Posted by:
Steve Dubb
Community wealth approaches keep people in homes
In recent months, it has become popular among some to blame the Community Reinvestment Act, a piece of legislation passed in 1977 to create an affirmative obligation by banks to make loans available to people in low-income and minority communities and end red-lining, for causing the subprime crisis. For a recent example, see this article by Charles Krauthammer.
Yet there are a number of problems with this claim. As an October 2, 2008 Dear Colleague letter from Congressman Barney Frank, Congresswoman Maxine Waters, and Congressman Watt points out, 2006 federal housing data show that 84.3 percent of all subprime loans in the 15 largest metropolitan areas were made by lenders not covered by CRA [CRA only regulates banks, not other lenders]. Also, in 2005, the Federal Reserve found that 34.3 percent of home purchase loans issued by non-CRA-covered mortgage companies were subprime loans, while the number for CRA-covered institutions was just 5.1 percent.
As Daniel Gross notes in Newsweek, not only is the claim that CRA caused the subprime crisis completely contradicted by the facts, but it ignores decades of evidence, which show that “lending money to poor people and minorities isn’t inherently risky. There’s plenty of evidence that in fact it’s not that risky at all. That’s what we’ve learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as The New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York’s outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project’s 3,900 homes. That’s a rate of 0.25 percent.”
Here are a couple more illustrations of the principle that community wealth building approaches can help actually avoid foreclosure:
The asset building movement advocacy group CFED reports on this site that a survey of 18 individual development account programs in 11 states found a total of only three defaults and four foreclosures out of 1,212 home purchasing households. Most IDA account-holders, CFED notes, come from households with incomes of less than $40,000. Nearly 50% are African American and nearly 20% are Latino.
The community land trust model has also shown itself to be remarkably resilient through the foreclosure crisis. A survey by the National Community Land Trust Network found a foreclosure rate of 0.06% in 2007—1/30th of the national rate.