Contract for Deed as a Non-Profit Affordable Housing Tool

New Orleans   Thinking about how to open up a pool of potentially affordable housing to low-and-moderate income families, ACORN’s Home Savers Campaign has spent a lot of time visiting with people in various Midwestern cities trying to figure out a way to link abandoned housing stock in land banks with the potential for rehabilitation with families that need affordable housing.  There seems to be some appetite from certain companies and investors, and there are huge numbers of lower income families that want rent they can afford or even ownership, if they could swing the payments.  Experience with housing counseling has taught us that credit scores can be improved sufficiently to qualify for even conventional mortgages.  The problem is the gap.  The period between when the house is ready and the family is still working to get its finances and credit in shape.   The missing piece in the puzzle is the bridge.

Contract for deeds and other forms of land contracts have been the target of the ACORN Home Savers Campaign because they are little understood and often highly predatory.  Yet, we have found that nonprofit housing groups in Akron and Youngstown, Ohio, and Detroit all use various short-term land contracts to solve this problem in communities where banks are hesitant to take risks in lower income housing markets.  Theoretically, even long-time organizers in the fight against land contracts believe it is possible to devise such instruments in a constructive way, despite their existence in a grey area of few to nonexistent regulations.

Surveying the field, the answer we have found so far is that maybe such contracts might work.  In Youngstown, some housing organizers and advocates claimed that the nonprofit contracts were worse than some of the for-profit operators.  The Housing Authority says that it has lost money on its half-dozen land contracts.  In Akron, there are several nonprofits using land contracts in various forms on rehabbed houses.  In Detroit, United Community Housing Coalition uses a short-term contract for a couple of years successfully to establish a credit record for families trying to regain their foreclosed properties so that they can refinance.

A 2013 case study by the Federal Reserve Bank of Minneapolis on the use of contracts for deed as a bridge for lower income families detailed favorably the experience of the Greater Metropolitan Housing Corporation (GMHC) in the Twin Cities.  Their SHOP program which stands for Sustainable Home Ownership Program started in 2008.  Bridge to Success was the contract for deed program.  A SHOP-approved buyer would find a home and then SHOP would take possession and hold the deed for no longer than ten years, while the buyer would be able to deduct interest and taxes after making a 2% down payment on houses that average $126,000 and could not be priced any higher than $225,000. Once buyers have their credit straight they are assisted in converting to a mortgage.

Sounds good doesn’t it?  In 2013, they had financed more than 60 homes and had a goal of building a loan pool through Bridge to Success of $50 million that would give them the capacity to purchase 400 houses.  Checking now in 2018 on their website, when I hit the section for “contract for deed” under financing, it took me to a page that said the program had been discontinued.

What happened?  The theory was good.  The early experience was solid.  Was it the land purchase or something else?

Meanwhile we continue to search for the right piece to solve this puzzle.

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The Increasing and Persistent Gap between Black and White Homeownership

Detroit     The widening gap between black and white homeownership didn’t happen by accident.  There is abundant evidence and little debate that the gap was the result of historic discrimination enforced by federal policies, state laws, and local ordinances.  Even as ownership rates increased for minority homeowners over a 40-year period thanks to persistent work, legal action, and regulation of bank lending discrimination, the banking and real estate industry speculative bubble wiped out almost all of these gains through foreclosures and the credit desert that emerged after 2008.

Meanwhile the gaps in black and white homeownership are huge and little to nothing is being done to make up the distance.  A recently released report by the Urban Institute, hardly a liberal bastion as the think tank of developers and real estate interests, looked at the racial divide in the 100 largest cities in the United States.  Few cities could claim any bragging rights other than being the best of a bad bunch.  The reports authors were clear that the South and West were better than the North and Midwest, but mostly this was a race to the bottom.

The smallest gaps were Killeen, Texas at 14.5%, Fayetteville, North Carolina at 17.4%, Charleston, South Carolina at 18.1%, Austin, Texas, the largest city in the best five at 21.5%, and Augusta, Georgia at 21.7%.  The hall of shame was led by Minneapolis with an outrageous 50% gap, Albany, New York another state capital had a 48.8% gap followed closely by Buffalo, New York with a 44.5% gap, Salisbury, Maryland on the eastern shore with a 43.2% gap, and Bridgeport, Connecticut, where ACORN once ran one of our most productive housing counseling programs with a 42.3% gap now.

Looking at large metropolitan areas with the largest number of black families doesn’t make the picture any prettier:  New York City 34.6%, Chicago 35%, Atlanta 29.6%, Philadelphia 26.3%, and Washington, DC, 23%.  Looking at cities where the ACORN Home Savers Campaign has been organizing is sobering as well:  Pittsburgh 41.6%, Youngstown 41.8%, Cleveland 38.3%, Detroit 37.9%, Little Rock 33.5%, and Memphis 31.8%, along with Atlanta just below 30%.  Where we have union offices Dallas is at 31.9%, Houston 29.9%, New Orleans 27.2%, Baton Rouge 30.1%, and Shreveport 31.2%.  It feels no better to know that Milwaukee is at 40.7%, St. Louis 35.1%, Charlotte at 32.9%, Boston 32.4%, Phoenix 40.6% and Tampa-St. Pete at 32.5%.  The report says western cities are better, but Los Angeles is the best with a 23.4% gap, San Francisco 29.8%, San Diego 28.9%, Las Vegas 30.8%, Denver 31.5%, Sacramento 33.9%, Portland 34.4% and Seattle 37.2%.  You won’t drive into any city and find a sign celebrating this gap.  Whether blue or red, the gaps are significant everywhere, and they are barriers to equality and obstacles to a flourishing democracy.

Did the 2008 financial crisis make a difference.  Heck, yes.  The Urban League report says the following, noting that Atlanta

“…has seen declining homeownership among black households, with a 6 percent drop since 2005 and a rate that now stands at 44.8 percent, down nearly 10 percent from the 2007 peak.  Atlanta previously saw significant gains in black homeownership, reaching almost 55 percent in 2008. But the region was hit hard during the 2008 housing crisis, and market dynamics have made it difficult for black households to regain a foothold as owners.”

The New York Times in an editorial mentions that all of this has also opened up the door for predatory land contracts to surge which is what the ACORN Home Savers Campaign is all about, but noticing the obvious is not a program.  Sadly, the current administration and little of anyone else in government, real estate, or banking has much to offer as a solution to discrimination this profound and persistent.

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