Tag Archives: mortgage loans

Contracts for Deed Dominate Midwest LMI Housing Purchases

New Orleans     Ann Carpenter works with the Federal Reserve Bank in Atlanta.  Her work in understanding the challenges and predation for lower income families trying to buy homes has been outstanding.  Almost exactly two years ago, the ACORN Home Savers Campaign met with her in a conference room at Georgia State University in an amazing meeting in which she shared her insights from the data research, and we shared what we had learned on the doors as organizers with the help of GSU social work students.  We have eagerly awaited seeing her full report which has now been released with co-authors Taz George of the Fed in Chicago and Liza Nelson with the Cleveland Fed.

In their report, entitled “The American Dream or Just an Illusion?  Understanding Land Contract Trends in the Midwest Pre- and Post-Crisis,” they invaluably look at the prevalence and impact of land contract sales by individual families rather than institutional investors in communities of color, low income communities, and distressed housing markets.  Accessing a huge database, they were able to focus on the years since the recession in six states:  Michigan, Ohio, Wisconsin, Minnesota, Indiana, and Iowa.

You’re not going to read their full report, but here are the highlights:

  • Land contracts are still the wild west where families without access to other credit sources have little protections. They found that Florida, Maryland and Oklahoma have protections equivalent to standard mortgages, while Texas, Illinois, and Ohio offer some level of protections after a certain percentage of the contract is fulfilled including return of down payment and repair investments in some cases.
  • Their database showed that 69% of land contracts were in these six states with Michigan holding 25%, Ohio 13%, and Wisconsin 11%.
  • They caution that though these states require recording, this data likely understates the level of land contract activity, reflecting perhaps at most only 25% of actual transactions.
  • The median level for land contract sales was $74,000 with more than 70% at less than $100,000.
  • 45% of the sales were less than half of the price of standard mortgage sales in these markets after the recession.
  • In Wayne County, containing Detroit, 49% of the contract land sales were less than $53,000 in 2005 and increased to 57% in 2016, and credit narrowed.  A report chart showed that contract sales where overwhelming compared to banks’ sales under Home Mortgage Disclosure Act (HMDA) reporting.
  • The report shows that land contract sales are dominating the market for $50,000 or below sales price homes.

You get the message.  This is bad business.  Carpenter and her co-authors were Federal Reserve careful in coming to rash conclusions, but even the most cursory reading underscores the fact that lower income families trying to access home ownership at the lower end of the market that they can afford are still being deserted by the banking and normal credit system and herded into land contract sales lacking better, cheaper, and more secure options.

 

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Process of Gutting the Community Reinvestment Act Gains Steam

Little Rock       Any time the head of the American Bankers Association says that it’s a good thing that any part of the government is looking at rewriting and revising the 1977 Community Reinvestment Act, known popularly as the CRA, it’s very bad news for lower-income and racially diverse communities.  Sad, but true, that’s exactly the reality we’re facing now.  According to Payments.com, Rob Nichols, president of the American Bankers Association, said in a statement to Reuters that, “The current framework is holding back investment in communities the law is intended to serve, while failing to account for significant innovations in the banking sector, including the opportunities presented by mobile technologies.”

If that doesn’t sound like a pile of hooey, I’m not sure does.  Mobile technologies?  Trust me on this, there is nothing in the CRA that addresses what platform might be used to facilitate equal lending without discrimination on race, ethnicity or income bias, it just says you can’t do it, and if the Federal Reserve or if any of the regulatory agencies charged with policing the CRA catch you, then there’s trouble coming.  Reading Nichols’ statement Jane Citizen would think that the law in 1977 mandated that you had to be sitting on a leather chair in a branch bank – remember there used to be lots and lots of branch banks in the 70s – but that’s not the case.  So, much for the innovations point, and I can’t imagine what the ABA thinks is holding back investments “in communities the law is intended to serve” other than more conservative restrictions many banks imposed to punish our communities after their reckless greed imploded the real estate market, coming to a head in 2008.

The CRA is more than 40 years old and bankers and their political friends in Congress have been steadily pulling its teeth throughout that period.  The supposed “burden” of CRA is having to keep the records, which they do anyway for their own internal purposes, and, worse for them, transparently reporting the data on borrowers.  Then it is reviewed and compared locally, regionally, and nationally and discrimination is more easily determined by regulators, if they are interested, and they are graded so that consumers know where they are least likely to face discrimination when they apply for a loan.  How hard is that?  The rub for the bankers is that they are supervised, and when the regulators step up and do their job, there can be penalties.  Others want special breaks for so-called community banks to allow them to discriminate more broadly, but lord knows why anyone thinks that would be a good idea?

The Office of the Comptroller of the Currency (OCC) has now put the process of rewriting or revising the CRA in motion by asking for public comment over the next 75 days.  The Federal Deposit Insurance Commission and the Federal Reserve also have critical roles in supervising banks and CRA implementation.  Some published reports indicate that there is less than total consensus between OCC, FDIC, and the Federal Reserve on this process, which, thankfully, has been slowing this gutting job to date.

Our best hope now is that if they stumble long enough and control of Congress changes, community organizations, advocates, and anyone who is committed to a more equitable America may once again prevail in saving not only the letter of the Community Reinvestment Act, but it’s spirit as well.

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