SMHA was one of seven rural organizations chosen by national intermediary partner Rural LISC to pilot the Rural Home Loan Partnership as a new way of bringing for-profit lenders, government, and the not-for-profit sector together to make homeownership possible for low-income families. As part of the Louisiana Rural Home Loan Partnership, SMHA and its lending arm, Southern Mutual Financial Services (a CDFI), partnered with banks across Louisiana, including IBERIABANK, MidSouth Bank, and Teche Federal Bank, the Federal Home Loan Bank of Dallas, and USDA Rural Housing Service.
SMHA and SMFS attracted bank partners to make first mortgage capital available to low-income families (with the Rural Housing Service 502 leveraged loan program providing the larger subordinated mortgage), and the Federal Home Loan Bank of Dallas provided down-payment and closing cost assistance to the homeowner family. Participating banks also invested in SMHA and SMFS through a mix of grants and matching capital. SMFS and SMHA provided counseling services and helped prepare families for the responsibilities of homeownership, reducing the risk of delinquency and default and adding value to the loans made by banks and Rural Housing Service. As USDA Rural Housing Service wound down its leveraged loan program, SMFS transitioned to providing subordinate capital itself and ultimately to providing first mortgage capital to families that traditional lenders could not reach.
The success of SMHA’s partnership with banks led to a $100 million commitment by IBERIABANK to buy SMFS’ mortgage loans, using SMFS’ loan policies, at par with no recourse. Through this relationship, SMFS was able to revolve its capital to make mortgage financing available to hundreds of low-to- moderate wealth families. At the same time, IBERIABANK earned revenue on the loan portfolio and earned community reinvestment credit that, among other benefits, facilitates mergers/acquisitions and reduces the cost of the Bank’s capital.
As IBERIABANK expanded its corporate footprint beyond Louisiana, it scaled the model developed with SMHA to work with strong, not-for-profit lending partners across the six states it now serves.
For over a decade SMFS filled a critical gap in the affordable capital market, offering a product that met the needs of low- to moderate-wealth borrowers. Our success and that of other not-for-profit and/or CDFI lenders across the country helped transform how banks perceive low-wealth families. This transformation has resulted in traditional banks no longer considering lending to low-income borrowers as “too risky” – they are now offering loan products with very similar underwriting criteria and terms to SMFS product and helping to close the affordable mortgage capital gap. In turn, this has freed SMFS to seek other arenas where the financial products available to not meet the needs of a market segment. Recently, SMHA and SMFS have transitioned resources and focus on developing the Gulf Coast Fisher Loan Fund.