New paradigm for a new millennium

Kara Hay, President & CEO
Dana Ward, Loan Officer, MainStream Finance

Challenge: Habitit for Humanity of Waldo County, Maine, wanted to help a low-income couple obtain safe, stable housing, but local banks couldn’t offer an affordable option.



Waldo County, Maine, is home to about 39,000 people, with its claim to fame being its appearance in Nathaniel Hawthorne's classic novel “The House of the Seven Gables.” Penquis is one of nearly 1100 community action agencies across the United States and one of 10 in Maine. Community action agencies were established under the Economic Opportunity Act of 1964 to fight America’s War on Poverty.

We see the promise of community action this way: Community action changes people’s lives, embodies the spirit of hope, improves communities and makes America a better place to live. We care about the entire community, and we are dedicated to helping people help themselves and each other.

In that spirit, Penquis formed MainStream Finance to serve as a community development financial institution. We offer educational and financial services to support homebuyers as well as residents who desire to start or grow a small business.

It made sense, then, for the county’s Habitat for Humanity to come to us when it wanted to help a low-income couple build their first home. It had approached the local bank, but that institution didn’t have a loan product that was appropriate and affordable, and instead recommended us. We were intrigued Habitat approached us with a proposal: a financing mechanism called a zero equivalent mortgage, or ZEM.

This is the way a ZEM works: Rather than Habitat for Humanity lending the full amount of the loan to a borrower with no interest, a financial or community development institution lends just a portion of the building’s appraised value at the prevailing interest rate, and Habitat holds a soft second mortgage on the difference. This allows Habitat to build more homes.  

The proposal to partner with Habitat for Humanity on a ZEM was exciting to us because it matched our mission of serving lower-income residents. MaineStream Finance is a wholly owned subsidiary of Penquis, and a nonprofit community development financial institution. Our mission is two-fold:

1. Serve low- to moderate-income residents with housing-related loans.
2. Provide technical assistance and commercial loans to startup and existing businesses, with a goal of increasing employment.

However, because ZEM is a relatively complex product, and the couple had limited credit, we were forced to think outside the box. Instead, we relied don an alternative form of credit: rental payments the couple had made for the last few years. We successfully made the case to our loan committee that the pair had established enough history through their rent payments to qualify for the ZEM arrangement, including the tax and insurance escrow requirements.

MaineStream Finance closed the ZEM in October 2015, three days before World Habitat Day. On that special day for Habitat organizations around the world, we attended an open house and ribbon cutting at the couple’s new home.

Our partnership helped a deserving family secure a safe, energy-efficient home and enabled the local Habitat for Humanity organization to create additional housing opportunities for families in need. We encourage other nonprofit lenders across the country to consider partnering with Habitat for Humanity on zero equivalent mortgages to further help lower-income clients who seek to buy a home.

We offer two lessons we learned that others should consider: First, when presented with a challenging request, be careful not to quickly dismiss it as being too difficult to achieve. Many obstacles can be overcome. Persist until either you can't possibly go any further or until a breakthrough is experienced.

Secondly, do not assume that just because a bank couldn't make a request work, it won’t make sense for your organization. Yes, it may present challenges and require more time than usual, but at the end of the day, if you are able to help people in the communities you serve, then you have achieved your mission.