Local Initiatives releases study
By MortgageDaily.com staff
4/18/2005

Nonprofit mortgage brokers represent an opportunity for wholesale lenders, according to a new study, but such entities cannot operate under the same business model as a for profit broker.

Local Initiatives Support Corp. announced it published the study, which examined the role and opportunity for nonprofit mortgage brokers.

The question arises because brokers provide two of every three mortgages and the role of nonprofits has been "integral to extending the past quarter century's revolution in mortgage finance to underserved populations and communities," according to Local Initiatives, a national nonprofit supporter and funder of community economic development initiatives.

Prior research has suggested that nonprofits enhance the mortgage market's performance by delivering lower priced and lower downpayment programs to underserved, low income areas.

The new Nonprofit Mortgage Brokers: Small Step or Large Leap? study analyzed how nonprofits could leverage such advantages and better develop their role as a partner to lenders. It was concluded that nonprofits have "ample opportunity to develop more sophisticated business models more integrated with the mortgage market that could attract more sustainable revenues."

The study identified 34 nonprofit mortgage brokerages nationwide, who reported processing and delivering 5,052 loans, representing a value of over $209.6 million. The median nonprofit broker closed 64 loans worth $6.3 million -- with approximately 77 percent ending up with banks.

"This private-sector placement of loans is promising, suggesting that nonprofits in fact can be a potentially valuable channel for some lenders," Local Initiatives said.

The survey results reportedly showed that the average nonprofit mortgage broker devoted three employees and spent approximately $150,000 per year on lending activity. Also, that four-fifths of the borrowers served by nonprofit brokers are minority households, and more than half of the borrowers are low income, the announcement said.

While the analysis suggests that nonprofit brokers may be able to develop and sustain current lines of business, it outlines a series of challenges faced by nonprofits considering to convert, which involve market knowledge, organizational culture, and scale of operation.

One lesson that emerged from the research, according to Local Initiatives, is that the mortgage broker model practiced by the private sector is not appropriate for the vast majority of nonprofits.

A second lesson is that nonprofits can --and should-- revise their existing work to emphasize their value to, and interface more effectively with mortgage industry players.

A third lesson is that the nonprofit community could build on their productive capacity to develop hybrid business models that combine the strengths of traditional nonprofit counselors with the entrepreneurial drive of nonprofit brokers, according to the announcement.

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