Jim Huff wants to buy a home, and he doesn't think being a few years late paying back a student loan should stop him. After all, he couldn't very well make regular payments on the loan while he was serving a prison term for armed robbery at the Maryland Correctional Institution in Hagerstown.
Mr. Huff even wrote the bank to let them know of his predicament.
Still, they reported him delinquent to a credit bureau.
So, when Mr. Huff, who has been out of prison since 1989 and is employed by the state of Maryland as a mental health counselor, heard about the Credit History Loan Program from the non-profit Real Estate Center in Baltimore, he sought help in hurdling the barriers to homeownership.
The program, which began in August, allows people to improve or establish their credit rating, says Charles Jeffries, executive director of the center. He sees it as a way to reach out to people who didn't think they could ever own homes.
"Many people feel you have to have stainless-steel credit to buy a house," he says. "We find there are people who can buy now -- they have savings, they have employment -- the only blemish is some credit problem that is four or five years old."
Mr. Jeffries showed Mr. Huff that home mortgage companies might look suspiciously at his tarnished credit history. But there was plenty he could do to buff away the black marks.
Start a relationship with a bank by opening and maintaining checking and savings accounts, Mr. Jeffries recommended.
Make sure the delinquent student loan and added interest are paid in full. Work steadily at one job and live consistently in one place for at least a year at a time.
Then, to teach him how to take responsibility for his finances, the center gave Mr. Huff a $1,000 "loan."
No money actually changes hands, but Mr. Huff "repays" the loan by sending the center monthly vouchers as payments. If he's late mailing one of the vouchers, his credit report looks as bad as ever.
But if payment vouchers are received on time, the center will forward a favorable report to a credit information bureau, and Mr. Huff is on his way to building a good credit history.
Most of the people applying for help with the credit history programare Baltimore residents, have low to moderate incomes and are not chronic credit abusers.
Most have had trouble repaying student loans, furniture bills or hospital bills.
"These people pay their [utility] bills on time and their rent on time," he says. "Maybe someone gets sick, and they don't have health insurance, or they get into a $3,000 furniture debt. We say to them, 'Maybe this was a bad decision.' But you shouldn't be punished for seven years of your life by the credit bureaus."
Since the center introduced the credit history program, it has received 200 applications for "loans."
Mr. Jeffries has rejected about 25 percent of the applications. Some people didn't seem to have legitimate intentions. And others had income or employment histories that are simply too spotty to be eligible.
But Mr. Jeffries believes 50 percent to 60 percent of the applications are from people who could qualify to buy a home within the next few years.
The center's credit history program was patterned after a similar program offered by the University of Pennsylvania Federal Credit Union. Mr. Jeffries used the credit union as a university student to establish his own credit history.
Here's how it works: Program candidates fill out an application with specific details of their employment, income and credit histories. The center verifies all information.
If the applicant is approved for the program by a committee of advisers, the center deposits $1,000 in the client's name in a special account. The money is held there and cannot be #F withdrawn. Meanwhile, the client sends the center four monthly vouchers representing loan payments. Each voucher must be mailed within the first and fifth of each month.
After all the vouchers have been received, the center reports to Trans Union Credit Information Co. that the client has completed the Credit History Loan Program.
Enrolling in the credit history program isn't free -- clients pay an application fee of about $20. They also pay about $19 in interest on the "loan." Mr. Jeffries says the interest is passed on to investors who have bankrolled the center.
A strong credit report won't guarantee that someone will get a mortgage loan. The quality of a person's credit report and his ability to repay a loan are only two factors loan officers consider in making mortgage loans. Other factors include employment history, income and other debts.
Mr. Jeffries agrees that participating in the program does not assure homeownership.
"This won't be the item that gets [them] into a house, but it will help," he says. "It's an exercise to get people to learn the importance of good credit. The program introduces them to the banking and financial process and lets them see what they can afford in terms of a mortgage payment."