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.