Washington, D.C. — As 2008 draws to a close with more than 2 million families who have lost their homes or face foreclosure and policymakers agreeing to spend billions of dollars to shock the economy back to life, UNC Center for Community Capital researchers today (Dec. 17) joined FDIC Chairman Sheila Bair and others for a New America Foundation-hosted panel discussion focused on effective policy responses to the foreclosure crisis that will resurrect a responsible housing finance system.
Bair has made a forceful case for a systematic and streamlined approach to loan modifications that will help keep millions of Americans from being displaced by loan defaults and foreclosure. She began her remarks by trying to “bury two myths” about the current foreclosure debacle: The oft-cited claim that the Community Reinvestment Act has caused the current crisis and the assumption that helping troubled homeowners stay in their homes would amount to a fool’s errand. To counter the first “myth,” Bair stated that only about one fourth of higher-priced loans were made through CRA-covered entities. Also, Bair said, the CRA has never mandated that banks make loans to people who could never afford to repay them.
Center for Community Capital director Roberto G. Quercia, associate director Janneke Ratcliffe and research fellow Michal Grinstein-Weiss presented their ground-breaking research, funded by the Ford Foundation, to evaluate the experience of an innovative home-lending program, the Community Advantage Program, offered by the Self-Help organization in North Carolina.
Two key conclusions have emerged from that research, Quercia said. Homeownership provides the same kinds of benefits to low-income families as it does to high-income families and it is good business to lend responsibly to low-income borrowers.
The CAP program provided a secondary market outlet for CRA/affordable housing loans with participants offered fixed-rate, 30-year, prime mortgages. It funded 50,000 loans in 48 states over 10 years. The average income of participants was $32,600. A review of loan performance over time showed the long-term, fixed-rate loans drastically outperformed subprime loans as well as FHA loans, Ratcliffe reported.
Grinstein-Weiss reported on center research on the social impacts of homeownership, which showed that homeowners were more likely than renters to participate in their communities, more likely to be involved in their children’s schools, more likely to volunteer their time for the community, and more likely to vote in local and national elections.
Quercia joined Bair in stressing the importance of financial education. The odds of curing are 2.2 times higher for borrowers who seek financial advice. Financial assistance, he said, is directly linked to a lower default probability.
Other panelists were Eric Stein, president of the Center for Community Self-Help; Reid Cramer, research director of the Asset Building Program at New America; and Mark Willis, a scholar at the Ford Foundation; and Ellen Seidman, financial services policy director for the New America Foundation’s Asset Building Program.
A Webcast and more details are available at http://www.newamerica.net/events/2008/responsible_homeownership .
The UNC Center for Community Capital is the leading center for research and policy analysis on the transformative power of capital on households and communities. The center’s in-depth analyses in the areas of mortgage finance, consumer financial services and community development finance help policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people, more effectively. For more information, visitwww.ccc.unc.edu or call (919) 843-2140.
Topics(s): Affordable Homeownership, Mortgage Finance