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Responsible Lease-Purchase: A Review of the Practice and Research Literature on Nonprofit Programs

Since the advent of the U.S. mortgage crisis, access to homeownership financing has become more difficult, particularly for many low- and moderate-income households. While there will clearly be a need for quality affordable rental housing, there remain reasons to provide avenues for first-time homeownership, or for a pathway to return to homeownership, for many families. Moreover, for many neighborhoods with large stocks of detached, single-family homes, conventional long-term rental strategies may prove insufficient, and many communities are likely to want to maintain a substantial level of homeownership in the long turn.One approach that has received renewed levels of attention is lease-purchase housing. Unfortunately, in the private market, lease-purchase housing has a checkered history of households being taken advantage of by unscrupulous sellers, with often high rates of failure and lost investments on the part of the lease-purchasers. And recently, lease-purchase schemes have been employed in some foreclosure rescue scams. In most states there is little regulation of lease-purchase contracts. While there is a need for more regulation, a complementary strategy is to support responsible lease-purchase housing via nonprofits that are careful to treat lease-purchasers fairly.This paper is a brief, limited review of the research and practice literature on nonprofit lease-purchase programs in the U.S. The goal is to describe the model and its various applications, successes, and challenges. It does so by first providing some recent history and explaining the basic program structure. Next, some key factors likely to affect program success are discussed. The financial and regulatory framework within which these programs function is also outlined. Finally, three programs are described as models of design and implementation: the Cleveland Housing Network’s (CHN) Lease-Purchase Program, Self-Help’s mortgage product and pilot project, and the Community Resources and Housing Development Corporation's (CRHDC) Lease-Earn-Own Program. A search of library databases and the World Wide Web provided the primary basis for this paper. Some larger, more established programs are naturally the subject of a good deal of the existing material, while documentation of the many smaller, shorter-lived programs is much less prevalent. This paper should not be construed at all as exhaustive or representative, but it may offer some insight into the design and mechanics of responsible lease-purchase programs.