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Reprinted with permission from HDR Current Developments, Volume 30, Number CD-9, published September 2, 2002, page 265. Copyright 2002 West Group. For information, call 1-800-723-8077.
From IDEAS AND TRENDS section:
HOMEOWNERSHIP
Annapolis Firm Plans Program to
Help Renters Establish Credit by
Making Payments Through Banks
An Annapolis, Md., firm is leading a campaign to change the way rents are paid in order to help minorities and low- and moderate-income renters establish credit records that would enable them to become homeowners.
A planning meeting will be held September 10 at the Ford Foundation headquarters in New York City to establish a national system to help renters establish credit records with on-time rent payments through banks, instead of directly to their landlords or apartment managers, according to Michael G. Nathans, who originated Pay Rent, Build Credit Inc.
The meeting will be attended by representatives of major banks, financial institutions, multifamily property owners, policy makers, academics, and consumer advocacy groups who will form an independent steering committee, Nathans said.
Pilot Program Planned
The goal is to set up a pilot program in New York, the Baltimore/Washington area, and Miami to be launched by the end of this year, Nathans said.
"We may wind up with more cities out of the box," he said, because once apartment managers, renters, and financial institutions see the advantages of the system, more will want to participate.
Credit unions do not keep track of the timeliness of rental payments, so they do not appear in tenants' credit ratings. Thus, his proposal to track rental payments through banks and credit card companies could help renters at all income levels improve their credit ratings, he said.
Credit Gap
Minorities and low- and moderate-income families often have difficulty qualifying for mortgages to purchase homes under the current system because of this credit gap, Nathans said, and their rent payment histories could qualify them for mortgages.
Property owners would save money by not having to use their personnel to handle the rent payments, delinquencies, and collection losses, he said, and financial institutions would improve their Community Reinvestment Act (CRA) ratings by using this "community development service" to assist minorities and low- and moderate?income families.
Many low- and moderate-income renters will have to change they way the pay their rent, Nathans said. Each renter will have to deposit the money in a lockbox at the landlord's bank, or make an electronic funds transfer from their bank account to the landlord's account, he said.
There will be resistance to doing this because many lower-income families, immigrants, and minorities do not bank their money, he said.
"Part of our program is educating them," he said.
Consumer Reporting Agency
The Pay Rent, Build Credit data network will function as a consumer reporting agency under the Fair Credit Reporting Act, making rental payment data available only to authorized subscribers, he said.
Showing good payment habits can reduce interest rates by 25-30 basis points, which can save a low-income family $30,000 over the life of a loan, Nathans said.
"What we are trying to do is help low- and moderate-income families build wealth, which can reduce the number of low-income families in America," he said.
Nathan said he is considering targeting Section 8 properties that have computer learning centers.
The centers reportedly are underutilized, so it would be an opportunity to teach low-income residents how to build wealth and how to use the Internet, he said.
(For further information, contact Michael Nathans, 410-626-8561.)
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