NCRC member organizations pursue a range of missions that fit broadly under the umbrella of promoting economic equity for all Americans. The research team at NCRC supports those members in many ways, including providing assistance in quantifying the impact of our members’ efforts in their communities.
One Houston, TX-based community development financial institution (CDFI) offers a strong example. Covenant Community Capital (CCC) provides mortgage lending opportunities that help facilitate the purchase of affordable housing and wealth building for low- and moderate-income (LMI) households in their area.
CCC amplifies its reach through its partnership with NCRC. NCRC assisted the Houston-based nonprofit with measuring their impact and reviewing each of their partner lenders to ensure optimal service to their clients. By providing data analysis and strategic support, NCRC helps organizations like CCC measure impact, produce research of their own to further their efforts and helps them establish additional partnership opportunities.
The nonprofit has been equipping families with the tools they need for financial stability and homeownership for the past 25 years. Their flagship program, the Individual Development Account (IDA) initiative, encourages families to save towards significant financial goals, such as buying a home, investing in post-secondary educational opportunities or building a savings account.
The organization offers free financial education classes that cover budgeting, credit management and understanding mortgage terms and processes. For many participants, this is the first time they have received any formal financial education – a key part of any family’s ability to achieve true economic mobility. CCC also provides financial incentives through the IDA program by matching client savings up to $5,000 towards down payment funds. In 2023, they helped 65 families purchase their first homes through the IDA program.
A recent NCRC analysis comparing CCC clients with a broader sample from the Home Mortgage Disclosure Act (HMDA) database provides more detailed insights into the effectiveness of CCC’s approach. The HMDA sample included a cross-section of Harris County homebuyers with similar incomes to CCC clients.
The organization’s clients often incur higher upfront costs when securing a mortgage. On average, they paid $10,520 in closing costs, more than double the $4,871 paid by the broader sample. Origination charges for CCC clients averaged $2,374, compared to $1,498 for the general sample. Their clients paid $1,156 – more than double the average spend of the broader sample – on “discount points,” where a borrower pays more upfront for a lower interest rate over time.
Despite these higher expenses initially, CCC clients managed to secure larger loan amounts. The average loan amount for a CCC client was $180,912, significantly higher than the $152,911 average loan amount observed in the broader sample.
The average income for a CCC client was $38,209, compared to $42,027 for those in the broader sample. This suggests that the support systems they provided effectively helped their clients improve their credit eligibility, allowing them to qualify for larger loans. With better credit scores often securing lower interest rates, these borrowers could potentially afford more expensive homes without significantly higher monthly payments or, in some cases, even with the same payment. This accelerated their equity building since a larger portion of each payment goes toward principal rather than interest, giving lower-income families access to better wealth-building opportunities despite having less monthly income than their peers.
Perhaps the most striking finding was related to the interest rates. The rate spread (the difference between the interest rate secured by a borrower and the average rate for that day) was -4 basis points for CCC clients, compared to 73 basis points for the broader sample. This means that CCC clients often secured better-than-average interest rates, significantly reducing their long-term borrowing costs and enhancing their financial stability.
The impact of these favorable loan terms on long-term wealth building are substantial. For example, consider a typical borrower, John, and a CCC client, Maria. Both take out a $100,000 mortgage, but CCC secures more assistance and support for Maria. Over 30 years, Maria saves approximately $17,119 compared to John due to the more favorable terms. After ten years, Maria has built $57,192 in equity (substantially more than John’s $43,257), primarily because her lower interest rate allows for a faster principal repayment.
By securing better loan terms and providing crucial upfront financial assistance, Covenant Community Capital not only facilitates home purchases, but also promotes greater equity accumulation for aspiring homebuyers traditionally boxed out of the market. This approach is essential for closing the racial wealth gap and enhancing long-term financial stability for low- and moderate-income families.
Organizations across the country would benefit from adopting Covenant Community Capital's approach to community development. Their success demonstrates how integrated financial education, affordable housing development and strategic partnerships create lasting economic opportunity for historically underserved communities.
Jason Richardson is the Sr. Director of Research for NCRC's Research team.
Joseph Dean is the Jr. Racial Economic Research Specialist with NCRC’s Research team.
Photo courtesy of Covenant Community Capital.
