A Lot More
Observations on housing's wreckage and recovery
I’ve been laying light on the blogging lately while working on a new book proposal, but this op ed in today’s New York Times by NYU social sciences dean Dalton Conley deserves an addendum. Conley advocates for a renewed commitment to homeownership for low-income people, at a moment when it’s become all to easy to stampede in the other direction. As an example of how low-income homeownership can be done right, he points to a 1990s program launched by the North Carolina group Self-Help with investment funds from the Ford Foundation, which as Conley notes demonstrated that destructive subprime lending wasn’t the only way to get near-penniless buyers into homeownership.
But what Conley leaves out is what happened next. Researchers at the University of North Carolina’s Center for Community Capitalism have been following Self-Help’s borrowers to see how they’ve fared, and while Self-Help’s loans have indeed performed well and seen relatively few foreclosures, a significant minority of Self-Help borrowers ended up refinancing with other mortgages, often to get cash back out of home equity, or took out home equity loans or second mortgages. This otherwise successful program was sabotaged by a very rotten home lending market that in these low-income buyers saw a profitable opportunity for selling high-cost debt. Self-Help founder Martin Eakes went on to establish the Center for Responsible Lending and has said that he did so because he was tired of seeing the homebuyers Self-Help was helping go on to get stung with subprime loans.
So while I’d like to agree with Conley, this remains an uncertain time to be thrusting economically vulnerable people into a financial services market that hasn’t shown them much love. A strong Consumer Financial Protection Agency might make all the difference – that’s the horse that needs to come before Conley’s cart.