Posted by:
Steve Dubb
Crisis spawns innovation
As a recent article written by Rick Cohen in the Nonprofit Quarterly notes, “In the subprime mortgage foreclosure fiasco, nonprofit organizations have stood out as relative successes compared to their counterparts in the for-profit financial sector and among federal government agencies.”
On the front end, they avoided risky adjustable-rate mortgages and emphasized homeowner education and counseling: as this blog, citing a study of property owners counseled by the national nonprofit NeighborWorks America noted before, the result has been dramatically lower default and foreclosure rates.
Now, community wealth groups are also taking on the mess that others have created. As Cohen notes, “Nonprofit housing developers are in the forefront of crafting solutions to the subprime mortgage foreclosure problem.”
Some highlights of the efforts on the ground:
Helping Homeowners Facing Foreclosure
• NeighborWorks America designed a system for distributing $180 million to expand the capacity of existing housing counseling agencies that were willing to help homeowners try to restructure their mortgages and stave off foreclosures. In February, NeighborWork’s Mitigation Counseling Program disbursed $130 million in grants to 130 organizations throughout the country.
• The Neighborhood Assistance Corporation of America (NACA) has raised $1 billion, with which, according to a recent Washington Post article, it expects to be able to refinance the mortgages of 7,000 families (and provide financial education) for families facing subprime-induced foreclosures.
• In Cleveland, the East Side Organizing Project, through community organizing, has gotten lenders and loan servicers to agree to sign fair lending agreements, which indicate the lenders’ willingness to work with the community group to modify lending terms for borrowers who complete the group’s homeownership counseling courses. The group claims an 85% success rate for stopping the foreclosure process and obtaining affordable loan modifications for homeowners. Over 1,600 homeowners have benefited from these efforts.
Returning Vacant Property to Productive Use
In Essex County in New Jersey, a nonprofit developer called HANDS (Housing and Neighborhood Development Services) has entered into a memorandum of agreement with a lender to purchase 50 mortgages and will manage the properties, service the loans and rehabilitate the properties where necessary to put them back into productive use.
Policy
As Cohen wisely cautions, despite innovative actions by community wealth builders, “Nonprofits are not going to solve the subprime mortgage crisis on their own.” But they have contributed to many policy proposals. It would be impossible to cover every proposal here. But to over-generalize, they emphasize one of two areas: a) refinancing existing properties to protect existing homeowners and convert high-cost loans into affordable fixed-rate loans or b) proposals to create funds to buy up already-foreclosed properties and re-convert them into productive use as affordable housing (and thus avoid the many negative effects of leaving the vacant lots remain idle).
Regarding the former, a primary example is a proposal by the National Community Reinvestment Coalition. Called the Homeowners’ Emergency Loan Program or “HELP Now,” the NCRC proposal involves government purchases of existing subprime loans at discount and conversion of those loans into fixed-rate mortgages; NCRC’s proposal has earned the endorsement of Mark Zandi of Moodys.com. Another effort, led by the Center for Responsible Lending, has sought to ease bankruptcy law provisions to afford homeowners greater legal protections and thus improve their negotiating leverage vis a vis subprime lenders in order to modify their loans.
Regarding the latter, there are a number of efforts. A few highlights:
• At a policy conference held by National Alliance of Community Economic Development Associations, Rep. Maxine Waters (D-CA) announced two foreclosure mitigation bills, including one that would provide a one-time $10-billion Community Development Block Grant allocation that could be accessed by community development corporations (CDCs) and other community wealth builders.
• The Center for American Progress in partnership with Enterprise Community Partners has proposed the Great American Dream Neighborhood Stabilization (GARDNS) fund, that similar to the Waters’ bill would set aside $10 billion for land acquisition, with an emphasis on ensuring that permanently affordable housing be established on the repurchased land, through such means as ownership by a community land trust.
• In New Jersey, HANDS is proposing the creation of a Community Asset Preservation Corporation (CAPC) as either a nonprofit corporation or a public benefit corporation to negotiate with lenders and servicers of subprime loan pools to buy the pools’ entire portfolio in heavily affected neighborhoods at a substantial discount below face value. The group estimates that to acquire 1,000 to 1,500 properties, the amount of initial capital needed for this purpose would be between $100 and $200 million. Details are available in a April 15th press release issued by the National Alliance of Community Economic Development Associations (NACEDA), which is available for download in the “latest news” section of the home page.