December 3, 2020
Little Rock Don’t misunderstand me, we want to believe, we really do. Several years ago, the ACORN Home Savers Campaign worked in a half-dozen cities trying to bend the crooked curve of various land contracts, rent-to-own schemes, and similar home buying or home renting products into something straight. If promises from the companies had been petunias, we would have walked around permanently with a bouquet.
We spent most of our time pressuring the largest national company in that space, Vision Property Management, into changing their business model from predatory to practical and productive. We tried model projects in places like Detroit. We negotiated with them directly, came to agreement, and kept coming back for a while to enforce the agreement. We brought families with issues forward and resolved their individual cases that didn’t match the claims in our agreements. We made a difference, but not enough. No matter how much we tried to straighten the curve, it seemed that every time we turned our back for a minute, it bent back.
The business model for Vision was not exactly a land contact or rent-to-own, but something they called a lease-purchase-option. Essentially, a family was entering into an agreement with VPM to lease, paying rent pegged at 10 to 15% below market, for up to seven years with a portion being set aside for a down payment that could be used to refinance and purchase the home after that time. Most families signed for the cheaper rent, thinking they were going to own the home in seven years. An agreement built on such a shaky foundation is not going to stand up well over time, as we learned to our frustration.
We spent a lot of time with Matthew Goldstein, a New York Times reporter, who was following that story. Recently, he seems to have found a new company, called Divvy, claiming a different twist on these models that is trying to find a place in the home market. He is somewhat skeptical, but believes the jury is still out on whether or not Divvy’s model is any different from the usual predatory scams. I’m not convinced.
Their model in a nutshell works like this:
Instead of offering clients a meager selection of rundown homes to pick from, Divvy allows them to select a property on the open market. The sale price is locked in at the start of the lease, and they can get a discount for buying early. And would-be homeowners are offered services to help them get the mortgage they’ll need, while Divvy holds on to the extra money they put aside each month for a down payment.
The biggest difference I can see from the Vision lease-purchase-option, is that a family is finding a property themselves, rather than working through the inventory of homes that VPM acquired from the foreclosure lists of Fannie Mae and Freddie Mac during the Great Recession. Otherwise, this is a carbon copy of the VPM model where the sales price is locked, the lease is three years rather than seven, there is mortgage assistance, and some money is reserved for the down payment on eventual purchase. The other big difference is that the rent is above-market, rather than below-market, but I’m not sure that’s an advantage, although it allows the Divvy to make more money, whether the house stays rented or goes to sale. That disincentive worries me a lot.
Perhaps their target population is not as lower income, but I’m not sure. They are still targeting families that can’t access typical lending markets who want to purchase homes, so I’m not sure that is a wildly different constituency, which may put them into similar properties without being able to even hold a Vision accountable at all. It also turns out that Divvy is now buying properties, as many as 200 in Cleveland, which sounds even more like the Vision model with higher monthly payments and a shorter lease term.
Goldstein quotes Frank Ford in Cleveland with the Western Reserve Land Conservancy, who has studied this market in that city for years, and we found invaluable during our campaign. Ford seems to be giving them the benefit of a doubt, so maybe I’m too much, “once burned, twice learned,” but I am just not getting a warm, friendly feeling looking at this model. Add the fact that it’s being supported heavily by a Singapore sovereign wealth fund and Silicon Valley money, and I would say to families thinking about this, “run, don’t walk” away from these deals. There are easier ways to repair credit and save for a down payment than lining the pockets of Divvy.