|Volume 7, Issue 2, 2007||Federal Reserve Bank of Dallas|
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IDA Program Rebuilding Lives in Louisiana
Louisiana legislators recently approved $2 million in funding for a statewide individual development account program aimed at getting low-income hurricane victims back on their feet.
In 2006, the State Department of Social Services selected Southern University in Baton Rouge as administrator of the Louisiana Asset Building Initiative. Southern's Center for Social Research is now working with 25 community-based providers that coordinate financial education, intake, enrollment, case management and other client services.
Southern staff members travel to all 64 parishes to provide case-management training and support to these IDA providers. A list of providers is available at www.subr.edu/socialresearch/IDA/partners.htm .
Janice Simmons represents one of the providers, the Greater North Louisiana Community Development Corporation (CDC) in Jonesboro, La. The CDC is a HUD-certified provider of homebuyer education that also offers financial literacy training and other services for at-risk youth. The CDC is undertaking its first housing development using federal low-income housing tax credits.
According to Simmons, becoming a participant provider was a natural fit because the biggest obstacle to homeownership her clients face is being able to save for the down payment and closing costs. "Especially in a rural area like ours, so many people are forced to live paycheck to paycheck," she said. "Wages just haven't kept up with the rising cost of the basics like food, car insurance, gasoline and rent."
The Louisiana IDA program provides a 4-to-1 match for a minimum of $500 to a maximum of $1,000 in participant savings. The purpose of the savings is limited to homeownership, a legislative priority since the 2005 hurricane disasters.
Each participant must successfully complete 10 hours of financial education training, plus four hours of homeownership education. Participants are able to choose their mortgage lender; however, there are some restrictions as to the type of mortgage. A fixed-rate mortgage is required, and 80–20, or piggyback, mortgages are not allowed. Counselors encourage participants to improve their credit scores with the goal of qualifying for a market-rate loan (no client is allowed to obtain a mortgage that is greater than 2 percent over prime).
Southern has compiled a roster of financial institutions that have agreed to provide no-fee savings accounts for this program. Additional participation and support from banks and credit unions is needed to manage the accounts and help with financial education since many participants have not had savings accounts before entering the program.
Tracie Jackson and her children lost their home in the Hurricane Katrina disaster. Jackson was motivated by the opportunity to participate in the IDA program, and that motivation helped her build her savings. She recently completed the program and purchased a home in Baton Rouge. "It takes years to get everything you have," she said, "but it's harder to get it back when you lose it. I was tired of pretending everything was OK for my kids, but now it is."
Jackson's recovery and other success stories from the Louisiana IDA program can be found at www.subr.edu/socialresearch/IDA/index.htm .
For more information, contact Dr. Alma Thornton at (225) 771-4249 or Mary Joseph at (225) 771-5454 at the Center for Social Research.
e-Perspectives, Volume 7, Issue 2, 2007