IDAs have helped some avoid foreclosure, says study

Monday, May 10, 2010

From CUNA

WASHINGTON (5/10/10)--Individual development accounts (IDAs) have helped some consumers avoid foreclosure, according to a joint study released in April and sponsored by the Corporation for Enterprise Development and the Urban Institute, with support from NeighborhoodWorks America and the Ford Foundation.

"Weathering the Storm: Have IDAs helped low-income homebuyers avoid foreclosure" tracked more than 800 homebuyers in 17 states who used IDAs to purchase homes between 1999 and 2007. When compared with other homebuyers purchasing homes in the same communities over the same period, IDA homebuyers generally obtained preferable mortgage loan terms and were two to three times less likely to have lost their homes to foreclosure.

While 32% of the homebuyers in the study were white, 40% black, and 20% Hispanic, three-quarters of the participants were women.

Only 3.1% (25 out of 803) entered foreclosure by April of 2009, less than one-half to one-third of the foreclosure rates among other low- and moderate-income homebuyers, the study says.

The study adds that IDA participation may reduce foreclosures by improving the loan terms obtained by IDA homebuyers, may improve understanding about the commitment because of an IDA educational requirement, and may provide homebuyers with more time to repair their credit histories or build their savings.

Credit Union National Association center for personal finance (CPF) editors explain that an IDA is a matched savings account that enables low-income American families to save, build assets and enter the financial mainstream. "IDAs supplement the savings of low-income households with matching funds drawn from a variety of private and public sources. Participants' savings are usually matched at a 1:3 or 1:2 rate," says CPF Vice President Jim Hanson.

Individual and matching deposits are never co-mingled; matching dollars are kept in a separate, parallel account. When the IDA accountholder has accumulated enough savings and matching funds to purchase the asset (usually over two to four years) and has completed a required financial education course, payments from the IDA are made directly to the asset provider to complete the asset purchase.

Since Congress passed the Assets for Independence Act in 1998, more than 6,000 individuals have used IDA funds to help finance a home. And beyond mortgages, more than 50,000 people have participated in more than 500 IDA programs nationwide.