Take the case of a cab driver in Mexico who applies for a home loan.
“A cab driver is reluctant to tell you his income for tax reasons, and he doesn’t have receipts to show you how much he earns in a day,” says Mark D. Zaltzman, chief financial officer of Hipotecaria Su Casita, a Mexican financial institution that specializes in financing low-cost housing. “The only way you can determine the cab driver’s income is to ride with him in the cab all day, and that is what an examiner will do. Before you can extend a loan you have to have the right information.”
Zaltzman says collections by his organization, which is growing in assets and is one of the largest providers of mortgage financing in Mexico, are typically accomplished through regular home visits. While low-income households generally have good repayment records, a family upheaval, such as a sudden large medical expense, can present extenuating circumstances.
“If it comes to paying for medicine or paying for a mortgage, you know what will get paid first,” says Zaltzman. “If a mortgage bank serving low income families is too aggressive in collections, in the long run it can lose the revenue from the mortgage loan. It pays to have a balanced approach,” he says.
Zaltzman was one of three panelists at the recent IDB conference on Building Opportunity for the Majority who addressed the issue of providing housing solutions for low-income families.
Also speaking on the panel, moderated by Dow Jones journalist Eduardo Kaplan, were Juan Pedro Pinochet Becerra, general manager of the Chilean nongovernmental organization Un Techo para mi País, and Eloísa Ulibarri, executive director of the Costa Rican NGO Fundación Promotora de Vivienda (FUPROVI). Both emphasized the need for participation and empowerment of the beneficiaries in creating opportunities to improve low-income housing, such as campaigns to provide squatters with legal titles to property and microloans for gradual home improvement.
Pinochet Becerra and Ulibarri both said that providing poor families with training and technical assistance, as well as credit, was important to enable them to learn about existing opportunities to finance improvements for their home, such as government subsidies and sources of funding from public-private partnerships. Ulibarri commented that laws and regulations needed to be modernized to encourage investments to upgrade low-cost housing.
Pinochet Becerra said it was important to equip low-income settlements with central meeting halls to enable residents to exchange information and assume leadership in improving their communities. “Maintaining the social network is the key to eradicating poverty,” he said. He said housing solutions for those living in low-income, squatter communities should be undertaken with investments in education and health with the goal of enabling residents to graduate to a better quality of life.