpurchase counseling. However, program 

participants must allow lenders to contact 

Home Headquarters if a mortgage 

payment is 30 days late. 

Home Headquarters plans to develop a more formal post-purchase program to begin in the summer of 

2002. The coordinator expects the curriculum to include budgeting and credit, predatory lending, and 

working with contractors, and envisions that the training would be offered in two, two-hour sessions 

per month for one year after the participant purchases a home. 

Program Management, Staffing, and Partnerships 

Senior staff at SHA and Home Headquarters played key roles in the development of Syracuse’s 

voucher homeownership program. Staff report that, as a small city, staff from organizations working 

on low-income housing issues know each other and have a history of both formal and informal 

partnerships. Although SHA and Home Headquarters had not formally collaborated prior to the 

homeownership demonstration, SHA staff were familiar with the organization and had referred 

people to Home Headquarters for homeownership counseling and financial assistance. The Executive 

Directors of the two agencies and the SHA’s Housing Choice Voucher Program (HCVP) Supervisor 

met to agree on how the program would operate in Syracuse. 

All agreed that the homeownership option should be targeted 

to households who were nearly ready to buy. Home

Headquarters’ strong relationships with lenders helped attract 

local lenders to the program. SHA staff acknowledge that, 

although program design decisions were made by consensus, 

SHA deferred to Home Headquarters’ expertise and 

experience regarding targeting and the financing model. They

believe this helped create a program design that would ensure 

lender participation while meeting the needs of voucher 

program participants. 

Program Staffing 

SHA devotes one-half to three-quarters of 

one full-time equivalent to the voucher 

homeownership program. In addition, Home 

Headquarters devotes three-quarters of one 

full-time equivalent. Limited staff capacity is 

an obstacle to further program growth. 

Once underway, senior staff became less involved as front-line staff took on a greater role in program

implementation. SHA’s FSS coordinator at the time enthusiastically promoted the program, 

generating considerable interest through mailings, newsletter announcements, and personal contacts 

with prospective participants. Through her efforts, SHA generated a list of voucher participants who 

expressed interest in attending an orientation and began inviting groups of 20 to 30 per month to learn 

more about the program. It took roughly one year to work through the initial recruitment list; 

additional sets of recruitment letters were sent out in 2001 and early 2002. Staff report that the dayto-day management of the homeownership program requires intensive staff effort. Staff capacity

10-7 
serves to limit program size because staff do not want to enroll more prospective buyers than can be 

adequately supported. 

SHA staff working on homeownership include two FSS staff members and one tenant selection staff 

member, with oversight by the HCVP Supervisor. HQS inspections are conducted by one of the 

agency’s three inspectors. In total, SHA staff estimate that they devote between one-half to threequarters of one full-time staff equivalent to the voucher homeownership program (assuming a 40 hour 

work week). Given more resources, senior staff report they would add the equivalent of one more 

full-time staff member to support current participants and accommodate future growth of the 

program. At present, the program is funded through voucher program administrative fees and HUD 

funds received for FSS coordinators. 

At Home Headquarters, one staff member spends roughly three-quarters of her time working with 

voucher program participants. Program funding is partially provided by the organization’s general 

operating funds. In addition, in the spring of 2001, Home Headquarters received a three-year grant of 

approximately $315,000 from NR for administrative costs ($102,000) and capital funds ($213,000) 

specifically for voucher homeownership participants. Staff reported that as of April 2002, about onethird of the administrative funds had been expended, and 11 percent of the capital funds had been 

used. 

Program Outcomes 

Since 1999, 174 voucher homeownership candidates have attended a program orientation and 61 have 

enrolled in homebuyer education. As of April 2002, 12 had purchased homes. Purchase prices have 

ranged from $33,000 to $76,000. Program staff have not set specific ratios for determining the 

affordability of mortgages, but instead rely on the lenders’ underwriting criteria. According to data 

on purchasers provided by Home Headquarters, mortgage payments (including principal, interest, 

taxes, and insurance) range from 26 percent to 43 percent of 

gross monthly income in all but one case; the lowest income

buyer (with an annual income of just over the minimum of 

$15,000) has the highest payment as a percentage of gross 

monthly income at 50 percent. 

There have been no formal defaults so far. One homebuyer 

refused to be recertified and subsequently forfeited the 

voucher assistance but continues to live in the home and 

make the mortgage payments. A second homebuyer who had purchased a property renovated by the 

County Community Development Department subsequently left the Syracuse area. Under the terms 

of the sale, however, the County was able to repurchase the home and resell it to another low-income

buyer (who is not a voucher program participant), thus avoiding a formal default. 

Program Outcomes 

• Number of households counseled: 61 

• Number of homes purchased: 12 

• Average income of purchasers: $23,457 

• Average purchase price: $56,362 

• Instances of loan default: 0 

Voucher participants have purchased houses in a variety of types of neighborhoods, from densely

built urban areas near the center of Syracuse to an established suburban subdivision nearly 10 miles 

from downtown. Based on a tour of most of the neighborhoods where participants have purchased, it 

appears these low-income buyers have been able to purchase in neighborhoods where the housing is 

in good to very good condition and where homeowners appear to maintain their properties. Some

purchasers have chosen to stay within Syracuse city limits, although staff noted that a number of 

10-8 
purchasers have moved to communities outside the city limits, where the public schools are 

considered better and where services such as grocery stores are more accessible. 

With the exception of one purchaser who bought a townhouse, program participants have purchased 

single-family detached dwellings. Most of the houses purchased appeared to have been built between 

1900 and 1950. Three of the houses observed during the site visit had been renovated by Home

Headquarters or the County Community Development Department prior to being sold to voucher 

participants. Although all were older properties, the extensive renovations made them very attractive. 

One of the program participants interviewed had purchased one of these houses. She reported that her 

house had been badly damaged by fire before being acquired by Home Headquarters. The 

rehabilitation included a new roof, windows, siding, and interior finishes. “It’s like living in a brandnew house!” the homeowner marveled. Home Headquarters even provides a warranty on their work. 

The homeowner reported that when her storm door was damaged in a windstorm, Home Headquarters 

had it repaired. 

Lessons Learned 

SHA staff and their partners believe the following factors have contributed to their ability to move 

voucher program participants into homeownership: the strong relationships among local partners; a 

relatively low cost housing market; a targeting approach focused on people who are ready (or nearly

ready) to buy; and a financial model that fits with local lenders’ existing loan products for lower 

income buyers. Although the total number of closings to date (12) seems modest, it is notable that 

one in five Syracuse participants who have completed the homeownership counseling have 

successfully purchased a home. Given the challenges of implementing a voucher homeownership 

program—particularly the poor credit histories of participants and limited staff capacity—program

staff believe the Syracuse program is performing well. Although the argument could be made that 

these purchasers could have bought a home without the voucher assistance, SHA staff strongly

believe in using vouchers to promote homeownership and self-sufficiency. The SHA executive 

director admitted to using the program as somewhat of a tool for social engineering: “We’re 

rewarding the behavior we want to see.” 

The close working relationship between the Home Headquarters coordinator and local lenders has 

been a particularly important asset to the Syracuse program. Lenders trust Home Headquarters to 

prepare prospective buyers before referring them to the lender to complete a loan application. The 

two lenders interviewed agreed that homebuyers referred by Home Headquarters typically require 

less time and effort to close a loan than other low-income buyers who are often not as well prepared 

for the process. Further, the strong working relationships between lenders and Home Headquarters 

have allowed SHA to stay out of the financing end of the program, which is the agency’s preference. 

“It allows everyone to do what they do best,” according to SHA’s Executive Director. 

Poor credit histories and limited incomes have posed some problems for the Syracuse program. For 

voucher participants with limited skills, jobs with good salaries that will allow them to meet the 

program’s minimum income requirement are hard to find. However, staff, lenders, and participants 

alike are dismayed at the final rule provision that allows voucher participants with incomes as low as 

$10,300 to buy a home. They worry that such a low income (even in a lower cost market like 

Syracuse) puts the buyer at risk and fails to provide incentives for reaching self-sufficiency. 

10-9 
SHA and Home Headquarters staff offered the following suggestions to PHAs considering the 

program: 

• As program design decisions are made, try to ensure that participants will benefit from the 

program over the long term. This is the justification for the Syracuse partners’ decision to adopt 

a $15,000 minimum income requirement. In the opinion of Syracuse staff, the lack of complex 

financing packages with layered subsidies protects both buyers and the program and increases the 

likelihood that lenders will agree to participate. 

• Draw on the expertise and connections of outside partners rather than trying to develop this 

capacity in-house. The SHA Executive Director commented, “You have to put your ego on the 

shelf and admit that you don’t know everything and you don’t have to.” SHA staff strongly

believe that the PHA should not duplicate skills and programs that already exist in the 

community, but instead should work to improve their clients’ access to community resources. 

Syracuse Program Summary 

Number of homes purchased: 12 

Average income of purchasers: $23,547 

Average purchase price: $56,362 

Average monthly HAP payment: $159* 

Financing model: HAP not counted by lender toward 

mortgage but given to participant to offset

homeownership expenses 

PHA program staffing: 0.6 full-time staff equivalent 

*Based on a sample of 10 purchases. 

 

10-10 
Toledo, Ohio 

Lucas Metropolitan Housing Authority 

Introduction 

The Lucas Metropolitan Housing Authority (LMHA) began developing its voucher homeownership 

program in October 2000, following the publication of HUD’s final rule. LMHA administers 

approximately 3,400 housing choice vouchers in the Toledo metropolitan area. At the time of the 

publication of the final rule, LMHA had begun to acquire and develop housing for homeownership 

using revenue generated from its Turnkey III program. The voucher homeownership option 

complemented LMHA’s existing homeownership programs and fit the agency’s broader goal of 

contributing to neighborhood stabilization and community development in the city of Toledo. 

To offer the voucher homeownership program, LMHA partnered with Neighborhood Housing 

Services (NHS) of Toledo, a nonprofit lender and affordable housing developer with experience 

providing loans and homeownership counseling to low-income homebuyers. In May 2001, NHS 

received approximately $80,000 in capital funds and $15,400 in operating funds from the 

Neighborhood Reinvestment Corporation (NR) to provide second mortgage loans and 

homeownership counseling services to voucher program participants. The partnership between 

LMHA and NHS is an essential part of the program in Toledo. 

LMHA’s program has not had the number of closings that might be expected given the favorable 

housing market and second mortgage resources available. As of May 2002, nearly 200 households 

had received homeownership counseling though the program but only two households had purchased 

houses. Despite the availability of second mortgage financing, which reduces the loan-to-value ratio 

on the first mortgage, LMHA has had difficulty recruiting private lenders to the program. Thus far, 

lenders have been reluctant to tailor loan products for voucher program participants. In addition, 

relatively few applicants to LMHA’s program have had sufficient income and credit standing to 

purchase in the near term. Some of the highest income applicants ended up purchasing without the 

voucher subsidy either on their own or through one of LMHA’s other homeownership programs. 

Other applicants have needed anywhere from six months to two years to resolve their credit issues. 

At the time of the site visit, LMHA and NHS staff anticipated that the rate of purchases would 

increase as clients who have been working on their credit begin to qualify for mortgages. 

Housing Market Conditions 

The Toledo metropolitan area, particularly within the city limits, has a large stock of housing in the 

$40,000 to $70,000 range affordable to voucher homeownership program participants. According to 

the National Association of Realtors, the median sales price of existing homes in the first quarter of 

2002 was $101,800, down from $111,100 in 2001 and $104,000 in 2000. Although the wellmaintained houses tend to sell very quickly, program staff suggest that much of Toledo is a “buyer’s

market,” particularly for the smaller, older homes selling for less than $100,000. LMHA’s two 

voucher homeownership purchasers bought houses for $43,000 and $70,000.1

 

 1 The value of the house at the time of purchase was $100,000, but the purchase price to the participant was 

$70,000 after a $30,000 write-down from the City through the HOME program. 

11-1 
The chart below presents data from the 2000 Census on the number and value of owner-occupied 

housing units in Lucas County, where LMHA’s voucher homeownership program is offered. A 

majority of units (58 percent) are valued below $100,000 and approximately 80 percent of units are 

valued below $150,000. There is also a bigger share of units (16 percent) valued at less than $50,000 

than in most of the other sites in this study. Given that housing prices do not appear to be 

appreciating rapidly in the Toledo area, these data suggest that the local housing market does not 

present a significant barrier for the growth of LMHA’s program. 

Value of Owner-Occupied Units in Lucas County, Based on 2000 Census 

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Units purchased by voucher 

homeownership participants range 

from $43k to $70k 

Number of 

Units 

Value of Units

Program Design 

Targeting and Outreach 

LMHA makes the voucher homeownership option available to existing participants in the agency’s 

rental voucher program who meet the homeownership program’s income and employment criteria. 

Individuals and families admitted to the voucher program from the waiting list are also offered the 

option to pursue homeownership; however, LMHA’s Homeownership and Development Manager 

(hereafter referred to as the Homeownership Manager) encourages clients to rent for at least a year 

before trying to purchase if their credit is not sufficient to qualify for a mortgage right away. All 

voucher homeownership participants must also be enrolled in LMHA’s Family Self Sufficiency (FSS) 

program, although this can be done at any time prior to purchasing. LMHA’s Homeownership 

Manager encourages all clients with an interest in homeownership to enroll in the FSS program as 

soon as possible so that they can be contributing to an FSS escrow account while they go through 

homeownership counseling and work on their credit. 

11-2 
LMHA’s strategy for recruiting applicants to the voucher homeownership program has evolved 

considerably since the agency held its first program orientation in March 2001. LMHA began by

marketing the program to voucher participants who had been in the FSS program for five years and 

had saved at least $5,000 in their FSS escrow accounts. LMHA has a large FSS program (over 300 

households in May 2001) and a successful track record of assisting FSS graduates to purchase houses. 

LMHA staff thought that FSS participants—particularly those who had been on the program for some

time and had accrued some funds in escrow—would be most likely to purchase homes through the 

voucher program. 

LMHA initially got a strong response to the program and was concerned about its ability to handle the 

volume of applicants. However, a substantial proportion of households who initially expressed 

interest in the program either failed to attend a program orientation or did not complete 

homeownership counseling. Some households in this group ended up purchasing without the 

assistance of the voucher, in one or two cases possibly

through predatory lenders. More often, however, 

LMHA and NHS, the nonprofit organization providing 

the homeownership counseling and second mortgage 

loans, have found that even among longtime FSS 

participants with money in escrow, poor credit presents 

a significant barrier to purchasing in the near term. 

Based on this initial experience, and not wanting to 

arbitrarily limit the number of potential homebuyers, 

LMHA began marketing the program to voucher 

participants who had been in the FSS program for at 

least three years and had accrued $2,000 in escrow. In 

late 2001, having had only one closing through the program, LMHA decided to reach out to all 

voucher participants earning over $11,500. Applicants to the homeownership program who are 

already in FSS enroll in FSS when they are determined eligible for the homeownership program. 

Target Population and Outreach Methods 

LMHA’s voucher homeownership option is available to 

existing participants in LMHA’s rental voucher program in 

good standing with the agency and to households newly 

admitted to the voucher program from the waiting list. 

Program participants must also be enrolled in the FSS 

program prior to purchasing. 

LMHA began by marketing the program to FSS 

participants, but recently began sending out letters and 

flyers to all voucher participants earning at least $11,500.

LMHA has primarily marketed the program by sending letters and flyers to these households. The 

response rate to these mailings is generally low—of the last batch of 700 letters sent, only 32 

households (five percent) actually attended an orientation meeting. In addition to the mailings, 

LMHA staff discuss the homeownership option at the regular briefings for the housing choice 

voucher program and at annual reexaminations for households earning at least $10,300. At the time 

of the site visit, LMHA’s Homeownership Manager indicated that he would like to identify a 

marketing strategy that might be more effective in recruiting qualified and prepared applicants to the 

program. 

Without restricting access to the program, LMHA and NHS have deliberately created some minor 

obstacles to test clients’ commitment to homeownership. For example, clients interested in pursuing 

homeownership must contact LMHA’s Homeownership Manager to sign up for an orientation session 

(the flyers and mailings give out his contact information, but not the time or location of the 

orientation). This gives LMHA’s Homeownership Manager a sense of who will be attending the 

orientation and allows him to ask basic questions about the person’s income, employment, and credit.

11-3 
Toledo Voucher Homeownership Purchase Process 

LMHA informally screens 

for eligibility

Family attends orientation 

session by

LMHA and NHS

Family has individual

assessment meeting with 

NHS

Family

pursues

credit 

repair

Family meets with 1st

mortgage lender for 

preapproval

Family meets with NHS 

loan officer for 2nd

mortgage preapproval

Family

enrolls in

FSS

Family contacts LMHA

or NHS

If family is not

enrolled in FSS

If family is not 

mortgage ready

Family completes 15

hrs group counseling

with NHS and LMHA

Family enters into 

contract of sale

LMHA conducts HQS 

inspection

Family obtains approval

of lenders for mortgage

loans and grants

Family schedules and 

pays for independent 

inspection

Family selects realtor 

and begins searching 

for a home

LMHA and NHS review

inspection reports and 

financing

Family receives

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If repairs are not required

Family enters into 

contract of sale

LMHA conducts HQS 

inspection

Family obtains approval

of lenders for mortgage

loans and grants

Family schedules and 

pays for independent 

inspection

Family selects realtor 

and begins searching 

for a home

LMHA and NHS review

inspection reports and 

financing

Family receives

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are required

If repairs are not required

11-4 
Anyone who appears to meet the program’s income and employment criteria is invited to attend the 

orientation and begin homeownership counseling, regardless of how close they are to being able to 

purchase a home. Prior to the first homeownership class, NHS conducts a 35- to 40-minute 

individual assessment with each applicant to determine how much of a mortgage they can afford and 

whether they need to work on their credit. If the applicant is not ready to purchase, NHS nevertheless 

encourages them to pursue the full course of pre-purchase homeownership counseling and to take 

steps to address the income or credit issues preventing them from qualifying for a mortgage. 

This approach to targeting and outreach gives a large number of households access to some

homeownership counseling, even if a relatively small fraction of those counseled actually purchase 

through the program. NHS has various sources of funding that enable it to provide homeownership 

counseling free of charge to voucher program participants. These include a grant from NR, HOME 

funds provided through the City of Toledo, and revenue generated through NHS’s other counseling 

activities. Part of NHS’s revenue, however, also comes from lender fees that clients pay when they

purchase homes, including the 3.5 percent origination fee on NHS’s second mortgage loans. From

this perspective, NHS has had to make a tradeoff between program efficiency (measured by the 

proportion of clients counseled that end up buying homes) and the desire to offer a broader range of 

clients the benefit of counseling on budgeting and credit issues. 

Homeownership Counseling

NHS provides most of the required pre-purchase homeownership counseling to participants in the 

voucher homeownership program. Program participants complete between 10 and 12 hours of prepurchase counseling, which includes five weeks of group classes (one two-hour class per week) and 

several one-on-one sessions. The first four homeownership classes cover budgeting, credit, home 

finance, buying a house, and maintenance. They are led by trained NHS staff members and feature 

guest speakers such as lenders, realtors, and insurance 

agents. The fifth class is led by LMHA’s 

Homeownership Manager and focuses on issues related 

to the voucher program. 

For the first four homeownership classes, voucher 

program participants are mixed together with other firsttime homebuyers who will be buying without the 

voucher subsidy. NHS thinks that it is important that 

voucher participants be “mainstreamed” into the general 

pool of first-time homebuyers and not feel stigmatized 

by the voucher subsidy. NHS also believes that group 

sessions are generally more effective than individual 

counseling because households participating in the 

group sessions tend to motivate each other and challenge each other to address the issues—such as 

poor credit and fear of working with a lender—that may be holding them back. 

Pre-Purchase Counseling 

LMHA requires that participants complete four twohour homeownership classes and one shorter class on

the specifics of the voucher program. NHS staff lead 

the first four classes and LMHA’s Homeownership 

Manager leads the fifth class. 

NHS staff also meet one-on-one with participants to 

assess their purchasing power and, if necessary, 

develop an action plan to address any credit, income, 

or employment issues that affect their ability to 

purchase. 

Following the five classes, NHS staff meet with voucher participants individually to reevaluate their 

purchasing power and credit situation. Participants with sufficient income to meet the voucher 

program requirements and reasonable credit are encouraged to apply for a second mortgage loan 

through NHS (for the amount of the voucher subsidy) and meet with a lender of their choice to pre11-5 
qualify for a first mortgage. NHS does not require participants to use a specific lender for the first 

mortgage, but provides a list of recommended lenders to program participants and educates 

participants about predatory lending practices. 

Participants who are not able to qualify for a mortgage right away and need more time to develop a 

work history or repair their credit set up an action plan with NHS staff to work on these issues. NHS 

staff maintain contact with these households over the months or years that it may take them to qualify

for a mortgage and provide status updates to LMHA’s Homeownership Manager. NHS’s goal is not 

necessarily to get as many people into homeownership as quickly as possible, but rather to offer 

training and build budgeting skills that will help all clients to move toward financial stability, whether 

or not they are able to purchase a home in the near term. 

Home Search and Inspections 

Neither NHS nor LMHA provides search assistance to program participants as they look for a house 

to purchase. As part of the pre-purchase homeownership counseling, however, NHS provides 

guidance on selecting and working with a realtor. NHS and LMHA also provide participants with 

listings of houses that have been built or redeveloped by nonprofit organizations (including NHS) for 

purchase by low- to moderate-income first-time homebuyers. These houses are mainly located in the 

city of Toledo, in neighborhoods targeted for revitalization. In all cases, NHS discourages program

participants from starting to look for a house to purchase until they have qualified for a mortgage and 

have a clear sense of what type of house they can afford. 

Pre-purchase HQS inspections for the homeownership program are done by the inspections staff for 

the rental voucher program. There is nothing different about the process for the homeownership 

program, except that there may be a shorter window of time in which the inspection needs to take 

place, which requires close communication between LMHA’s Homeownership Manager and the 

inspection staff. The HQS inspection typically takes place prior to the independent inspection so as to 

save the participant the cost of the independent inspection should the unit not pass HQS and the seller 

refuse to make the necessary repairs. The participant is encouraged to accompany both the HQS 

inspector and the independent inspector to learn about potential problems and maintenance issues. 

The program participant interviewed for this case study had participated in the independent inspection 

and had found it enlightening, even though she had been living in the house as a renter for six years. 

LMHA’s Homeownership Manager and Housing Choice Voucher Program (HCVP) Director review 

the independent inspector’s report to ensure that the house is not likely to require significant 

maintenance within five years. The HCVP Director ultimately approves the sale. 

Financing Model 

LMHA modeled its voucher homeownership after the program developed by Nashville’s 

Metropolitan Housing and Development Agency, one of the original pilot sites in NR’s voucher 

homeownership demonstration. Nashville adopted a two-mortgage model in which the purchase is 

financed by a first mortgage based on the participant’s own income and a second mortgage based on 

the HAP provided by the housing agency. Many of the NR demonstration sites have adopted this 

model because the NeighborWorks organizations with which they partnered for the demonstration—

in LMHA’s case this is NHS—receive capital from NR and other sources to make the second 

mortgage loans. 

11-6 
LMHA and NHS review all purchase transactions to ensure that they meet the program’s affordability

standards. For the first mortgage, LMHA requires that program participants obtain a conventional or 

FHA-insured 30-year fixed rate loan, with a competitive interest rate and fees. Adjustable rate 

mortgages, balloon mortgages, and seller financing are prohibited, and the principal, interest, taxes 

and insurance (PITI) on the first mortgage must 

not exceed 29 percent of the participant’s monthly

income. 

Participants obtain a second mortgage loan from

NHS based on the voucher subsidy, up to a 

maximum of $25,000. This mortgage is a fixed 

rate mortgage at an interest rate set by NHS (the 

two households that have purchased through the 

program received rates of 6.5 percent and 7.0 

percent). For non-elderly, non-disabled 

households, the mortgage has a 10-year term, and 

the maximum monthly payment allowed is 60 

percent of the estimated monthly HAP.2

 Basing 

the mortgage on a fraction of the total HAP 

reduces the participant’s purchasing power but 

also reduces NHS’s exposure. 

Sample Purchase Transaction 

Buyer’s Annual Income: $11,300 

Costs to Buyer: 

− Purchase Price: $43,000 

− Closing Costs: $2,300 

Sources of Financing: 

− 1st Mortgage: $29,000 (7.5% 30 yrs., private lender) 

− 2nd Mortgage: $14,290 (6.5%, 10 yrs., NHS) 

− Buyer Cash Down: $2,010 

Monthly Mortgage Payments: 

− Total monthly PITI on 1st mortgage: $268

− Monthly HAP to offset PITI on 2nd mortgage: $273 

− Buyer’s share of monthly PITI: $117 

− Buyer’s share of PITI as a percent of gross monthly 

income: 29%

For elderly or disabled households, the maximum monthly payment allowed for the second mortgage 

is 80 percent of the estimated monthly HAP and has a 15-year term. The more generous mortgage 

terms are allowed on the assumption that these households are likely to experience fewer fluctuations 

in income. NHS would like HUD to allow PHAs to fix the amount of the HAP for 10 years. This 

would reduce NHS’s risk and allow the maximum monthly payment on the second mortgage to equal 

the full amount of the monthly HAP. 

LMHA and NHS favor the two-mortgage model for several reasons. First, they believe that the 

model allows the participant to build equity more quickly than a single mortgage model, because the 

second mortgage is paid off within 10 years. Second, being the second mortgage lender gives NHS 

an opportunity to build an ongoing relationship with program participants and to intervene if there are 

problems with the house or with making the payments on the first mortgage. For example, the first 

mortgage lender is required to notify NHS if the participant misses a payment on the first mortgage. 

This gives NHS an opportunity to offer the participant counseling if needed. In addition, the closing 

documents give NHS the right of first refusal on the house in the event of resale or foreclosure. 

Finally, LMHA and NHS hope that the two-mortgage model will encourage private market lenders to 

provide first mortgages to program participants, because the second mortgage reduces the loan-tovalue ratio for the first mortgage to 60 to 70 percent. 

 2 For non-elderly, non-disabled families, the term of the HAP is also 10 years under this model. As stated in 

the final rule, except for elderly and disabled families, voucher homeownership assistance may only be paid 

for a maximum period of 15 years if the initial mortgage incurred to finance purchase of the home has a 

term that is 20 years or longer. In all other cases, the maximum term of homeownership assistance is 10 

years. 

11-7 
One challenge of the two-mortgage model is that it is capital intensive. As of April 2002, NHS had 

not been able to sell the two loans it made through the program. Although the $25,000 loan cap and 

the shortened loan term reduce NHS’s exposure, NHS will eventually run out of capital to make loans 

to program participants unless it can sell the loans on the secondary market. With only two closings 

to date, this is not yet a major concern for the program, but LMHA’s Homeownership Manager has 

nevertheless begun to explore other sources of capital to fund NHS’s loans. 

In addition to providing second mortgage loans, NHS can assist voucher homeownership program

participants to obtain down payment assistance from a number of sources. LMHA requires program

participants to make a down payment of at least three percent of the purchase price, at least two 

percent of which must come from the participant’s personal resources. If the participant receives 

more than $3,500 in down payment assistance, however, the participant only needs to pay one percent 

of the purchase price out of his/her own funds. 

The first purchaser in Toledo’s program had about $2,000 in her FSS escrow account that she used to 

make a down payment equal to five percent of the purchase price. She did not receive additional 

down payment assistance. The second purchaser, who bought a home built by NHS in a revitalization 

area of the city, received a $14,000 grant from the City of Toledo, a $10,000 grant from Allstate 

Insurance, and a $3,000 grant from Catholic Charities. His overall down payment equaled 40 percent 

of the purchase price, of which two percent came from his own funds. 

LMHA also encourages program participants to open an Individual Development Account (IDA) 

through the Toledo Fair Housing Center. Participants can access the IDA funds for a down payment 

on a house or, if they have already purchased, for house repairs or to get out of a predatory lending 

situation. The Fair Housing Center has begun to recruit participants actively to the IDA program; 

LMHA’s Homeownership Manager also hands out flyers and contact information for the program at 

the fifth homeownership counseling class. 

Post-Purchase Activities 

After program participants have purchased, they must complete an additional eight hours of 

homeownership counseling. This counseling will be provided by NHS and will include classroom

training on budgeting and credit, a three-hour session on home maintenance done in a model house 

owned by NHS, and an additional one-on-one session. Thus far, neither of the two purchasers have 

completed this training. 

In addition to post-purchase counseling, LMHA requires that participants have bi-annual HQS 

inspections for the first two years after closing. The inspections are done by LMHA’s inspection staff 

and are primarily an opportunity for LMHA to check that program participants understand the 

maintenance needs of their houses and are taking steps to ensure that the houses do not fall into 

disrepair. If a unit fails the post-purchase HQS, LMHA will contact NHS, who will use their position 

as the second mortgage holder to encourage the household to come in for additional counseling. NHS 

will also work with the household to access whatever sources of funding may be available for 

maintenance. For example, NHS offers a weatherization program, which the first program purchaser 

used to repair her furnace. LMHA does not formally require program participants to save a set 

amount each month for repairs and maintenance, but NHS stresses the need to budget for ongoing 

maintenance expenses and occasional replacement items in its pre-purchase and post-purchase 

homeownership counseling. 

11-8 
LMHA and NHS share responsibility for tracking 

participants’ payment of the first mortgage. At the time of 

annual reexamination for the voucher program, 

homeownership participants must provide documentation 

that they are current on their mortgage payments, taxes, 

and utilities. In addition, first mortgage lenders are 

authorized (and encouraged) to contact NHS if a program

participant is 15 days late on a payment. If LMHA or 

NHS finds out that a participant is having trouble making 

his/her mortgage payments, the participant will be referred 

to NHS for additional counseling and other intervention as 

needed. Finally, participants facing foreclosure may deed the house to NHS in lieu of foreclosure. 

Post-Purchase Activities 

• LMHA requires that participants complete eight 

hours of post-purchase counseling through NHS. 

• LMHA conducts HQS inspections every six 

months for two years to educate purchasers 

further about maintenance issues. 

• Participants authorize lenders to contact NHS if 

they are 15 days late on a mortgage payment. 

Program Management, Staffing, and Partnerships 

LMHA’s partnership with NHS has played a key role in the development and ongoing operations of 

the voucher homeownership program. LMHA initially considered partnering with other housing 

counseling agencies, but discovered early on that NHS was the most qualified to provide the 

counseling and was in a unique position to offer second mortgage loans to program participants. The 

partnership between LMHA and NHS unofficially began when LMHA’s Executive Director and 

Homeownership Manager and NHS’s Executive Director visited Nashville in October 2000. In 

addition to providing an opportunity to learn first-hand about a successful voucher homeownership 

program, the visit to Nashville gave LMHA and NHS access to policies and procedures documents 

that Nashville’s Metropolitan Housing and Development Agency had already prepared for the 

program. LMHA officially partnered with NHS in December 2000 and the two agencies have since 

shared the duties of running the program. 

LMHA’s Homeownership Manager is the main point of contact for program participants and is 

responsible for marketing the program to potential homebuyers, determining their initial eligibility for 

the program, and scheduling orientation sessions. He also runs one of the homeownership classes and 

works closely with other LMHA staff to arrange the HQS inspection, the release of FSS escrow 

account funds, and the initiation of HAP payments. Staff from NHS work closely with program

participants from the orientation onward: providing most of the pre-purchase counseling; screening 

participants for program eligibility (in conjunction with LMHA staff); assessing how much they can 

afford; working with the first mortgage lenders; and originating, underwriting, and servicing the 

second mortgage loan. NHS also conducts the post-purchase counseling and maintains ongoing 

contact with participants after they purchase. 

The partnership with NHS has allowed LMHA to devote a relatively modest amount of staff 

resources to the program. LMHA’s Homeownership Manager, who has primary responsibility for the 

program, spends about 20 percent of his time on the program. The remaining 80 percent of his time is 

spent working on LMHA’s Turnkey III program and housing development initiatives. Thus far, his 

position has been funded through LMHA’s operating budget, but in the future LMHA hopes to fund 

the position through the proceeds of the Turnkey III program. In addition to the Homeownership 

Manager, staff from LMHA’s HCVP Department perform specific tasks related to the voucher 

homeownership program, such as verifying participant eligibility, conducting pre- and post-purchase 

11-9 
HQS inspections, reviewing the results of the independent inspection, and conducting annual 

reexaminations. Finally, LMHA’s FSS Coordinator must work with the Homeownership Manager to 

ensure that potential homebuyers become enrolled in FSS, and that those who purchase officially

graduate from the program and access the funds from their escrow accounts prior to closing. With 

only two purchases so far, the program has not added significantly to the workload of LMHA’s 

HCVP or FSS staff, but this may change as the volume of closings increases. 

NHS staff estimated that voucher program participants represent approximately one third of their 

client base for counseling and loan services. NHS staff report that working with voucher participants 

is more time-consuming than working with other first-time homebuyers because voucher participants 

tend to have more significant credit issues and in some cases require more “hand holding” through the 

counseling and home search process. Clients that come to NHS for counseling and loans without 

additional assistance are typically more prepared to purchase than voucher participants. NHS staff 

have also had to work more closely with the first mortgage lenders for voucher participants than for 

non-assisted borrowers because of the lenders’ lack of familiarity with the program. NHS’s three 

counseling staff and Executive Director estimate that they

spend 40 to 50 percent of their time with voucher program

participants, amounting to slightly less than two full-time 

equivalent staff. As of May 2002, NHS staff had counseled 

almost 200 voucher program participants. Taken together, 

LMHA and NHS contribute the equivalent of slightly more 

than two full-time staff to the program. 

LMHA’s Homeownership Manager believes that LMHA 

would not be able to offer the voucher homeownership option 

without the partnership with NHS. The level of staff effort 

required to administer the program and the expertise required to deliver an effective homeownership 

counseling component exceeded what LMHA alone was willing and able to commit to the program. 

Program Staffing 

LMHA devotes 20 percent of one full-time staff 

person to administering the program. NHS 

devotes the equivalent of about two full-time 

staff to the program. LMHA would probably not 

offer the program without the partnership with 

NHS because of the level of staff effort and 

expertise that would be required. 

Because of NHS’s contributions to the program, the partnership between LMHA and NHS is more 

complex than a contractual relationship between a PHA and a housing counseling agency. In 

particular, LMHA’s Homeownership Manager describes it as a relationship in which each entity has 

its own area of expertise and needs the other in order to be able to offer the program. This level of 

partnership puts a premium on communication between the two agencies and on working through 

problems as they arise. LMHA’s Homeownership Manager noted that he is in almost daily contact 

with NHS’s Executive Director via telephone and e-mail and receives a formal update from NHS on 

the households undergoing counseling on a monthly basis.3

 

Over the past year, LMHA and NHS have worked through areas of potential conflict such as the level 

of down payment required of program participants, the interest rate on NHS’s second mortgage loans, 

and the target population for the program. The current challenges facing LMHA and NHS include 

how to increase the number of households purchasing through the program without “pushing” people 

into homeownership and how to ensure that sufficient capital will be available to make second 

mortgage loans to participants as the program grows. 

 3 NHS maintains a database of participants who have received counseling through the program that notes 

where they are in the process, the size of the mortgage they will be able to afford, and whether there are any 

income, employment, or credit issues that they will need to address before purchasing. 

11-10 
Program Outcomes 

LMHA and NHS have devoted substantial staff time and resources to the voucher homeownership 

program over the past year. Since March 2001, they have held seven program orientations and 

counseled almost 200 households. Two households have purchased houses through the program and 

between 60 and 70 households are at various stages of pursuing homeownership. LMHA and NHS 

are satisfied with the number of households going through homeownership counseling but concerned 

that only two have been able to purchase. Originally, LMHA and NHS had estimated that 20 to 30 

households would purchase in the first year of the program. 

It is not clear why so few voucher participants have been able to purchase through Toledo’s program. 

However, several factors may be coming into play. First, LMHA offers several homeownership 

options for participants in its public housing and voucher 

programs, including affordable homeownership units that the 

agency has developed using the revenue generated from its 

Turnkey III program and through a partnership with Habitat for 

Humanity. It is possible that good candidates for voucher 

homeownership have been attracted to these programs, which 

are better established and possibly allow households to 

purchase more quickly than the voucher program. At least 

three voucher homeownership candidates who completed 

counseling with NHS chose to purchase houses without the voucher subsidy. These purchasers had 

incomes of approximately $13,600, $14,000, and $18,600. LMHA does not place a particular priority

on which program households use to purchase. If a participant in LMHA’s rental voucher program

completes homeownership counseling with NHS and buys a good quality unit at affordable (i.e., nonpredatory) mortgage terms, it is considered a successful outcome, whether or not the participant 

continues to receive the voucher subsidy.

Program Outcomes 

• Number of households counseled: 199 

• Number of homes purchased: 2 

• Average income of purchasers: $12,183 

• Average purchase price: $56,500 

• Instances of loan default: 0 

The second issue that may help to explain the low number of closings through the program to date is 

that LMHA has not found lenders willing to offer first mortgage loan products with flexible credit 

guidelines. Early on, LMHA and NHS hosted an informal lunch for lenders to explain the program. 

LMHA has also sent flyers to lenders highlighting the benefits of the program (primarily the reduced 

risk because of the second mortgage) and has met with lenders on an individual basis. Thus far, 

however, these outreach efforts have not led to creative lender partnerships. According to LMHA, 

lenders have thus far been reluctant to discuss loan products tailored to voucher participants because 

they perceive the loans as unprofitable and are concerned that the loans cannot be sold on the 

secondary market. LMHA has recently reached out to Fannie Mae to help resolve these lender issues. 

In addition to competition from other homeownership programs and the lack of lender support, 

LMHA has struggled with the poor credit of program applicants. LMHA and NHS did not anticipate 

that poor credit would be a major problem for FSS participants with sizeable escrow accounts as well 

for the lowest income applicants. Of the 60 or so households undergoing homeownership counseling 

at the time of the site visit, over half had significant credit issues to address before they could qualify

for a mortgage.4

 As of May 2002, however, approximately 14 households were ready to seek out a 

first mortgage lender, and LMHA anticipated a “bubble” of closings over the next six months. 

 4

 Based on the database of program participants provided by NHS at the time of the site visit.

11-11 
Overall, however, LMHA and NHS have been concerned by program applicants’ inability or 

unwillingness to follow through on homeownership counseling and long-term credit repair. 

The two participants who have purchased through the program purchased different kinds of housing 

units in similar neighborhoods. The first purchaser, interviewed for this study, bought the twobedroom house that she had been renting for six years for $43,000. The house is located in an older 

neighborhood in Toledo close to a large park and within the jurisdiction of one of the better public 

schools in the area. The house did not pass the initial HQS inspection and required a number of 

minor repairs that were paid for by the seller. The participant looked at other units before deciding 

that this house was the best that she could afford. At the time of the interview, her monthly mortgage 

payment was approximately 29 percent of her gross 

monthly income, and she occasionally worried about 

her ability to pay for maintenance and repairs on the 

house. Overall, however, she was extremely happy with 

the purchase and planned to stay in the house for the 

rest of her life. 

The second purchaser bought a two-bedroom house that 

was built in 2000 by NHS. The price of the house was 

$70,000 after a $30,000 write-down from the City through the HOME program. It is located in a 

neighborhood in Toledo that is targeted for revitalization and stands out as the nicest house on the 

block. The purchaser, who is a person with a disability and has an annual income of approximately

$14,000, received $27,000 in grants toward the purchase. As would be expected with a newly built 

unit, the house passed HQS on the first inspection. 

“Sometimes I get worried that I am paying a bit more 

now than I was in rent, but I worked out a system so 

that I know that even if I don’t get my child support 

one month, I will be OK. It’s worth it for me to pay a 

bit more. The house is mine and I can do what I 

want with it. I am so proud that I feel like my chest is 

about two feet out because I did it myself.” 

 - LMHA program participant

LMHA’s Homeownership Manager anticipates that most voucher homeownership participants will 

purchase older houses (i.e., built before 1930) that are in good condition. Alternatively, they may buy

houses recently built or rehabilitated by community development corporations. It is likely that most 

participants will purchase in Toledo, as housing in the more upscale suburban communities is 

generally unaffordable to voucher participants, even with the voucher subsidy. Overall, LMHA’s 

Homeownership Manager expects that most program participants will be able to afford better quality

units in better neighborhoods than they lived in as renters, but that some households may have to 

downgrade slightly in order to purchase. 

NHS and LMHA anticipate that most participants will purchase houses in the $40,000 to $80,000 

range. As a result of the population loss that Toledo has experienced over the past decade, there are 

plenty of units available in that price range. However, many of the units require substantial repairs. 

As a result, LMHA is interested in learning how to combine the voucher homeownership program

with FHA’s 203(k) loan program, which allows buyers to purchase houses needing substantial repairs 

by incorporating the cost of the repairs into the financing. LMHA believes that this would open up 

additional choices for program participants. However, at present program staff do not view the 

condition of the housing stock as a significant barrier to the growth of the program. 

11-12 
Lessons Learned 

LMHA’s program, while well developed in many ways, continues to face obstacles that are resulting 

in a slower pace of purchases than anticipated. LMHA is concerned that only two households have 

been able to purchase through the program. As mentioned, LMHA and NHS did not anticipate that 

poor credit would be such a significant problem for program applicants, given their initial focus on 

higher income FSS participants. The fact that LMHA has other homeownership options to offer its 

clients may limit the pool of households available to purchase through the voucher program, 

particularly if the most prepared participants buy through other programs. LMHA and NHS expect 

that with 14 clients ready to go to lenders, the volume of closings will increase significantly over the 

next six months. This influx of mortgage-ready participants will test the commitment of local lenders 

to the program. Gaining the participation of a broader group of lenders willing to offer first 

mortgages to program participants is critical to the success of the program. 

LMHA and NHS staff offered the following advice to PHAs considering the voucher homeownership 

option: 

• Anticipate that program applicants may require six months to two years of counseling and 

credit repair before they will be ready to purchase. Program staff should be aware that poor 

credit can result in attrition among program participants who get discouraged about their ability to 

qualify for a mortgage and a lag in the number of closings for the first year or so of the program. 

PHAs may attempt to mitigate these problems by targeting recruiting strategies to the most 

prepared households and/or by recruiting a sufficient number of households to the program to 

ensure that there are always households “in the pipeline” working toward homeownership. 

• Open and frequent communication among the program partners is essential to developing a 

strong program. In order for the partnerships to be most effective, the different partnering 

entities need to leverage each other’s particular expertise and also respect each other’s 

organizational needs and priorities. The partners also need to set up the mechanisms—such as 

daily e-mails and regular meetings—to communicate freely and work through problems as they

arise. 

Toledo Program Summary 

Number of homes purchased: 2 

Average income of purchasers: $12,183 

Average purchase price: $56,500 

Average monthly HAP payment: $209 

Financing Model: Two-Mortgage 

PHA Program Staffing: 0.2 full-time staff equivalent

11-13 
State of Vermont 

Vermont State Housing Authority 

Introduction 

The Vermont State Housing Authority (VSHA) began its voucher homeownership program as one of 

the HUD-approved pilot sites in early 2000. The VSHA runs a statewide voucher homeownership 

program by partnering with five nonprofit Home Ownership Centers (HOCs), which are affiliated 

with the Neighborhood Reinvestment Corporation (NR).1 These HOCs are located across Vermont 

and provide counseling and financing coordination.2

 

The VSHA administers approximately 3,100 housing choice vouchers across Vermont, and eight 

local PHAs together administer an additional 2,400 vouchers in the state.3

 The VSHA is willing to 

partner with all local PHAs so that voucher participants in these PHAs also have access to the 

voucher homeownership program. The VSHA will provide materials, systems, and set-up to local 

PHAs in Vermont who wish to offer the homeownership option. The local PHAs can run the 

program themselves or pay an administrative fee to the VSHA to provide assistance. The VSHA also 

allows voucher program participants from local PHAs who do not wish to offer the homeownership 

program to port in to VSHA’s homeownership program. The VSHA currently has active partnerships 

with the Montpelier and Springfield PHAs for the voucher homeownership program. In Montpelier, 

for example, the VSHA has provided a good deal of technical assistance to Montpelier PHA staff, 

helping them to modify VSHA program forms and materials to suit local needs. When the first 

Montpelier program participant purchases a home, that PHA will pay a fee to the VSHA for their 

administrative assistance, a kind of fee-for-service system. 

VSHA began operating the voucher homeownership program in April 2000 under HUD’s proposed 

rule but subsequently changed to the final rule. As of May 2002, 15 program participants had 

purchased houses throughout the state. VSHA’s program is distinctive for its statewide nature and 

the way it has offered the program to local PHAs. The program is spread out geographically and 

includes a number of purchases in small towns, villages, and rural areas. The financing of home 

purchases in VSHA’s program includes subsidies available from Rural Housing Service, the Vermont 

Housing Finance Agency (VHFA), and local Land Trusts. The main challenges for this program are 

 1 Program staff interviewed during this site visit included the Executive Director, the Housing Choice 

Voucher Program Director, and the Home Ownership Program Coordinator at the VSHA. The Executive 

Director of the Montpelier Housing Authority was also interviewed, as were representatives from the 

Gilman Housing Trust and Rural Housing Service. All client-level data came from VSHA voucher 

program participants. 

2

 The Burlington PHA has its own, separate voucher homeownership program that also began as a HUDapproved pilot. The Burlington HOC provides counseling to voucher program participants for both the 

Burlington PHA and the VSHA. 

3 The eight local PHAs in Vermont are located in Barre, Bennington, Brattleboro, Burlington, Montpelier, 

Rutland, Springfield, and Winooski. The Burlington PHA, the largest of the eight local Vermont PHAs, 

administers about 1,300 of the 2,400 vouchers allocated to the local PHAs. Note that the VSHA’s 

jurisdiction is the entire state of Vermont minus the City of Montpelier, so except for the Montpelier PHA, 

the jurisdictions of the local PHAs all overlap with the jurisdiction of the VSHA 

12-1 
the limited amount of affordable housing in the state and the task of preparing households for 

homeownership. 

Housing Market Conditions 

The state of Vermont includes a range of housing markets, some very affordable and some more 

expensive. According to the 2000 Census, the median house value for the state as a whole was 

$115,288, about 4 percent lower than the national median of $119,600. However, in some parts of 

the state, such as the city of Burlington, housing prices are higher. The median house value in 2000 

in Burlington was $135,000 and house prices in and around the city have been increasing in recent 

years. In the more expensive parts of the state, the availability of below-market financing and 

significant write-downs is critical to voucher homeownership participants’ ability to purchase. 

The condition of the affordable housing stock in Vermont is also highly variable, with a number of 

the older homes needing lead-based paint abatement. Program staff report that there is housing stock 

available in good condition in the $80,000 to $100,000 price range, but there are also many similarly

priced units in bad shape. Thus far, VSHA program participants have purchased houses ranging in 

price from $60,500 to $128,000, with an average purchase price of $89,555, based on a sample of 10 

purchase transactions.4

 The chart below presents data from the 2000 Census on the number and value 

of owner-occupied housing units in the state of Vermont. Almost three-quarters of the units in the 

county (73 percent) are valued below $150,000, and approximately 39 percent are valued below 

$100,000. 

Value of Owner-Occupied Units in Vermont State, Based on 2000 Census

Units purchased by voucher 

homeownership participants range 

from $61k to $128k 

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

$0 to $49k $50k to $99k $100k to

$149k

$150k to

$199k

$200k to

$299k

$300k and

above

Value of Units 

Number of 

Units 

 4 The financing for the $60,500 house included no write-downs. The financing for the $128,000 home 

included a $20,000 Land Trust grant and a $39,000 estate gift. 

12-2 
Program Design

Targeting and Outreach 

VSHA makes the homeownership option available to existing participants in its rental voucher 

program and to households admitted to the voucher program from the waiting list who meet the basic 

eligibility requirements set out in the final rule. Existing voucher program participants must be in 

good standing with the voucher program and the PHA. 

The VSHA works with the five Home Ownership 

Centers (HOCs) across the state that provide the 

counseling for the program to identify when new 

voucher homeownership candidates can be admitted to 

the program. When one of the HOCs is ready to 

counsel new clients, VSHA program staff send a letter 

to all voucher program participants in the HOC’s 

jurisdiction describing the program. In order to offer 

the program to as many potential homebuyers in the 

area as possible, VHSA does not limit the mailings to 

voucher program participants who meet certain income

or employment thresholds. 

Target Population and Outreach Methods 

Vermont’s homeownership option is available to new or 

existing voucher program participants who are in good 

standing with the VSHA or with the local PHA 

administering their voucher. 

Each HOC notifies the VSHA when they have the 

capacity to take on new program participants. The VSHA 

then markets the program via mailings sent to all voucher 

program participants in the counties covered by the 

jurisdiction of the HOC. 

The VSHA has sent recruitment mailings in four areas in the state, and has recruited twice in one area 

thus far. The Program Coordinator estimates that the response rate to the mailings is about 10 

percent. In addition, program applicants hear about the program through word of mouth. Interested 

households are invited to attend a group orientation about the program or, in some cases, simply

contact the Homeownership Coordinator at the VSHA and complete a questionnaire and mutual 

release form for information-sharing. VSHA refers households that meet the program’s basic 

eligibility criteria to the HOC that serves their area for homeownership counseling. 

The HOCs also conduct more passive recruitment by screening walk-in clients for housing choice 

voucher program eligibility. One of the local PHAs also screens clients for eligibility during annual 

reexaminations. The clients who walk in to the HOCs reportedly have a wide range of preparedness 

for homeownership. Many program participants come in with credit problems and need from six 

months to two years of credit repair and saving before they will be mortgage-ready. According to 

VSHA staff, the HOCs are very good at working with a variety of people and are prepared to assist 

clients for as long as it takes to get them ready for homeownership. Gaining financial literacy is a big 

step for many clients. 

Homeownership Counseling 

The counseling component of this program is provided by the five HOCs around the state. A 

minimum of eight hours of homebuyer training is required. All of the HOCs integrate voucher 

program participants with other clients in their classes. VSHA’s administrative plan stipulates that 

the following topics be covered during homebuyer training: maintenance, budgeting, credit 

counseling, financing, home search, neighborhood search, and predatory lending. The HOCs use 

training materials developed by either NR or Fannie Mae. Because a number of clients have to drive 

a significant distance to attend the homebuyer training, group sessions are often held over one

12-3 
Vermont State Voucher Homeownership Purchase Process 

Family attends VSHA

orientation and completes 

application

VSHA verifies family’s

eligibility for program and 

refers family to local HOC 

Family contacts VSHA

or local HOC

As needed

Family attends 

intensive homebuyer 

workshop at HOC

Family arranges for 

independent inspection

Family obtains approval

of lenders for mortgage 

loans and grants

VSHA conducts HQS 

inspection after the

independent inspection*

Family searches for a

home, typically with a 

realtor

VSHA and HOC staff 

review inspection 

reports and financing

Family receives

financing and closes 

on home

Seller makes repairs and 

unit passes HQS

If repairs are 

required

If repairs are not required

Family meets with HOC

counselor to review

credit report and create

action plan

Family pursues

credit repair at

HOC

As needed Family attends

Financial 

Fitness classes 

at HOC

When mortgage ready,

family meets with lender 

for preapproval

Additional

inspection

required

If family has RHS or 

VHFA loan

* Vermont program staff are rethinking their policy of conducting the HQS inspection after the 

independent inspection and may recommend that the HQS inspection take place first. 

12-4 
weekend day. VSHA staff report that the HOCs provide relatively uniform counseling to all 

participants. 

After completing the homebuyer training, clients typically attend a one-on-one follow-up session to 

review their credit report and create an action plan.5

 Some clients require a number of one-on-one 

sessions. According to HOC staff, many clients need support 

through the process of credit repair. According to VSHA 

staff, several HOCs want to start homebuyer clubs to support 

clients who will need more time to prepare for 

homeownership. The Lyndonville HOC is hoping to 

implement a financial fitness course to teach financial basics 

to longer-term participants and to help maintain their interest 

in the program. A certificate showing completion of the 

counseling component is only issued by the HOCs once the 

household has the income and credit to qualify for a mortgage. 

Pre-Purchase Counseling 

VSHA requires all participants to complete at 

least eight hours of homebuyer education 

delivered by the HOCs in group sessions. 

Most clients then have individual sessions 

with HOC counselors after completing 

homebuyer education. These sessions help 

clients establish a plan for saving and credit 

repair.

Home Search and Inspections 

Most clients enlist the help of a realtor to find homes to purchase. VSHA staff report that one of the 

benefits of the statewide program is that clients are not constrained in their home search by

geographic limits of the voucher. The ability to search across Vermont is helpful because of the lack 

of affordable housing in many areas. HOC staff interviewed reported that some of their clients have 

been looking for a home for a year or more, but this does not appear to be the norm. VSHA does not 

place a strict limit on search time for voucher homeownership candidates because program staff 

recognize that homeownership candidates may need more time than the 120 days given in the rental 

voucher program. 

Because of the variability in the condition of the housing stock, program staff see the inspection 

process as critical. Program participants typically arrange for an independent inspection prior to 

VSHA’s HQS inspection to identify significant problems.6

 In general, clients use independent 

inspectors referred by the HOC. In addition, a number of the HOCs have inspectors on staff, who 

have conducted inspections in this program. VSHA staff report that they have had home purchases 

fall through because the independent inspector identified too many significant repairs. 

HQS inspections are conducted by regional VSHA housing choice voucher program staff that provide 

full services to all voucher program participants including lease-ups, HQS inspections, income

reexaminations, and coordination of any social services. The staff conducting HQS inspections are 

typically very familiar with the voucher program participants and are able to offer them candid advice 

about the home being inspected. VSHA staff report that there are regularly minor HQS failures on 

the homes inspected for purchase in this program. Common problems include the need for fire 

extinguishers, new lights, new railings, and ground-fault circuit interrupter (GFCI) outlets. 

 5 Given the dispersed nature of VSHA’s program, we could only interview staff from one of the five HOCs 

(the Gilman Housing Trust in Lyndonville) during the two-day site visit. 

6 Program staff in Vermont are currently rethinking their policy of conducting the HQS inspection after the 

independent inspection and may recommend in some cases that the HQS inspection take place first. 

12-5 
A separate inspection needs to be conducted in order to use Rural Housing Service (RHS) and VHFA 

loan products. Because borrowers in VSHA’s program almost always use at least one of these loan 

products, the properties considered for purchase are typically inspected three times by different 

parties. 

If the unit passes HQS but additional repairs are required by RHS, the sellers do not necessarily take 

care of these repairs. RHS will roll a rehab escrow into the mortgage as long as the increase in the 

mortgage amount is reasonable given the appraised value of the home. Usually these rehab escrows 

need to be used within 30 to 90 days after closing. RHS staff inspect the property after the repair is 

completed to approve the work. 

Financing Model 

The lenders currently working with the VSHA program consider the voucher subsidy as income when 

underwriting the multiple mortgages used to finance home purchases. Borrowers typically use 

below-market financing products available through RHS and the VHFA. The voucher program HAP 

is paid directly to the borrower, and the borrower is responsible for sending checks to both the RHS 

and VHFA loan servicers.7

 

Rural Housing Service’s Section 502 Direct Loan Program, commonly known as the Section 502 loan 

program, is available in all areas of Vermont except for parts of Burlington, which are not classified 

as rural. The Section 502 loan program offers 33-year mortgages with a subsidized interest rate based 

on the borrower’s income. The lower the borrower’s income, the greater the subsidy and the lower 

the interest rate. The subsidized interest rates for borrowers in the lowest income bracket begin at one 

percent. The borrower’s income is examined every two 

years during the loan term and the interest rate is 

adjusted accordingly. As the borrower’s income

increases, the interest rate is adjusted up to a ceiling of 

6.25 percent (as of April 2002). For the purposes of the 

interest rate calculation, Section 502 loans do not count 

the HAP as income during the income examinations. 

Although Section 502 loans significantly increase 

buying power with the availability of subsidized interest 

rates, they also limit equity accumulation for the 

borrower. The Section 502 direct loan product has a 

recapture provision such that when the house is sold, the lesser of the following two amounts must be 

repaid to RHS: the total subsidy received in the form of a subsidized (reduced) interest rate, or half of 

the appreciation in value of the home between the time of purchase and the time of resale. 

Rural Housing Service 

Section 502 Direct Loan Program

• Available to low and very low income households to 

purchase in rural areas 

• Loan term is 33 years (38 for very low income 

households who cannot afford the 33-year term) 

• Interest rate determined by household income as a 

percentage of the area median income 

• There is no required down payment 

• Properties must meet RHS’s site standards 

Program staff were not especially concerned about the limits in equity accumulation posed by Section 

502 loans for two reasons. First, if the borrower is working toward self-sufficiency, they are not 

likely to be subsidized through RHS for long. As the borrower’s income increases over the life of the 

loan, the subsidy will decrease. In addition, program staff report that borrowers with Section 502 

loans are encouraged to refinance in the conventional market when their income, debt and credit 

 7 RHS and VHFA have the option to request that the HAP be paid directly to them, but thus far, neither 

agency has done so. 

12-6 
rating allows them to do so, limiting the amount of subsidy received from RHS. For elderly

purchasers or purchasers with disabilities who may not be working, the lack of equity may be the 

tradeoff for the economic and social stability gained from owning their own home. One of the 

purchasers interviewed during the site visit explained that the recapture provisions associated with her 

RHS Section 502 loan were worth it given the loan’s low interest rate and the house she was thus able 

to buy. 

Although RHS Section 502 direct loans can provide up to 100 percent financing, they are usually

leveraged with other loans from public or private lenders. RHS staff explained the multiple benefits 

of leveraging loans. The borrower gets a slightly lower interest rate on their Section 502 loan if it is 

leveraged with other loans. In addition, making 

smaller loans to borrowers allows RHS funds to 

benefit more households.8

 Lastly, having more 

than one loan builds a more significant credit 

history for the borrower. The RHS loans for 

purchases in this program are typically in second 

position and represent about 80 percent of the 

total amount borrowed. The RHS loans are in 

second position because RHS is willing to 

subordinate itself to other amortized loans in 

order to encourage lender participation. 

Mortgages using VHFA products are typically in 

first position and are lent between 5.0 and 6.7 

percent interest, depending on the lending product 

chosen. All VHFA loans have 30-year terms. 

For purchases financed by both VHFA and RHS 

loans, the first-position VHFA mortgages 

typically represent about 20 percent of the total 

amount borrowed. 

Sample Purchase Transaction 

Buyer’s Annual Income: $15,366 

Costs to Buyer: 

− Purchase Price: $79,900 

− Closing Costs: $3,504 

Sources of Financing: 

− 1st Mortgage: $16,000 (6.3% 30 yrs., VHFA) 

− 2nd Mortgage; $64,000 (3.0% 33 yrs., RHS) 

− Seller Assistance: $2,900 

− Buyer Cash Down: $504 

Monthly Mortgage Payments: 

− Total monthly PITI: $537

− Monthly HAP to offset PITI: $132 

− Buyer’s share of monthly PITI: $405 

− Buyer’s share of PITI as a percent of gross monthly 

income: 32%

RHS loan officers work in five regional offices across Vermont and typically originate both RHS and 

VHFA loans for this program. These loan officers are called circuit writers because they are “out on 

the circuit” working in the HOCs for one day each week, making the process of visiting a loan officer 

much easier for program participants. At the Lyndonville HOC, the circuit writer is very involved in 

the program by making a presentation on loans and financing during homebuyer training and also by

providing one-on-one counseling to program participants. 

Thus far, about a third of VSHA voucher homebuyers have also taken advantage of significant 

subsidies offered by local Land Trust programs. Land Trust subsidies are available either through 

down payment grants (for new properties entering the Trust) or affordably priced Land Trust sales. 

The down payment grants can reduce the purchase price by $20,000 or more. Buyers of Land Trust 

properties technically lease the land on which the property is located for $25 per month for 99 years 

 8 Availability of RHS loan funds is a significant limiting factor in the use of this program. RHS staff report 

that their fall allocation for Vermont and New Hampshire is usually gone by June of the following year. 

12-7 
and cannot be evicted from this land.9

 The purpose of the Land Trust is to keep properties perpetually

affordable. Land Trust properties can only be sold to purchasers who fall below a certain income

level. 

Although the Land Trust program significantly increases purchasers’ buying power, it also limits 

equity accumulation. Any equity the property gains while owned by the seller must be shared with 

the new buyer in the form of a reduced purchase price when the property is sold to preserve the 

property’s affordability. 

The NR capital funds available through the HOCs have been used in different ways to contribute to 

the financing deals. One HOC has used this capital to add deferred loans of $15,000 to the financing 

packages. Another has added smaller loans on the order of $5,000 at a three percent interest rate to 

financing packages. VSHA staff summarized that the use of NR capital funds in the financing 

packages varies between HOCs and is at the HOCs’ discretion. 

One HOC director hopes to include FHA loans in some future financing packages. FHA 

underwriting guidelines are reportedly more tolerant of blemishes in the borrower’s credit history.

An RHS staff member noted that RHS is interested in exploring leveraging possibilities with 

conventional lenders, as that would allow borrowers to build a relationship with a bank or credit 

union that might benefit the borrower with post-purchase services. 

Down payment requirements vary by the loan product used. If conventional mortgages are used in 

this program, the buyer must pay a minimum of one percent of the purchase price as a down payment, 

although the loan product used might require a larger down payment. RHS loans require no down 

payment. VHFA loans require some money down. Other resources used to cover down payments are 

clients’ Individual Development Accounts (IDAs). VSHA staff reported that IDAs are relatively

popular in Vermont—the VSHA has a small IDA program, as do some of the HOCs. In addition, 

RHS loans also allow the financing of closing costs, which is helpful for many program participants. 

VSHA has adopted several financing requirements in their program policies. In general, VSHA staff 

may reject proposed financing deals if they determine that the debt is unaffordable for the purchaser. 

VSHA policy specifically prohibits balloon payment mortgages (unless they are convertible to a 

variable rate mortgage), and seller financing is only considered on a case-by-case basis. Further, if a 

mortgage is not FHA-insured, the VSHA requires that the lender comply with generally accepted 

mortgage underwriting standards consistent with those of HUD/FHA, Fannie Mae, Freddie Mac, the 

Vermont Housing Finance Agency (VSHA), RHS, the Federal Home Loan Bank, or other private 

lending institutions. 

Post-Purchase Activities 

Post-purchase counseling is not currently required by VSHA’s program, and the availability of postpurchase counseling varies by HOC. The Lyndonville HOC runs periodic post-purchase workshops 

on home maintenance, landscaping, and weatherization. Announcements for these workshops are 

sent to this HOC’s entire client list. 

 9

 At the time of the site visit, HUD regulations did not allow the monthly land lease fee of $25 to be included 

as a homeownership expense that could be offset by the HAP. 

12-8 
The VSHA plans to conduct post-purchase HQS inspections on a case-by-case basis. VSHA staff 

will use the results of a questionnaire given to program participants at the time of reexamination to 

determine whether an HQS inspection and/or referral to an HOC for additional counseling is 

warranted. If conducted, the HQS inspection will primarily be an opportunity for VSHA staff to 

educate the purchaser about potential maintenance or repair problems. VSHA staff also reported that 

at annual reexaminations, staff will verify with the 

lender(s) that all payments are current and that previous 

payments have been made in a timely manner. 

VSHA and its lender partners do not currently have a 

uniform system in place to monitor the mortgage 

payments of program participants. At the time of the site 

visit, RHS staff reported that they want to modify RHS’s 

tracking system to be able to track loans made to voucher 

program participants. RHS has a nationalized loan 

servicing system and currently has no automated way to 

identifying voucher program loans within its overall pool 

of loans. This also means that there is no automated way

for RHS to contact VSHA if there is a late payment from a program participant. 

Post-Purchase Activities 

VSHA does not currently require post-purchase 

counseling but conducts informal post-purchase HQS

inspections during annual recertifications. VSHA will 

also verify with the lender(s) that all loan payments 

are current and were made in a timely manner during 

recertifications. 

VSHA does not currently have a system in place to 

track program participants’ mortgage payments or to 

receive notification in the event of a late payment. 

Program Management, Staffing, and Partnerships 

Early on, VSHA staff were eager to add a homeownership option for their voucher program

participants. Given the lack of affordable housing in Vermont, they also saw this program as a way to 

free up rental units. VSHA invested significant time and energy into the program development stage. 

Staff report that they took a lot of time to educate all of their partners—including the HOCs, the local 

PHAs, RHS, and VHFA—about the program. VSHA began by partnering with two HOCs and later 

expanded to all five HOCs in Vermont. 

Representatives from local PHAs and HOCs reported that they were pleased with all of the 

information provided by the VSHA. VSHA staff commented that participating organizations and 

agencies were enthusiastic from the beginning. One HOC director commented that this program was 

set up to use the HOCs’ existing strengths in the areas of homeownership counseling and financing 

expertise—no new curricula or counseling procedures were developed specifically for this program. 

Because of this, the HOC sees the housing choice voucher as simply another financing resource 

available to some of their clients. 

Staff from RHS and VHFA basically decided how they wanted the HAP payment to be treated during 

the development of the financing model. They were interested in treating the HAP as income, and 

VSHA agreed. 

Since becoming fully operational, the program has required fewer staff resources at VSHA than 

during the design phase. VSHA’s Housing Choice Voucher Program (HCVP) director now spends 

about five hours per week on the program. VSHA’s Homeownership Coordinator works essentially

full-time on this program, tracking the status of all referrals and program participants. VSHA and 

other partner organization staff are pleased with this centralized management model, but it is timeconsuming. VSHA’s Homeownership Coordinator is currently transitioning out of her former role as 

12-9 
Family Self Sufficiency (FSS) Program Coordinator so as to be able to focus her efforts on the 

voucher homeownership program. 

According to VSHA staff, the number of staff working on this program at each HOC varies, but 

typically includes at least three people. The Lyndonville HOC has four staff involved with this 

program, including the HOC director and the director of homeownership programs, all of whom

provide counseling to program participants. The Lyndonville HOC director estimates the total staff 

time spent on this program at their HOC to be about two-thirds of a full-time equivalent. 

Program partners stay in regular contact via phone calls, 

emails and meetings. The program Coordinator at VSHA is 

in regular touch with the HOC staff. In addition, all 

Vermont PHAs and all HOCs meet quarterly. 

Staff time spent on this program is funded in different ways. 

At the VSHA, the only sources of funding for this program

are voucher administrative fees and Homeownership 

Coordinator funds available through the FSS program. The only source of funding for the smaller, 

local PHAs is voucher administrative fees, given that most of the local PHAs are too small to have 

their own FSS program. The HOCs receive funding from NR, as well as from the VSHA. In 

addition, the five Vermont HOCs received capital and administrative funding for this program from

NR in April 2001. 

Program Staffing 

The level of effort for VSHA staff to run this 

program is just over one full-time equivalent. 

The amount of HOC staff time devoted to the 

program varies by HOC. The level of effort at 

the Lyndonville HOC is approximately twothirds of one full-time equivalent. 

VSHA is continuing to develop partnerships with local PHAs administering the voucher program

across the state. Thus far, VSHA staff report that the partnerships are working well. Among the eight 

PHAs with which VSHA is currently working, the Winooski and Barre PHAs have decided that they

will help VSHA with recruitment to the program, but will require qualified households to port-in to 

the VSHA to receive the homeownership voucher and associated services. The Montpelier PHA 

plans to administer the program itself, building on VSHA forms and technical assistance and 

providing a fee going to VSHA at the time of closing. 

Program Outcomes 

As of April 2002, there were 15 purchases in VSHA’s program. Program staff are very pleased by

this progress. VSHA staff report that they hope to increase the number of closings to between 30 and 

40 per year. They expect to be able to do so for the next several years, but after that the rate of 

purchases may decrease as the pool of voucher program participants with the income, work history,

and credit necessary to purchase diminishes. 

Most of the houses purchased through the program had purchase prices around $80,000. Among the 

sampled purchase transactions, the lowest purchase price was $60,500 for a home located in a more 

remote and less expensive region of Vermont. Another house was purchased for $61,750 as a Land 

Trust resale. This house had an appraised value of roughly $80,000, but the purchase price was kept 

low by the resale provisions of the Land Trust program. The highest purchase price was $128,000, 

but that deal also included a $20,000 Land Trust grant and a $39,000 estate gift. Without writedowns, the most expensive home purchased was $105,000. 

12-10 
One of the homes purchased was a double-wide manufactured home, and the client was disappointed 

with the quality of the home after purchase. VSHA staff commented that given this experience, they

now ensure that the HOCs counsel participants about issues of home quality when considering what 

to purchase. Except for the double-wide manufactured home, all of the homes purchased thus far 

were existing, single-family, detached structures. Based on properties seen during the site visit, the 

purchased homes are in excellent condition. VSHA staff report that, except for Burlington where the 

purchase neighborhoods seemed better than the previous rental neighborhoods, there are no 

significant differences in neighborhood quality between the rental and purchase neighborhoods for 

most purchasers. There have been no late payments on 

any mortgages thus far. 

Among the 15 purchasers, two were FSS graduates. 

Several of the purchasers were women displaced from

their previous homes as a result of divorce. Six of the 

current purchasers have some form of disability. Program

staff report that approximately 40 percent of the 

participants in VSHA’s voucher program as a whole are 

persons with disabilities. When asked about the 

implications of having significant numbers of persons with 

disabilities in the homeownership program, program staff reported that they assess the competence 

and preparedness of all clients for homeownership using the same criteria. All program participants 

have to prove their financial management ability to take on the burden of homeownership, and people 

both with and without disabilities have risen to the occasion. In addition, VSHA staff report that the 

HOCs do a good job of connecting their clients to local resources as needed. 

Program Outcomes 

• Number of households enrolled: 77 

• Number of active participants: 62 

• Number of homes purchased: 15 

• Average income of purchasers: $19,004* 

• Average purchase price: $89,555* 

• Instances of delinquency: 0 

• Instances of default: 0 

*Based on a sample of 10 purchases. 

VSHA’s HCVP director notes that there have been cases where a family would have been able to 

obtain a conventional mortgage with the assistance of their voucher, but were not able to participate 

in the program based on minimum income guidelines established by HUD. Specifically, program

regulations stipulate that neither child support nor disability payments/welfare payments received by

children in the household can be counted as income for purposes of achieving the program’s $10,300 

minimum income criteria, even though underwriters consider these as sources of income. VSHA’s 

program director reports that VSHA has had 10 to 15 families with disabilities who were prepared for 

homeownership but unable to participate in this program because they could not meet the minimum

income calculation under the current regulations. The HCVP director felt strongly that the voucher 

home ownership program regulations should not be more of a barrier to home ownership than 

conventional lending criteria already are. 

As of April 2002, there were 62 active program participants in various stages of the program. VSHA 

staff report that among the 62, 12 have completed training and will be ready for purchase within the 

next two months, and the remaining 50 who have not yet completed training will need a longer period 

of time to save and repair their credit. One HOC director reported that he sees no real difference in 

the preparedness of voucher program participants compared to other clients without vouchers. He 

said that the voucher program participants fit well with the population the HOC serves. 

The two program purchasers interviewed during the site visit gave positive feedback about the 

program. The first interviewee received rental voucher assistance for five years before purchasing. 

She had dreamed of becoming a homeowner for many years and saved in an IDA program to build up 

a down payment. When asked which aspects of the program were challenging, the purchaser 

12-11 
responded that it was difficult to find a home in good condition and in a quiet, safe neighborhood 

occupied by other homeowners. The first two realtors she worked with showed her homes that were 

in poor repair, so she decided to continue her search without a realtor. She settled upon a home in a 

quiet neighborhood within walking distance of her granddaughter’s middle school. This purchaser 

reported that owning a home has brought many positive changes to her life and made her feel part of 

the community. She explained that it provides significant stability and peace of mind to her and to 

her granddaughter. 

The second purchaser interviewed did not use voucher rental assistance before purchase. She joined 

the voucher homeownership program hoping to be able to purchase a home after she and her children 

were displaced from their previous home as a result of divorce. Because she was new to the voucher 

program and because she was VSHA’s first voucher homeownership purchaser, the details of the 

voucher program were very confusing to her and the financing process was somewhat drawn out. 

This purchaser also spent a significant amount of time on the home search process. She felt that she 

needed to find a house quickly, given rising housing prices, but many of the properties that she saw 

were in undesirable neighborhoods or in poor condition. Ultimately, she found a house in a safe 

neighborhood that suited her family’s needs. Homeownership has been a great experience for her 

thus far, and she only wishes she could have moved in sooner. While her children are all in college, 

they have also reportedly benefited from having a stable home base and knowing that their mother is 

living in a good place. 

Lessons Learned 

VSHA program staff attribute much of their success to the following factors: the statewide 

jurisdiction of the VSHA; the portability of vouchers; the highly cooperative partnerships with the 

HOCs; and the availability of below-market financing for home purchasers from RHS, VHFA, and 

the Land Trusts. The biggest challenges that the VSHA program faces are the lack of affordable 

housing in the state and the task of getting people counseled and prepared for homeownership. The 

Montpelier PHA Executive Director particularly emphasized the income side of the housing 

affordability issue for program participants. She reported that the restaurant, retail, and grocery store 

jobs held by many voucher program participants typically do not guarantee the workers a specific 

number of hours per week, which makes budgeting and planning very difficult. 

The Program Coordinator at the VSHA commented that the HOCs play a crucial role in bridging 

clients’ transition to homeownership. However, VSHA staff reported that there are also some

challenges to partnering with the HOCs. The HOCs are relatively small in Vermont and thus have 

limited capacity for providing training and one-on-one follow-up. In addition, they reportedly

experienced a lot of staff turnover at one time, which impacted program administration and 

continuity. VSHA staff noted that the turnover issue was only a one-time concern, however, and 

believe the HOCs currently have adequate staff. Keeping track of a dispersed voucher program

population and multiple counseling partners is challenging, but this appears to be going smoothly

under the direction of VSHA’s Homeownership Coordinator. 

Program staff stressed that it is highly beneficial to have NR’s resources and services available to this 

program. NR provides lending capital, training for HOC and PHA staff, and administrative funds for 

the HOCs. The NR homeownership counseling curriculum is also seen as a great resource. The HOC 

staff benefit from the technical assistance available from NR and the support of its homeownership 

12-12 
network. VSHA staff commented that NR’s investment in the HOCs lends uniformity to the program

and helps with quality control. 

VSHA staff, HOC staff, and the Executive Director of the Montpelier PHA had the following advice 

for other PHAs and counseling agencies considering the voucher homeownership option: 

• Try to integrate the voucher homeownership program into existing programs. PHAs and 

partner organizations will be less overwhelmed if they do not think about this as a new 

program, but rather as an adaptation of existing homeownership programs. 

• Take the time to develop and cement program partnerships. In addition, educate all 

program partners up front. VSHA staff believe that a key to their success was having the 

program in place and capacity available before marketing it to anyone. Otherwise, interested 

households can overwhelm new program staff before they really know what they are doing. 

• Statewide programs need to have a strong network of partners. The networked, NRaffiliated HOCs are an excellent resource to a statewide program. Having a solid FSS 

program is also helpful as it develops a pipeline of clients and brings in administrative money

that can cover PHA costs. VSHA’s Executive Director advises not to expect this program to 

work for all voucher program participants. It is “just another tool in the toolbox.” 

• Small PHAs that want to offer the voucher homeownership option should consider forming 

a coalition of small PHAs to partner with a state PHA or a consultant. The state or 

consultant could provide basic program forms and procedures that can be modified slightly

by each PHA. Small PHAs may also benefit from partnering with nearby HOCs or similar 

entities for the provision of counseling services. 

Vermont Program Summary 

Number of homes purchased: 15 

Average income of purchasers: $19,004* 

Average purchase price: $89,555* 

Average monthly HAP payment: $327* 

Financing model: HAP as Income 

PHA program staffing: 1.1 full-time staff equivalent 

*Based on a sample of 10 purchases. 

12-13