How Mary Williams, 29, a single mother of three with no credit rating, found a home of her own is a key part of the Clinton administration's proposed solution to the nation's urban crisis.
With an income of $19,600 as an office cleaner, she was able to buy her $38,000 three-bedroom row house in Southwest Baltimore through a lending institution willing to take a credit risk no commercial bank would ordinarily consider.
Through the same system, Wilbert and Betty McManus, in their 50s, bought their own first home -- a $42,000 three-bedroom shingled cottage with a pleasant yard -- last year after a lifetime of renting low-income housing.
"We thought we were too old for this," said Mrs. McManus, 50, a nursing technician at St. Agnes Hospital. "Then we thought, 'Oh heck, we can live to enjoy it.' "
Both families are beneficiaries of community development banking, a form of banking driven more by social conscience than cash consideration.
Community banking is not new. It started in its current form in the 1970s with passage of the federal Community Reinvestment Act to counter credit discrimination against low- and moderate-income families.
But suddenly it has become a hot political item. President Clinton sees targeted credit as a viable 1990s way for the federal government to help inject pride and prospect into the nation's neediest areas. It is in line with his emphasis on individual responsibility, which helped define him as a different kind of Democrat.
Community banking enjoys some bipartisan support: Republicans can view it as bootstrap capitalism; Democrats see it as a way to ease urban need.
The administration is to propose, as early as this week, a new public-private enterprise to channel $382 million over the next four years into the sort of community development financial institution that helped the Williams and McManus families.
Democrats on the House Banking Committee were briefed on the initiative by Robert E. Rubin, the director of the National Economic Council, last week. The $382 million falls short of earlier figures of $600 million and $850 million mentioned during the campaign, and reflects the administration's encounter with budget reality.
"This is not the only solution to community problems, but it's part of our approach," said a White House official involved in designing the program. "We think it's going to have a considerable impact."
The federal money will be targeted to 100 enterprise communities and 10 major empowerment zones, the Clinton administration's terms for depressed areas. Enterprise communities would be given investment and employment incentives, and empowerment zones would benefit from a wider range of federal programs including education, health and worker training.
The injection of federal funds will go to a variety of lending institutions -- banks, development funds, community credit unions and other community development groups. During the campaign, Mr. Clinton talked of creating 100 community development banks modeled on Chicago's successful South Shore Bank. But as with some other campaign promises, he has scaled back that commitment, relying more on the existing network of financial institutions.
Currently, development banks rely mainly on private investors -- individuals, religious organizations, foundations -- for their capital. Only about 5 percent of their funding now comes from government sources.
There have been failures in community banking, usually because of the closure of a local plant that dominated the area's economy, or because the initial loans went into default quickly. But overall the industry has an impressive record.
Its private investors have been assured a secure rate of return, often below market rates but offering the satisfaction of making a social contribution.
"No investors who didn't want to have lost money," said Julia Parzen, program officer in economic development and the environment for the Joyce Foundation, of Chicago, and co-author of a 1992 book on community development banking, "Credit Where It's Due."
"There have been sufficient reserves. If they are going to do things that are going to have risks with investors' money, they make sure they have loan-loss reserves. Those absorb the losses," she said, adding: "The community banks' business practices are as good as their mainstream peers, and they might be better."
The success of the Clinton program will depend on its ability to raise matching funds from private financial institutions and other sources.
Over the past seven years, the 41 members of the National Association of Community Development Loan Funds -- just one sector of the industry -- have raised $1.7 billion in public and private matching funds on loans of $119 million, which has provided 18,322 housing units and created 3,867 jobs for poor Americans. If this rate of leverage could be extended to the Clinton funding, it would convert the $382 million into more than $5 billion.
"The federal government will only put up money if there is a private match," said the administration official.
For Mary Williams and the McManuses, the keys to their new homes came from the Neighborhood Housing Services (NHS) of Baltimore, a nonprofit community development organization focusing on revitalizing Baltimore's Irvington and St. Joseph's neighborhoods.
How one loan worked
The group -- in partnership with local banks -- has arranged more than 60 mortgages for low- and moderate-income families in the area over the past seven years, helping push local homeownership from 49 percent of available housing to more than 60 percent in that period. It works through a financial partnership with local banks.
Mary Williams' mortgage on her $38,000 house involved an advance of $19,059 from NHS and $28,500 from American National Savings Association. For the McManuses, the mortgage their $42,000 home was a combination of $15,600 from NHS and $29,750 from the First National Bank of Maryland. The surplus balance between the mortgages and the house prices was used to cover settlement costs and rehabilitation work. Both families had to contribute a $1,000 deposit and pay property assessment fees.
Rates can be flexible
NHS usually charges 8 percent interest, but for an applicant with a good credit rating, long employment record and an interest in moving into a particularly difficult, targeted area, it could be as low as 3 or 4 percent, according to Dale Quisgard, the group's loan manager.
"We are more flexible than banks. We may not require a squeaky clean credit history as some of the banks do, but we do require they have decent credit. If they have bad credit we help them clear it up," she said.
These are private loans, not public handouts. Mary Williams must make monthly mortgage payments of $566. The McManuses pay $435 out of their joint monthly income of $1,600. If they fall behind, they could be evicted.
Wilbert McManus, a retired construction worker with a Social Security disability income of $570 a month, said of his new home on South Kossuth Street in the St. Joseph's neighborhood: "I tell you one thing -- don't try to put me out of here."
'Planning to stay'
Said Mary Williams, who moved into her home on Yale Avenue in Irvington last December: "I can handle the house. Right now we are planning to stay."
Statistically, the chances are that both families will meet their ownership obligations. The default rate on such loans nationally is only 1.02 percent, in line with the best loan performance of mainline credit institutions.
The success is based on the careful selection of borrowers and the sort of enduring financial counseling through the life of the loan that banks cannot afford to give. Another disincentive to direct bank loans is that amounts are so small -- in the $25,000 to $40,000 range -- that the administrative costs would be excessive for a commercial bank.
"We are lending in places banks don't even know how to get to," said Martin Trimble, executive director of the National Association of Community Development Loan Funds. "But we know our market. We have a presence in that market. We provide extensive technical assistance, rigorous [loan] underwriting and dogged loan monitoring. We don't view lending as a transaction. We see it as a matter of relationship."
Bank cites no trouble
Through various programs, First National has invested about $1.5 million in NHS of Baltimore. "Our experience has been fine. Assuming the people pay the mortgage back on schedule over a period of time, it would be a profitable transaction," said Joseph E. Peters, executive vice president of First National Bank of Maryland, which participated in the McManuses' mortgage. "We do get interest on the loans. It's pretty close to market" rate of return.
"We are happy to do that. It's part of our role. We do have an obligation to lend money back into the community where we do business, and we like to encourage home ownership."
Baltimore banks are participating in some 300 NHS loans, worth about $4 million.
Looking forward to summer in her own yard, Betty McManus said: "I have been here a year now, and I'm comfortable with it. Our bills are paid every month, and we even have a little bit of money left over. I feel we have the best of America now. If I can do it, anyone can do it. I wish we had started earlier, that's all."
Mary Williams, who had held her job for less than a year when her mortgage was advanced, said: "I kind of thought it was impossible at that point in my life. Now life is much more manageable. It's exciting."
Brenda Ready, director of the Irvington office of the Neighborhood Housing Services who arranged both families' mortgages, said: "With home ownership comes vested interest, concern, willingness to get involved, to call the police. It absolutely works. That's the joy of it."