|Volume 2, Issue 3, 2002||Federal Reserve Bank of Dallas|
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Foundation Communities' IDA: Five Years of Savings
As a single mother working at a downtown Austin hotel, Rufina Carbajal found it difficult to achieve her dream of owning a home. Then in 1998, as a resident of an apartment owned by Foundation Communities, Carbajal was offered the chance to open an Individual Development Account (IDA).
Foundation Communities, a nonprofit developer of multifamily housing, began the program to help low-income families living in its 11 properties save for the future. IDAs are usually opened at a local bank, with a foundation, government agency or other organization matching participants' deposits. When the account reaches a certain level, the money can be put toward one of three assets: a first home, job training or postsecondary education, or a small business. Participants must take 10 hours of classes on money management, plus another 12 hours of classes specific to their goal.
Participants in Foundation Communities' program open accounts at Compass Bank, which provides a special interest-bearing account with no service fees. A $25 minimum deposit is required to open the account. As of spring 2002, participants and matched funds totaled nearly $400,000.
"One of the greatest pleasures is seeing someone save for two to three years and be able to buy their own home," says Brian Anderson, senior vice president and manager of Compass' Commercial Banking Group in Austin. Compass Bank has contributed to the program's operating budget for the past five years.
Funds to Match IDA SavingsFoundation Communities funds the IDA matches from rental revenue and three grants it has received. Its first grant came in 1997 from the Corporation for Enterprise Development , as part of the American Dream Demonstration Project.
The second grant, funded through the Department of Health and Human Services as part of the Assets for Independence Act (AFIA), can be used to assist low-income families. In Austin, a family of four with an income of up to $36,200 would be eligible. The AFIA grant is available through September 2004 to match the savings of 150 IDA accounts.
Recently, Foundation Communities received a $50,400 grant from Providian Financial that puts participants on the fast track to home ownership through a four-to-one match. Participants must already have some savings and good credit and be in a position to purchase a home within one year. When account holders, who can earn up to 80 percent of median area income, save $420 in the IDA account, they receive $1,680 in matching funds.
The program currently has 137 account holders; more than 300 IDAs have been opened over the past four years. One of the challenges the program faces is attracting and retaining account holders.
To market the program, Foundation Communities uses fun activities such as bingo, says Communications Director Robin Bradford. "It's better than just picking up a flier." Current IDA account holders are also invited to these monthly get-togethers to help them continue to actively save. About 45 percent of Foundation Communities' IDA participants leave the program before realizing their savings goals, mainly because they move. Job loss is the second most common reason for dropping out.
"They are no longer able to save, and they might have other priorities," says Melissa Garcia, the organization's IDA director. However, participants who have been in the program for a year are allowed to continue for another year after moving to give them time to meet their savings goals. Otherwise, participants receive only the funds they've saved in their accounts.
So far, 39 participants have completed the program. Sixteen have used IDAs to purchase homes, five to start a small business and 18 for postsecondary education. One of the most important assets participants take from the program is learning a pattern of saving that remains for years to come, says Garcia.
e-Perspectives, Volume 2, Issue 3, 2002