The American Recovery and Reinvestment Act has aroused our lethargic economy, but has it addressed the core issues that created this economic crisis? The fear created by unprecedented conditions (record level foreclosure rates, declining home values, and limited capital available in the financial markets) has driven the stimulus agenda. This funding has helped to lessen the general unease and fear that another Great Depression is upon us, but the real work of structural change is still before us. In this environment, it is imperative that we stabilize the markets, but the risk of similar cycles in the future is ever present unless the root causes are addressed.
An unprecedented number of foreclosures have been a central issue to our current economic woes. As of Dec. 31, 2008, the Mortgage Bankers Association reported a 3.3 percent foreclosure rate, and if the foreclosure rate is our measure of performance, then we should look to models of success for some answers. The foreclosure rate among Community Land Trust (CLT) homeowners as reported by the National CLT Network was half a percent — six times lower than the rate reported by the Mortgage Bankers Association.
What attributes of this model account for this performance? How have these principles been incorporated into the current policies, and if not, how can we incorporate them?
Community land trusts hold the land under a house in trust and sell the home atop the land. CLTs develop and manage these resources with the community, helping to assure that the homes are affordable in the present and in the future. There are two significant principles that CLTs implement that help to create this success.
First, there is a clear accountability to the community. Members of the community are incorporated into the governance of the organization. Community members help to guide the program with a focus not only on how the resource will benefit residents today, but also tomorrow. Homes are typically priced at least 25 percent below the market. This provides for affordability in the future and insulates the homeowner from dramatic shifts in the market. The Neighborhood Stabilization Program (NSP) legislation permits this type of program, but the timing and deployment limited the use of these funds by many existing CLTs. Some cites, like Oakland, and counties like Broward County in Georgia are establishing CLTs while Duluth, Minnesota, and Delaware are channeling NSP funds to existing CLTs.
The commitment to stewardship has a far-reaching impact. CLTs help buyers and support residents throughout their tenure as homeowners. When lenders offered variable rate mortgages, the CLT is there to educate the homeowners. When the residents are having financial trouble, the CLT can support solutions that help both the resident as well as the neighborhood. There has been significant funding for foreclosure counseling, but none for stewardship.
Questionable lending and investment practices played a significant role in crippling our economy, and the Obama administration has made a commitment to provide more oversight of mortgage lenders. While this may address one of the root issues, it is still unclear if there will be any significant changes that will address another root cause of the financial collapse — investment banking firms packaging and trading mortgage-backed securities with the knowledge that they are poor investments. Nonetheless we shored up the banks with billions of dollars of public funding. How can the financial community be held accountable for more than just profit? Can the Community Reinvestment Act be re-enforced to hold the finance community more accountable? With our communities suffering from a lack of access to capital, how can we work with our lenders to provide more access to quality loans?
The billions of dollars appropriated to purchase and rehab foreclosed homes are helping in some housing markets, but it might be too soon to tell if this funding has stabilized the housing markets. The U.S. Department of Housing and Urban Development has been able to distribute the funds with a focus on purchasing and rehabbing homes, and little attention to how these funds will best serve the communities in the long run. Some NSP recipients are addressing the root issue and using these funds to work with, or start CLTs. Given the focus on investing stimulus dollars as soon as possible, we’re likely to see a lot of one-time investments and little support for long-term stewardship. How can we develop long-term community assets?
We need to move beyond the current homeownership funding mechanisms and build quality, long-term assets for our communities and we need to understand the effects of the stimulus funding. But more important, we need to reflect on what we bring to the table, how we shift the paradigm, and how we can work together to help make the root changes.