As analysts probe the causes of the subprime foreclosure debacle, a couple of things seem clear about the solutions. First, few people will be helped by the current crop of forbearance plans, especially those being advanced by the Bush administration and the lending community. And second, we can’t counsel our way out of this mess.
John Atlas and Peter Dreier make the case that greed and deregulation coalesced to create the mortgage crisis. They advocate a response that includes allowing bankruptcy judges to modify mortgage terms (currently primary residences are excluded), holding Wall Street and other investors liable for the illegal practices of mortgage brokers and lenders, and strengthening nonprofit lenders such as the NeighborWorks America local affiliates.
But there’s another dimension to the problem that requires any effective response to have a strong grass-roots component: neighborhood impact. It’s already clear that urban neighborhoods are starting to choke on a glut of troubled properties that will contribute to their destabilization. A meaningful local response means taking control of these properties.
That’s why the Center for American Progress and Enterprise Community Partners have proposed The Great American Dream Neighborhood Stabilization (GARDNS) Fund to provide money quickly and efficiently to local nonprofit organizations or municipalities to buy foreclosed properties and sell them to qualified low- and moderate-income families on affordable terms.
Funding for the GARDNS proposal would come from a new appropriation of $10 billion in federal HOME Investment Partnerships and/or Community Development Block Grant funds that will be used first to acquire properties, with some of the funding staying in the resale transaction as subsidy to guarantee affordability.
The National Housing Institute and Shelterforce strongly support the GARDNS proposal because it recognizes and addresses the significant community impact of the current crisis and because it calls for a substantial and flexible federal funding commitment. Moreover, it relies on the nationwide network of community-based nonprofit organizations that is best positioned to use that funding in crafting a local response.
John Taylor makes the case for earlier action, before borrowers are foreclosed out. His proposal, HELP Now, calls for federal government intervention to purchase at discount large numbers of loans held in securitized pools, allowing some homeowners to restructure debt.
Some question whether community development corporations (CDCs) are up to the task of responding decisively to this crisis. Michael McQuarrie argues that prevailing CDC practices leave them ill-equipped to address emerging conditions. He says CDCs are hooked on housing production and over-reliant on a rising market, leading practitioners to see the current calamity as a brief setback and a chance to acquire developable land. To McQuarrie, such thinking is a trap; he warns that CDCs had better re-imagine approaches to their work if they hope to be of any help — and to weather the storm themselves.
As someone who heads a local CDC (HANDS, Inc. works in Orange and East Orange, N.J., bordering Newark), I appreciate the need to intervene early on behalf of neighborhoods where troubled properties are located. For years, CDCs, local governments, and community organizations struggled to stabilize these areas. Now, their hard-won progress is threatened. Time is our enemy when it comes to troubled properties, and if we don’t respond decisively, our communities will be grievously harmed. If we sit by, then we don’t deserve to be in the community-development business.
HANDS is now negotiating the purchase of more than 40 mortgages. We plan to take control of these properties and to find solutions that work for the occupants and for the neighborhood. We have engaged fellow CDCs in an effort that we see as a dress rehearsal for the much larger wave of foreclosures to come.
In Newark and the rest of Essex County, a foreclosure task force is gearing up to establish a public benefit corporation that plans to purchase hundreds of mortgages and take control of those properties, working out practical solutions for the borrowers and for the neighborhoods.
The GARDNS proposal will be essential to this and other local efforts.