The Low to moderate income residential homebuyer has been overlooked by many lenders. This is an opportunity that could change the face of many communities and increase profitability of many banks.

1. The New Face
of LMI Lending
The impact of LMI
lending on a changing
mortgage environment
Dwight Crawford, CMC

2. Table of Contents
 Introduction
 The New Face of the LMI borrower
 What are the hurdles of the LMI borrower?
 Community Development Corporations
 Economic impact and revenue generation for the Bank
 The plan for effective Community Partnership, New Household
Acquisition and Retention
 Accountable Measurability

3. Introduction
The mortgage industry has changed dramatically in the last twenty years. One of the most
unswerving thing that I have witnessed is that we have consistently neglected the low to
moderate income community.
As an industry we are cultured to focus on high valued loans without the concern of revenue
generation. As Bankers we base success in short term quarterly matrixes, it is more important
to focus on high volume rather than high value.
As an originator I have attended many training classes, seminars, and webinars. I have read
books, articles and expert testimonials; all designed to show how we should redirect our
business model to beg for business in a “professional way”. The idea is that we should find and
target the realtors that are the most successful. Success is measured by the amount of volume
that they sell yearly. Once we find them, targeting them ranges from random visits and calls to
email and direct mail drip campaigns. After proving a level of persistence we may get a chance
to show what we can do. The problem with that is that the association is now transactional not
relationship based. This is a very dangerous place to be when we have so many uncontrollable
variables during the process. We are faced with low appraisals, title issues, guideline changes,
federal regulator changes, departmental maneuvering, staffing issues and a whole host of other
factors that are well beyond the scope of an originator. Any one of these factors can sour or kill
a transaction.
The search for the high value loans is something that every loan officer in the country is looking
for. Based on the rule of supply and demand, the demand for the realtor business is high and
the supply is low in comparison. This, by the nature of the rule, puts the realtor in a position of
power. A position of power is not a great base for a healthy relationship. If you do not believe
me, go home and tell your significant other that you have declared power over your
relationship. I am guessing that the conversation may not end very well.

4. The solution is to look at ways to develop long term, sustainable relationships with
organizations that a balanced, mutually beneficial relationship can be nurtured. Most first time
homebuyer organizations focus on low to moderate income clients. After the banking collapse
of 2008, the industry has become hyper-conscious of the low to moderate income buyer. The
belief is that these are the buyers that will default faster than any other group. Unfortunately,
this is just not true.
In the following report I will show the multi-layered importance of the low to moderate income
borrower. I will show the revenue generation potential, the increase in CRA grading, the
increase and retention of new households and an outline to achieve and measure this.

5. The New Face of the LMI borrower
80% AMI 100% AMI 110% AMI 120% AMI
Family of 1 $35,950 $45,000 $49,500 $54,000
Family of 2 $41,100 $51,400 $56,550 $61,680
Family of 3 $46,250 $57,800 $63,600 $69,360
Family of 4 $51,350 $64,200 $70,600 $77,040
The Department of Housing and Urban Development defines Low
to Moderate Individuals this way:
Low to Moderate Income borrowers are not specific to any race,
ethnicity, religion, sexual orientation or education level.

6. What are the hurdles of the LMI borrower?
In September 2013, the Federal Reserve Board’s Division of Consumer and Community Affairs
conducted the Survey of Household Economics and Decision-making (SHED). The SHED was
conducted to capture a snapshot of the financial and economic well-being of U.S. households,
as well as to monitor their recovery from the recent recession and identify any risks to their
financial stability. The survey was designed in consultation with Federal Reserve System staff
and outside academics with relevant research backgrounds. The survey also asked, “Did you
delay any major life decisions because of the recession that began in 2008?” 18% of people said
they had. Of those people, buying a home was far and away the most common decision
delayed (45 percent).
The survey has identified the three major hurtles that most LMI borrowers are facing as they
start the home buying process.
1. Income
2. Down Payment
3. Credit
Income:
The Problem:
“I have too many bills.” “I do not make enough money to afford a house.” “The banks don’t
lend unless you make big money.” These are actual concerns that have been shared with me by
current renters as to why they have not purchased a home.
The Solution:
 Lower price points of homes have been the answer to low to moderate income.
 Assisting in the elimination of debt has been a solution that has not only helped
borrowers to get into homes but it starts a behavioral pattern that keeps them in their
homes.
 The elimination of debt creates additional disposable income which can start a pattern
of savings, investing and eventually wealth.

7. Down payment:
Problem:
According to the SHED survey, 49% of 18– 29 year olds, 48% of 30-44 year olds and 48% of 30-
44 year olds believe that they cannot afford the down payment on a new home.
The dream of homeownership is often deferred once potential homeowners seek advice from
friends, relatives and co-workers that are still under the impression that banks require a 20%
down payment.
With the lack of basic banking, credit and savings education coupled with pay check to pay
check budgeting it makes it very difficult to have the ability to put money aside for savings.
Add historically higher interest rates on consumer debt with higher fees charged at alternative
financial institutions the ability to save dwindles even further.
Solution:
 The first step in the home buying process should be education. In an industry that
changes so rapidly based on Federal and Institutional changes, being up to date in what
is happening in today’s mortgage and real estate market is crucial. In North Carolina, we
have 96 HUD approved Community Development Corporations, and 8 of them are
located in Charlotte. Each one of these groups assigns a counselor to every borrower
that works on credit improvement, budgeting and basis financial and mortgage literacy.
 Banking these future borrowers will help the client to create patterns of saving. We can
also help them save money in excessive fees and give them the tools to automate their
financial lives and eliminate unwanted debt.
 In North Carolina, we have State, County and multiple City Down Payment Assistance
programs. These programs are structured to give buyers a range from $1500 to $10,000
in assistance with no repayment. The requirements for these programs are typically
income based. All of them require homebuyer education.

8. Credit:
Problem:
Credit is a mystery to the average consumer. For that matter, credit is a mystery to most
bankers. Due to the proprietary nature of credit scoring models we are not supposed to know
exactly how to affect scores. A lack of reliable information is normally replaced by
misinformation, frustration and fear. According to the SHED report 31 % of respondents had
applied for some type of credit in the prior 12 months. One-third of those who applied for
credit were turned down or given less credit than they applied for. 19% of respondents put off
applying for some type of credit because they thought they would be turned down.
Experience with credit appears to vary by race, ethnicity and income. According to the SHED
report, Hispanics, African Americans, low income Whites and the elderly are disproportionately
being denied credit, putting off applying for credit, and express a lack of confidence about
successfully applying for a mortgage. These effects are partially explained by other factors
correlated with race/ethnicity and credit, such as education.
Solution:
The re-establishment or establishment of a strong credit profile is a combination of a few basic
principles.
 The first is to be able to navigate through the myths of credit. This is best guided and
directed by counselors that are trained in credit.
 Secondly, being able to have a healthy relationship with money will create the basic
budgeting skills to be able to pay off derogatory debt and start to rebuild.
 Lastly, having the financial freedom of the elimination of debt, opens up the ability to
secure new credit. This may be with secured credit cards or affordable installment
loans.
The combination of HUD certified housing counselors and a bank that has the financial
instruments to help re-establish credit, is one of the strongest tools that can be used on the
road to credit repair.

9. COMMUNITY DEVELOPMENT CORPARATIONS
Charlotte Housing Partnership’s Mission
Statement: To expand affordable and well-
maintained housing and promote stable
neighborhoods for low and moderate
income families with a continuing interest
in the ability of occupants to more fully
enter the economic mainstream. Families
that went through the pre-homeownership
class in 2013: 899
Community Link’s Mission Statement:
Community Link's Mission is to enable
individuals and families to obtain and
sustain safe, decent, and affordable
housing. Families that went through the
pre-homeownership class in 2013: 334
Charlotte Housing Authority: The mission
of the Charlotte Housing Authority is to
develop, operate, and provide quality
housing in sustainable communities of
choice for residents of diverse incomes.
Families that went through the pre-
homeownership class in 2014: 34
Grace Mar Services Mission Statement:
Grace –Mars exist to provide education,
counseling and professional networks to
displaced workers, minorities and low to
moderate income families in the areas of
financial literacy, job readiness/placement
and self- empowerment. Families that went
through the pre-homeownership class in
2013: 200
Prosperity Unlimited Mission Statement:
Our mission is to offer individuals the
opportunity to realize their dreams by
learning the skills necessary for home
ownership, financial management and
wealth creation. Based on personal
experience, we know that buying a home is
the first and most important step in
creating wealth. We also know that the
ability to acquire a home and create wealth
is dependent upon one’s willingness to
learn, change and grow. Families that went
through the pre-homeownership class in
2013: 100
Alliance Credit Counseling Mission
Statement: Provide help and hope through
charitable relief to the poor and distressed
by personalized education, counseling, and
support programs that reduce and avoid
the burdens of financial crisis, debt stress,
bankruptcy, and their consequences.
Provide empowerment to the public
through charitable education programs of
financial literacy, money management,
credit management, and debt reduction to
help meet life’s challenges and
opportunities. Families that went through
the pre-homeownership class in 2013: 240

10. The President’s Advisory Council on Financial Literacy (2009) defined financial literacy as, “the
ability to use knowledge and skills to manage financial resources effectively for a lifetime of
financial well-being.” The Council’s definition highlights the fact that financial literacy is not
simply a basic understanding of terms and definitions, but instead involves the ability to
incorporate financial knowledge into one’s decisions and behavior. According to a study
conducted by The CFPB, in the U.S., billions of dollars are spent on financial industry marketing
efforts, about 25 times more than is spent on financial education. The study found that
approximately $670 million is spent annually on providing financial education by federal, state,
and local governments, financial institutions, nonprofit organizations, charitable foundations,
and others. At the same time, the financial services industry spends approximately $17 billion
annually marketing consumer financial products and services (not counting marketing of
products related to retirement, college loans, and other investments). While the study does not
explore the effect of this spending disparity on consumer decisions, it provides a meaningful
comparison when we consider consumers’ financial educational needs. The $670 million in
spending translates to a little more than $2 per person per year on financial education in the
U.S.
A 2009 study at Ohio State University’s Fisher College of Business focused on mandated
financial pre-purchase counseling. They found financial counseling mandates are often thought
to work by providing better information to financially unsophisticated households. However,
such mandates often have another important aspect in that they keep everyone to a certain
degree of oversight by an outside party. In the case studied here, the legislation interjected
counselors in the loan application process. This provided an incentive for lenders to screen out
lower-quality borrowers in order to protect themselves from possible legal and regulatory
action. One very important part of the counselor’s job is to let potential buyer know that they
may not be fully ready to become homeowners. They can give them a path to homeownership
with very specific tasks that will get them where they need to be. The study focused on low to
moderate income borrower with 620 -650 credit scores. They wanted to study delinquency and
default rates one year after closing. Compared to a control groups that did not receive pre-
purchase counseling delinquency rate was reduced by about 15% and default rate declined by
about 35%.
The Stratmor Group, a leading consulting firm for the mortgage servicer industry, published a
White Paper that analyzed the impact of “holistic” consumer credit counseling. They found that
a holistic approach to consumer counseling results in overall borrower reduced debt and
spending. It also reduced the losses sustained by mortgage servicers and lenders with regards
to distressed mortgages, loans that are delinquent or default or in the process of foreclosure.

11. Holistic counseling specifically includes the following steps:
Accredited counselors provide in‐person sessions and single point of contact
A diagnosis of a consumer’s payment problems ‐ getting to the root cause of the problems
and providing education to improve the likelihood of influencing behavior change
Securing of updated borrower status and financial information
A review of income and expenditures resulting in the creation of a budget
Prioritization of all debt
Maximizing potential income by considering eligibility for public income assistance
programs or utilization of other available services
Developing repayment strategies, including mortgage modification or, if possible, sale of the
home
Establishing a “trust” relationship with the consumer
Helping the consumer qualify for a mortgage modification through reduced overall
consumer debt and lifestyle spending
The creation and adherence to Action Plans and budgets to gain financial stability
Holistic Counseling is not just for the low to moderate pre-purchase buyer. It is also used for
foreclosure prevention counseling. For borrowers receiving basic credit counseling, analysis
projects an average benefit per borrower of $3,894 (or 185 bps assuming an approximate
current loan balance of $210,000), without regard to whether or not the counseled obtained a
loan modification. For counseled borrowers who obtain a modification, the incremental benefit
increases to $17,948 (855 bps).
When borrowers receive “holistic” counseling ‐ counseling that not only addresses mortgage
monthly payment but also credit card payment as well as modifications that result in lower
personal spending patterns ‐ the average benefit per borrower increases from $5,754 to $7,147
(274 bps to 340 bps) as a result of additional monthly cash flow made available to meet
mortgage obligations. This freed up cash, as a result of the borrower debt payment/personal
spending restructuring, and estimated at an additional $300 per month, sharply lowers the re-
fault rate of borrowers who initially cure their loan through a loan modification

12. Economic Impact and Revenue Generation for the
Bank
It has been a basic belief in the banking world that low to moderate income borrowers bring
higher risk and lower revenue than more affluent borrowers. In my experience this is not
always the case. A 2008 study published by the Brookings Institute found the following:
■ Moderate and lower-income households pay over $8 billion in fees to non-bank check-
cashing and short-term loan providers to meet their basic financial service needs. Those fees
are collected from 48,082 non-bank establishments, which include approximately 26,000
businesses that charge an estimated average of $40 to cash a payroll check from typical
unbanked households with full-time workers.
■ 93 %of non-bank businesses that cash checks are located within one mile of a bank or credit
union branch.
■ Despite popular perception, bank and credit union branches are more likely to be located in
low-income and lower middle-income neighborhoods than non-bank financial services
providers. For instance, bank and credit union branches are located in 56 % of lower- income
neighborhoods; non-banks are in 31 % of lower-income neighborhoods.
■ A full-time worker without a checking account could potentially save as much as $40,000
during his career by relying on a lower-cost checking account instead of check-cashing services.
Depending on types of checking accounts, residence, money management skills, and account
stability, this same unbanked worker, assisted in transferring his savings into a low-cost
exchange-traded fund with a discount broker, could generate as much as $360,000 in wealth
over his 40-year career.

13. Overall, about 10 million households lack a transaction account (e.g., savings, checking, call
account, money market) and about 12 million do not have a checking account (e.g., checking,
checking money market), instead relying in large numbers on check-cashing establishments or
other financial institutions that charge fees to cash paychecks. This latter group of unbanked
households represents the primary market for the $60 billion in checks cashed every year at
non-bank establishments, adding up to $1.5 billion in fees collected from at least 178 million
different transactions. Among the households that lack a checking account, 52% include at least
one full-time worker, costing the household an average of $40 per payroll check to use a non-
bank check casher. Stopping the financial bleeding that is caused by the fees that these families
are saddled with opens the doors to multiple benefits to both the client and the bank.
A basic checking account and the education to use it now allows these clients to manage bill
payment with more ease. This in turn will help to eliminate debt, increase credit scores and
decrease overall spending. With increased disposable income, the ability to make investments,
purchase homes and vehicles become more possible. The fees for these transactions generate
revue for the bank while assisting the client to build wealth and break a financial cycle that has
been handed down from generation to generation like an old recipe. With the building of
wealth, comes a need to protect this wealth. This leads to an opportunity for insurance and low
risk security instruments.
A large problem that every line of business at every bank in the country shares is retention.
Middle and high income clients are bombarded with marketing campaigns geared to give them
the next new thing and to poach them away from their current bank, broker, advisor or
mortgage company. We live in a world of price versus value. A high valued client will leave a
bank for less than an eighth of a percent difference in rate or return. Most of the time the bank
that wins that client’s “high valued” account had to give a lower rate or higher return to win
that client’s business. This makes less profit for the bank and makes the relationship
transactional versus value based. This in itself is a very good formula for lost revenue and
customer turnover.
If a bank were able to get a client out of a high fee check cashing store, help her to pay her bills
on time, counsel her on budgeting and savings, improve her credit, buy a car with low rates,
save money, help her to purchase a new home, open an account for her children’s education,
plan for retirement and be able to insure her and her family against tragedy, do you think that
she would leave, because someone offered her an eighth lower on an interest rate? This is no
longer a relationship based on transactions. It is based on the value that the bank was able to
provide their client and her family. Client retention will no longer be a concern.

14. Being one of the highest gross revenue generators in North Carolina, I have seen the difference
between the loans closed with our more affluent clients and my low-moderate income clients.
My clients typically have FHA loans. It is no secret in the industry that FHA loans have a much
higher yield spread than a conventional loan.
At my last count the top volume loan officer whose clients are primarily middle to upper tiered
income, has a volume of 16.7 million for the year to my meager 6.3 million. When it comes to
gross revenue for the bank even though his volume was almost tripled compared to mine, my
revenue bases points were 341bps compared to his 147bps.
What this means in dollars and cents is that for the more affluent clients you have to close over
16 million in volume to generate $247,000 in revenue and with low income borrowers I can
generate $217,000 with almost a third of the volume. The key to higher revenue with low to
moderate income is not to get them into higher priced homes but to put them in very
affordable homes but focus on the amount of new household units that can be produced.
I understand the argument that the higher income clients will also bring over additional
revenue generating accounts. I agree. The question is how long will we retain them and the
revenue that comes or goes with it?
As rates start to move up in the future we will see a down turn in the high value clients. High
value clients buy when the price is right. Low to moderate buyers buy when they can. Investing
in these clients now will have a direct effect on any banks bottom line in the lean times.
Another form of revenue that is generated from this model is reputational capitol. By truly
servicing all of the people and the neighborhoods that we are in, we become the bank that
really cares. The bank that is a trusted advisor in practice and not just something catchy to add
to an email signature or business card. We are a place to give help and hope; to be able to build
neighborhoods and assist in the obtaining of dreams. That is our true value.
I was taught a long time ago that “Price it what you pay and Value is what you get.” When you
generate a value that no one else in the industry can touch, then the price of that value is not
relevant. You know that the bank is out for the client’s best interest.

15. The Plan for Effective Community Partnership, New
Household Acquisition and Retention
How do we, as an industry, change our perception? How do we start to develop the kind of
trust worthy relationships that will last a life time? We do it with infrastructure change.
I have been to many meetings focused on strategies to court the high value client. Policies and
procedures are in place to give better quality service, faster turnaround time and preferential
pricing to these clients. I am in no way suggesting that should change. In fact that should be the
model for a program based on clients that have gone through a financial literacy training class.
Statistically, these clients are at much lower risk to the bank and they should be rewarded
based on that lesson that we all learned in Banking 101 “Risk vs. Reward”.
We would start off by further developing our relationships with our HUD certified financial
counseling organizations. This will be done by being as transparent as possible. We want the
educated clients that pass through their doors. We want to provide to these clients additional
education by our personal bankers that are trained in credit, budgeting, savings, mortgage
procurement and a host of additional specialties. Each organization will be assigned a team that
will work with their staff to create action plans for individuals and families. We can use the
tools that we have, like secured credit cards, second chance bank accounts, auto bill payment
and Goal Saver accounts to enhance the plan.
They will work with the counselors to educate them on bank trends and changes and coaching.
We can volunteer for class lectures and seminars on our expertise. Always staying in front of
the clients and the organization.
We would invest in their organizations from a CRA perspective. We can assist in underwriting
the classes and have a program that reimburses the client for the expense of the class. This
ranges from $25 to $65. This gives us access to hundreds of new households.

16. From a mortgage perspective, this now gives us qualified, well-educated clients with strong
credit, savings and the financial behavior to not only get into a new home, but to stay in it.
We will then identify a series of real estate agents that are familiar with low to moderate areas
and that understand different down payment assistance programs and specialty programs
designed for low to moderate income. We will supply our clients with a list of these real estate
agents to pick from, in order not to steer a buyer in one direction or another. These realtors
will in turn send clients to us to put them through our program. The relationship with the
realtor is now a give and take versus the traditional banker takes and realtor gives. We are now
doing business from a mutually beneficial perspective. Either party can review the performance
of the other and decide, if this is something that they should continue with or separate.
Based on the number of clients that are currently falling into the low to moderate FHA loan
category, a designated fulfillment team should be created. They will be tasked with working
these loans in a way that protects the bank from injurious loans and from clients in homes that
are not ready. This team should work closely with the loan officers assigned to these clients to
keep them aware of changing levels of risk tolerance and the grey area of underwriting. This
prevents last minute surprises and provides for a much better customer experience. The
fulfillment team should have a working knowledge of the local DPA programs as well as a sense
of urgency. They should be equipped to handle, USDA, VA and 203K loans all with the same
efficiency.
The last piece of the puzzle is someone that can put this all together. A venture like this
requires someone with multiple skill sets. I have been in management for more than eight of
my nineteen years in the mortgage business. For my entire career I have been a top producer.
For years I have been one of the top cross sell producers between mortgage and retail. My
entire career I have always been a top revenue generator. I am an author, lecturer and trainer.
My first publication was titled “Ethical Sales Training for a Changing Mortgage Environment”. It
was used as the sole training tool for two large regional mortgage banks and one local
mortgage broker considered to be the largest brokerage firm in the state at that time.
Most importantly, you need someone who understands the importance of LMI lending to the
bank from not just the mortgage perspective but the CRA, Retail, Regulatory (including CFPB)
and the long term bigger picture.

17. Accountable Measurability
The goal of this program is to drive revenue, increase market share and advance stockholder
positions. This is no shock to anyone in the banking world. The difference between this and
most other initiatives is the culture change that it brings to, both, the bank and the
communities that we serve.
Success will be measured in multiple ways.
Because the team that makes up this taskforce is made up of retail and mortgage professionals,
tracking the success of the efforts will be measured in new households and new products
closed.
From the retail perspective, every client should have a checking and two savings accounts as
well as a credit card and credit monitoring. We will offer checking accounts that are promoted
by our Community Development Corporation Partners.
We will also see a jump in CRA credits and lending. All activities will be logged in the
Community Service Log.
Mortgage unit production will be increased and can be measured by monthly results and
quarterly goals. Revenue tracking will be tracked monthly with the goal of increasing both units
and revenue on a monthly basis. The goal is to see a 30% increase in new households, retail
products, mortgage units and revenue within the first nine months.
This is not just about lending to low income borrowers. This is about changing
the landscape of neighborhoods. It is about bank stability and growth, now and
in the future, and it is about servicing our emerging markets.
I can help to make that happen.