Housing Policy Debate Vol. 20, No.

4, September 2010, 551–576

Twenty years of housing policy: what’s new, what’s changed, what’s ahead?
James H. Carr* and Michelle Mulcahy
National Community Reinvestment Coalition (NCRC), Washington, DC, USA

This paper reviews the current state of the housing market, particularly in the shadow of the foreclosure crisis, the collapse of the financial system, and persistent unemployment. The authors outline the policy priorities necessary to facilitate the recovery of the housing market in general and to encourage comprehensive revitalization of the hardest hit communities.
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Keywords: financial reform; housing market; foreclosure; unemployment; green development; minority and women-owned business

Introduction As we celebrate the 20th year of publication for Housing Policy Debate, one of the most poignant realities for me related to this important anniversary is that that my co-author, Michelle Mulcahy, was only six years old when the journal was first published. She would later receive a Masters in City and Regional Planning from the University of Pennsylvania and, as a student, rely on Housing Policy Debate as a principal housing and planning reference. I credit Housing Policy Debate for making her the brilliant city planner she is today! Over the years, Housing Policy Debate has been honored to have many of the most insightful and respected urban, housing, and other public policy scholars serve as editors, associate editors, editorial board members, and article reviewers. George Sternlieb served as Housing Policy Debate’s first advisory board member, followed closely by many other distinguished housing experts.1 And its contributing authors have consistently been among the most noted, cited, and accomplished professionals in their fields. William Apgar deserves special recognition for providing the first Forum piece, ‘‘Which housing policy is best?’’ for which John Weicher and Raymond Struyk provided thoughtful comments. Together, these pieces set a high standard for future Forum debates. Enormous credit is also due in large part to the

*Corresponding author. Email: jcarr@ncrc.org 1 Housing Policy Debate has been successful in attracting many of the nation’s most prominent housing scholars to serve as advisory board members since its first issue. The original board consisted of William Apgar, Robert Burchell, Stephen Buser, Stuart Butler, Peter Chinloy, Phillip Clay, Denise DiPasquale, Anthony Downs, James Follain, Anthony Freedman, Jack Guttentag, David Listokin, Kenneth Lore, Richard Muth, Mary Nenno, Edgar Olsen, John Quigley, Kenneth Rosen, Anthony Saunders, Morton Schusseim, C. F. Sirmans, Michael Stegman, George Sternlieb, Raymond Struyk, and Susan Wachter.
ISSN 1051-1482 print/ISSN 2152-050X online Ó 2010 Virginia Polytechnic Institute and State University DOI: 10.1080/10511482.2010.510988 http://www.informaworld.com

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first associate editors, Steven Hornburg and Ellen Roche,2 who ensured that Housing Policy Debate’s policy papers were grounded in real-world experiences and offered practical insights and recommendations to improve the practice of planning and community investment. As the journal’s founder and editor for 17 years, I know firsthand that Housing Policy Debate’s extraordinary success is due to those individuals who embraced and supported the journal from its inception to this day. I thank everyone who has contributed to Housing Policy Debate for enabling me to realize my vision for the Journal to have a lasting, positive, and intergenerational impact on the field of housing and urban planning. How did we get here? Twenty years ago, major housing issues were affordability, redlining and discrimination, homelessness, and the need for comprehensive community investment. This constellation of issues included regulatory barriers to affordable housing, the roles of the Government Sponsored Enterprises (GSEs), Federal Housing Administration (FHA) and public housing, concentrated poverty, access to capital and predatory lending, spatial mismatch, alternative forms of homeownership, predatory lending and access to finance, metropolitan opportunity structures, and the right to housing, to name a few. There was a sense of urgency to address these issues, with housing activists challenging the banks, federal financial regulators, local and national housing agencies, and the GSEs in an effort to improve housing conditions and access to credit in underserved communities. Two decades later, unfortunately, many of the concerns those advocates championed persist today, in addition to a foreclosure crisis, near double digit unemployment, and a financial system and economy whose recovery remains uncertain. In fact, the private mortgage finance system is essentially nonexistent. In the multifamily market, the general lack of access to credit is compounded by the reality that the Low-Income Housing Tax Credit is virtually meaningless in the current economic climate. Finally, the receivership status of Fannie Mae and Freddie Mac means that the long-term role for the GSEs is uncertain not just for the affordable housing market, but for the housing finance system overall. Who would have thought 20 years ago that we would someday look back on those times as the good old days? Ironically, key elements of the foundation for the current economic crisis and its multiple negative ramifications for America’s communities stem from a failure to address problems that were well-known and even written about in the first edition of Housing Policy Debate. Two articles appeared in Housing Policy Debate Volume 1, Issue 1 on the Resolution Trust Corporation (RTC), ‘‘The RTC in historical perspective’’ by Bert Ely, and ‘‘RTC’s affordable housing program: reconciling competing goals’’ by Sara E. Johnson. The RTC was established to resolve the fallout from the collapse of the savings and loan industry. Systemic flaws in financial regulation compounded in the midst of the savings and loan crisis directly aggravated the events that led up to the recent credit market collapse. The Financial Institutions Reform, Recovery, and Enforcement Act, passed in 1989 to restructure the banking industry, established the Office of Thrift Supervision (OTS) to ‘‘supervise savings associations and their holding companies in order to maintain
Housing Policy Debate would not have been successful without its dedicated and talented initial assistant editors Patrick Simmons, Kathryn McLean, and Ellis Leslie.
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their safety and soundness and compliance with consumer laws, and to encourage a competitive industry that meets America’s financial services needs.’’3 The OTS would later play a fundamental role in facilitating the spread of the most irresponsible home loans that ultimately triggered the foreclosure crisis and the implosion of the financial system. OTS would ultimately supervise institutions such as Washington Mutual, IndyMac, Downey Financial, Countrywide, AIG, and parts of Merrill Lynch and Lehman Brothers (Kiel, 2008). The OTS appears to have won the ‘‘race to the bottom’’ between the three main regulators – the OTS, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Company – by offering the most lax financial regulation and failing to protect the financial interests of the American public (Gerth 2008; Appelbaum and Nakashima 2008). The OTS also promoted the trading of high-risk credit default swaps (Gerth 2008) that were a major contributor to AIG’s failure and considered the spread of high-risk loan products innovations (Appelbaum and Nakashima 2008). It was these and similar irresponsible standards and oversight that left American homeowners and taxpayers vulnerable to the domino effect of the foreclosure crisis. The creation of OTS, expansion of the preemption of state consumer protection laws (Whalen 2004), and the repeal of the Glass-Steagall Act contributed greatly to the recent Great Recession. The lack of effective financial services regulation was compounded by a failure to enforce seriously fair-housing and equal credit opportunity laws. In the absence of effective barriers to financial exploitation by race/ethnicity, predatory mortgage lenders concentrated their efforts disproportionately on people and communities of color as well as women and older borrowers. The net effect has been a tremendous loss of wealth and increased economic insecurity particularly for society’s most financially vulnerable populations. The fallout from the implosion of the financial system and subsequent struggling economy is a long way from over. Recovery and rebuilding will require years. In this environment, piecemeal strategies will not be sufficient. Housing investments must be coordinated with transportation, environmental, education, and social services spending, employment training and job creation initiatives, access to mainstream small business and consumer credit, and enforcement of fair-lending laws. This article provides an overview of the essential components of this proposed new mosaic for community investment and some ideas on ways to reprioritize existing spending to achieve more effective and comprehensive outcomes. We also propose several discrete and immediate interventions to stem the current economic and housing crises in order to lay the foundation for broader efforts. Current economic context for housing policy The future of housing policy is dependent on deciphering how current economic conditions and recovery efforts are impacting the direction of the housing market. The foreclosure crisis continues Despite some recent positive signs of improvement, the foreclosure crisis which brought down the economy continues, undermining progress towards recovery.
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Office of Thrift Supervision. Mission and goals. http://www.ots.treas.gov/?p¼MissionGoal.

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Fourteen percent of homeowners with a mortgage missed at least one payment or entered the foreclosure process in the second quarter of 2010, with the largest concentration of delinquencies in the seriously delinquent category (Kemp 2010). Rick Sharga, Senior Vice President of RealtyTrac, predicted nearly 3.5 million foreclosures in 2010 alone (Sharga 2010), with normal levels of foreclosure not returning until late 2013 (Indiviglio 2010). First American CoreLogic predicts that at least $64 billion in Option Adjustable Rate Mortgage (ARM)’s will reset in 2010, followed by another $68 billion in 2011 (Morrissey 2010). Home sales are at the lowest level in more than a decade (Streitfeld 2010) and home price recovery remains weak (Reuters 2010a ) despite near record-low interest rates (Haviv 2010). With a shadow inventory of foreclosed homes that is expected to be as high as 5.5 million in 2011 (Kilgore 2010), more than 300,000 new foreclosure filings each month4, and the expiration of the home purchase tax credit, prices are unlikely to recover soon. In fact, Mark Zandi of Moody’s Economy.com predicted in December 2009 another 5 to 10 percent price decline nationally in 2010, with some geographies seeing declines as high as 33 percent (Mortgage-Foreclosure.com 2009). More recently, other experts have even predicted another collapse of the housing market (Christie 2010) and suggested the potential of a double dip recession (Wood 2010). Overlooked predatory and risky practices in the mortgage market were a major cause of the current foreclosure crisis. For more than a decade before the recession began, financial institutions increasingly engaged in practices intended to mislead, confuse, and otherwise limit a consumer’s ability to judge the value of financial products offered in the market and make informed decisions. Nowhere was this more evident than in the subprime home mortgage market (Carr 2007). Excessive mortgage broker fees, irresponsible loan products, inadequate underwriting, bloated appraisals, abusive prepayment penalties, and fraudulent servicing practices were major aspects of the problem (Carr 2008b). The inability to get access to sustainable and affordable financing undermines individuals’ economic well-being, which in turn – as we are painfully reminded in the current crisis – threatens the entire nation’s well-being. Currently, the two main drivers of foreclosure are negative equity and unemployment. As of the second quarter of 2010, CoreLogic reported that nearly 28 percent of all residential properties had negative or near negative (less than 5 percent) equity. This corresponds to 11 million underwater mortgages and 2.4 million mortgages approaching negative equity (CoreLogic 2010). While this overall number is slightly down from the first quarter of 2010, underwater mortgages could add to the growing pool of foreclosures; according to a recent poll by RealtyTrac and Trulia.com, 41 percent of homeowners would consider strategic default if they were underwater.5 Moreover, 10.4 percent of borrowers have negative equity that exceeds 25 percent (CoreLogic 2010) which is the point at which owners begin to default at the same rate as investors.6

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RealtyTrac has reported over 300,000 foreclosure filings each month throughout 2010 and in 10 of the 12 months of 2009. 5 59 percent of homeowners with a mortgage would not consider walking away from their home no matter how much their home is ‘‘underwater’’ according to a new survey from Trulia and RealtyTrac, May 20, 2010. Available at: http://www.RealtyTrac.com/contentmanagement/ pressrelease.aspx?channelid¼9&itemid¼9230. 6 Underwater mortgages are on the rise according to First American (CoreLogic 2010).

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Unemployment is generally considered a lagging indicator of the health of an economy, but in the current climate, unemployment is a leading cause of the economic malaise as the number one driver of foreclosure. The future of housing policy will therefore be dependent on the course of unemployment. As of May, there were 14.9 million unemployed workers, 6.2 million – or 42 percent – of whom have been out of work for more than six months (Bureau of Labor Statistics, US Department of Labor 2010). The government’s measure of ‘‘expanded unemployment,’’ which includes discouraged workers and those employed part-time despite desiring full-time work is nearly 17 percent of the civilian labor force (Bureau of Labor Statistics, US Department of Labor 2010). Meanwhile, the Home Affordable Mortgage Program (HAMP) – the primary program designed to stem foreclosures – has proven thus far to be insufficient to arrest the foreclosure crisis. The Treasury Department’s HAMP performance report indicates that in the program’s first 12 months less than 300,000 permanent mortgage modifications were implemented (US Department of the Treasury 2010). Meanwhile, more than 300,000 foreclosure notices are filed each month.7 The limited success of the program can also be seen in the reality that only $58 million of the program’s $75 billion budget8 was spent in its first year.9 From the program’s launch in April 2009, HAMP has suffered from a variety of challenges,10 including deficient program design, disorganized and inconsistent implementation, and inability to keep pace with changing market conditions. These weaknesses have been documented extensively by research centers and consumer organizations such as the National Community Reinvestment Coalition (NCRC) (Taylor 2010), National Consumer Law Center (Cohen 2010), Center for Economic and Policy Research (Baker 2010), and Center for American Progress (Jakabovics 2010). Professor Alan White of Valparaiso University School of Law has also written and testified extensively on government foreclosure mitigation efforts (White 2010). Recently, the Government Accountability Office (GAO)11 and the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) (Office of the SIGTARP 2010) have provided detailed evaluations of HAMP’s performance and capacity for future success. Due to these challenges, it is unlikely that the program will reach the original intended scale of helping three to four million homeowners. In fact, Treasury’s own estimates indicate that HAMP will create permanent mortgage modifications for 1.5 to 2 million homeowners. However, according to the Congressional Oversight Panel, estimates of the number of foreclosures prevented by HAMP range as low as 276,000, ‘‘or less than 4 percent of the total 60 þ day delinquencies’’ (Congressional

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Annual Foreclosure Report 2009, Press Release. RealtyTrac. HAMP’s total $75 billion budget is funded with $50 billion from TARP and $25 billion from Fannie Mae and Freddie Mac. 9 Gene L. Dodaro, Testimony on the subject of the Troubled Asset Relief Program: Home Affordable Modification Program continues to face implementation challenges. GAO-10556T. Presented to the US House of Representatives, Committee on Oversight and Government Reform. March 25, 2010. 10 For more information on the shortcomings of the HAMP program, see Carr and LucasSmith, forthcoming. 11 Gene L. Dodaro, Testimony on the subject of the Troubled Asset Relief Program: Home Affordable Modification Program continues to face implementation challenges. GAO-10-556T.
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Oversight Panel 2010a). Regardless of which estimate is correct, the scale of the crisis will likely continue to overwhelm all current federal interventions. Rental housing affordability and supply remain problematic As the foreclosure and unemployment crises continue, households will increasingly rely on rentals, homeless services, and low-cost public housing. Access to affordable rental units will become increasingly essential as families continue to lose their homes and as household incomes diminish. In fact, a recent study by the Federal Reserve Bank of New York purports that the effective homeownership rate at the end of 2009 – which excludes homeowners with negative equity as they are likely to convert to renters – is nearly 6 percentage points lower than the official Census rate of just over 67 percent (Haughwout, Peach, and Tracey 2010). As more renters enter the market, addressing affordability will become more difficult. In fact, the National Low Income Housing Coalition finds that in no county in the United States12 can a resident working full time at minimum wage afford even a one bedroom apartment at fair market rent (Out of Reach 2010). This need for affordable rental housing comes at a time when the supply of units that received project-based assistance from the US Department of Housing and Urban Development (HUD) has been reduced (Out of Reach 2010). At the same time, experts estimate that the private sector decreased its investment in the provision of rental housing development through the Low-Income Housing Tax Credit – which accounts for 80 to 90 percent of the country’s affordable rental housing (Roberts 2009/2010) – by half between 2007 and 2009 (Federal Reserve Board 2009). In this environment, HUD’s supply-side and demand-side programs are crucial to provide low-income households with access to affordable and quality housing. To address the growing need for assistance, HUD has requested an increased allocation for many programs, including Choice Neighborhoods (which builds upon the HOPE VI program), Section 8 tenant-based and project-based vouchers, public housing operating funds, homeless assistance, in its 2011 budget (Center for Housing Policy 2010). While helpful, these spending levels are far short of what is needed. The financial system is on life support The general disarray within financial markets is a significant impediment to economic and housing market recovery and aggravates the ongoing foreclosure crisis. The bank bailouts helped avert a total collapse of the nation’s largest financial firms and return them to profitability. But the bailouts did not stem the foreclosure crisis and have not encouraged those firms to increase lending. Despite getting more than $23 trillion worth of loans, capital infusions, and guarantees that collectively constitute the banking ‘‘bailouts’’ (Kopecki and Dodge 2009), having access to unprecedented low-cost capital, and making pre-recession profits (Nasiripour 2010b), total bank lending fell by 7.5 percent in 2009 (UPI 2010) and banks that received bailout funds cut lending more aggressively (–9.2 percent) than firms that did not receive government money (Cauchon 2010). Anemic lending by the major banks has continued into 2010 (Nasiripur 2010a). One of the reasons for the paucity of lending by the major banks may be the reality that their balance sheets continue to
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Except for 32 Municipios in Puerto Rico.

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carry hundreds of billions of dollars of housing-related loans (second liens) (Reuters 2010b) at unrealistically inflated values (Reilly 2010). At the same time, smaller banks have been closing at an accelerating rate (Dash 2009), further diminishing market liquidity. In addition, the Federal Deposit Insurance Corporation (FDIC)’s insurance fund was depleted while the agency took receivership of 140 banks in 2009.13 To date in 2010, 118 banks have failed,14 putting the total number of failures this year en route to exceed those of 2009. Inadequate lending to small businesses directly obstructs job creation efforts which are essential to restore the health of the housing market. Janet Yellen, president of the Federal Reserve Bank of San Francisco, called the flow of credit from large financial firms to small businesses ‘‘extremely weak’’ (Matthews and Chen 2010). Between 2008 and 2009, small business lending by Wall Street banks was reduced by 9 percent, compared to a 4.1 percent decrease in their overall portfolio lending, while small banks have also continued to limit lending; this reduction in bank lending is significant for the economy, as small businesses rely on banks for 90 percent of their funding (Congressional Oversight Panel 2010b). The ongoing decline in business lending does not appear to be based on business’ inability to make payments. In fact, the share of accounts that are behind by 30 days or more has plunged dramatically (Saphir 2010). Lack of credit means, however, that small and medium-sized businesses have difficulty securing financing for operations and payrolls, let alone undertaking expansion or hiring back workers. Startup businesses are often unable to secure sufficient credit to get off the ground. Limited opportunities for entrepreneurship mean limited opportunities for jobs and economic growth, leading to continued high unemployment. The scarcity of lending in the private market is not restricted to business lending but is also present in the housing market. FHA Commissioner David Stevens remarked on the state of the private mortgage market at a recent Mortgage Bankers Association conference. According to Stevens, ‘‘this is a market purely on life support, sustained by the federal government.’’ He went on to conclude that the fact that FHA insured $52.5 billion of home-purchase mortgages in the first quarter of 2010 is ‘‘a sign of a very sick system’’ (Shenn and Gittelsohn 2010). In fact, as private capital in the mortgage market evaporated, government-related entities owned or guaranteed nearly 97 percent of all home loans made in the first quarter of 2010 (Timiraos 2010). This reality does not bode well for the health of the entire housing finance system; while much of the focus has been on the tightening of credit within the homeownership market, capital for rental housing development is virtually nonexistent, yet the need for rental housing is growing. On an even more basic level, many Americans continue to lack the most fundamental mainstream financial services. Even before the collapse of the housing market, many areas were un- or underbanked, relying on usurious payday lenders and check cashers. As of a January 2009 report by the FDIC, 30 million American households – more than 25 percent –were unbanked – those without a savings or checking account – or underbanked – those with a savings or checking account but who rely on alternative financial services. African Americans, Hispanics and Native American/Alaskans are disproportionately more likely to be un- or underbanked (Federal Deposit Insurance Corporation 2009).

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FDIC Failed Bank List: http://www.fdic.gov/bank/individual/failed/banklist.html. FDIC Failed Bank List: http://www.fdic.gov/bank/individual/failed/banklist.html.

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In many low- and moderate-income communities, fringe lenders such as check cashers and payday lenders, provide a significant amount of financing, as many areas lack easy access to mainstream banks and because these fringe lenders offer small loans quickly. However, these lenders offer usurious terms, with annual percentage rates of 300 to 1,000 percent or more (Haralson 2007/2008), which ultimately strip these neighborhoods of wealth. The inability of families to access safe and reasonably priced financial products and services limits greatly the potential to save and invest or otherwise leverage their often limited incomes. A poorly regulated financial market that fails to protect all consumers, provide affordable and sustainable products and transparent information will remain vulnerable to systemic weaknesses. The future of the housing market will depend on how much damage the current recession has caused as well as how well the changes in regulation and the housing finance system address the fundamental flaws that led to the current foreclosure crisis. The future of housing policy
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Bringing the current foreclosure crisis under control is the essential first step toward meeting the nation’s significant housing and community investment and needs. Beyond stemming the foreclosure crisis, housing policy should continue to proactively expand homeownership and explicitely take a comprehensive approach to facilitate sustainable and equitable community development. Stem the foreclosure crisis and mitigate the damage from unavoidable or strategic defaults The foreclosure crisis will continue for years. Foreclosure prevention is therefore a crucial first step to sustainable recovery. In addition to addressing the design and implementation challenges of the HAMP program, additional foreclosure interventions should be considered to curtail further foreclosures and minimize the damage of defaults.15 Interventions can be grouped into three general categories: (1) Those that are low-cost and should be possible to implement without a great deal of political controversy; (2) those that are low-cost and highimpact but more politically challenging to enact; and (3) very high-impact but also relatively high-cost and/or politically difficult to enact. These recommendations reflect a number of different proposals from foreclosure prevention experts and consumer advocates, including the National Community Reinvestment Coalition, the National Consumer Law Center, the Center for Responsible Lending, the Center for American Progress, and various other non-profit organizations and research centers. Low-cost and politically uncontroversial strategies include making HAMP’s Net Present Value model, which is the tool designed by the US Department of the Treasury that servicers use to determine whether borrowers qualify for loan modifications, more transparent by making its design available to the public and the specific inputs – such as estimated current fair market home value and credit
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For more information on the shortcomings of the HAMP program and for more detailed recommendations on ways to stem the foreclosure crisis and mitigate the damage from defaults, see: Carr and Lucas-Smith forthcoming).

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score – available to each borrower. Borrowers who are denied modifications should also be given more detailed information on why they were denied as well as an independent appeals process. In addition, Treasury should institute immediate penalties and fees for participating servicers that do not follow the program guidelines or that take unreasonable periods of time to resolve cases. Strategies that are still low-cost but which may be more politically difficult to implement include reforming the bankruptcy code to allow bankruptcy judges to structure mortgage modifications. In an environment where most foreclosures are driven by unemployment, it serves no public purpose to have a bankruptcy code that provides the option to restructure the repayment terms on the outstanding debt on a luxury yacht or investment property, but not the family home. Another strategy that has worked in several cities and states is required pre-foreclosure mediation and conciliation between servicers and borrowers. Under such programs, servicers are required to meet face-to-face with borrowers to discuss loan modification options prior to proceeding to foreclosure. Borrowers should be guaranteed access to legal representation and/or representation of a HUD-certified homeownership counselor. Such a program could be modeled after Philadelphia’s successful Residential Mortgage Foreclosure Diversion Program. That program is administered by the Philadelphia court system, and requires servicers to meet in person with borrowers before a judge will certify a foreclosure sale. It matches pro-bono attorneys with homeowners who are on the verge of foreclosure. According to a recent report on the Troubled Assets Relief Program (TARP) by the Congressional Oversight Panel (COP), between June and December 2009, 1900 homeowners – or one third of those who participated in conciliation conferences with pro-bono attorneys and servicers – were able to modify or refinance and avert foreclosure (Congressional Oversight Panel 2010a). In that same time period, less than 1 percent of HAMP eligible trial modifications successfully converted to permanent status. Finally, under this category, HAMP could be made mandatory for all servicers of all loans, i.e., if a loan modification is in the best interest of the borrower and investor, foreclosure should be prohibited. Servicers should also be required to analyze the outcome of various loss mitigation strategies prior to foreclosure and share the results with borrowers and investors. Reasonable loss mitigation strategies to consider should include loan modification, deeds-in-lieu of foreclosure, and short sales. Foreclosures should only move forward when other loss mitigation options are less favorable to investors than foreclosure. High-impact but high-cost and/or politically controversial strategies include a complete overhaul of HAMP to include broad scale principal reduction for underwater borrowers. Such a program would be based on NCRC’s proposed Homeowners Emergency Loan Program (HELP Now).16 The Department of the Treasury would use TARP funds to purchase at a discount securitized pools of residential mortgages. Discounts would reflect the current market values of the underlying properties. Treasury would then modify the mortgages to be sustainable and affordable to borrowers in the long term. Former homeowners who were foreclosed on should also be compensated when their requests for short sales or deeds-in-lieu were rejected if their former homes are sold for less than their offered amount within 12 months. Redemption could be
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For details regarding NCRC’s HELP Now proposal, please see: http://www.ncrc.org/ index.php?option¼com_contentamp;task¼viewamp;id¼274amp;Itemid¼195.

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structured as a penalty equal to a percentage of the difference between the rejected short sale or deed-in-lieu price and ultimate sale price. Finally, foreclosure must also be eliminated as a trigger for eviction. This includes developing more extensive alternatives for families who are unable to avoid foreclosures, such as enhanced rental option programs that allow struggling families to remain in their homes for at least a year as tenants rather than homeowners. Continue to expand homeownership Many people are currently questioning the future of homeownership as if the market collapse was a reflection of a failed experiment in the expansion of homeownership rather than the result of the exploitation of borrowers and the risky practices of financial institutions. The meltdown of the housing market was not a result of legitimate attempts to expand sustainable homeownership but the result of the proliferation of unsustainable practices, including low and no documentation loans with unaffordable adjustable repayment rate terms, second liens, no escrow accounts, inflated appraisals, prepayment penalties, and broker kickbacks in the form of yield spread premiums. Over the past couple of years, some have attempted to lay the problems at the doorsteps of low and moderate income and minority households – arguing that public policies to promote homeownership were responsible for the foreclosure crisis. The Federal Reserve Board, however, reports that only 6 percent of high-cost subprime loans made to low- and moderate-income households originated by banks were covered by CRA (Krozner 2009). Furthermore, the explosive growth of high-cost subprime loans had nothing to do with government policies intended to increase homeownership rates, as some have argued. According to the Center for Responsible Lending, less than 10 percent of subprime loans originated between 1998 and 2006 were for first time homeownership (Center for Responsible Lending 2007). Failure to acknowledge the real causes of the current housing and financial system crises predisposes the country to future market collapses since flawed diagnoses lead inevitably to flawed remedies. Homeownership is the single most effective vehicle to build wealth for the typical American household if done in a sustainable manner. And other research has shown it contributes to family and neighborhood stability and other positive social outcomes. While everyone is not suited for homeownership, there are many programs and support mechanisms that can expand the reach of homeownership in a sustainable manner, particularly for families that historically have been shut out of the homeownership market. Ensure a stable and equitable housing finance system To encourage recovery and equitable access to housing finance, low cost funding and liquidity is required in the mortgage market. The future role of Fannie Mae and Freddie Mac should be decided immediately as well as the appropriate long-term responsibilities for FHA in light of the market’s collapse. This process should reinforce the long-standing goals of the housing finance system, which provides liquidity, stability and affordability in the housing market through ‘‘transparency, standardization, risk management, regulatory oversight, affordable and sustainable homeownership, long-term fixed rate pre-payable mortgages, and access to credit for underserved communities’’ (Wartell 2010).

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As the housing market recovers, sustainability should be enhanced by ensuring the viability of products offered to consumers in the private market. Regulations should prohibit lending without confirming borrower ability to repay; teaser rates with durations of less than one year and maximum limits on lifetime rate adjustments; broker kickbacks or other fees for services not rendered or reasonably priced based on the services provided; prepayment penalties; and negative amortization. Regulations should also address the inherent conflicts of interest from market participants, including those between brokers and lenders, appraisers and lenders, and bond rating agencies and securities issuers. Provide targeted subsidies To maximize the social impact of housing policy, federal subsidies should be redirected in a manner that conceptualizes a coherent national housing policy and that arguably serves a public purpose – such as redirecting the greatest support from families that need it the least to those that need help the most. This can be done by redirecting federal housing spending in a manner that promotes economic mobility. Former HUD Secretary Henry Cisneros has suggested that housing can be viewed as a continuum of steps. The lowest step is homelessness, moving next to supportive housing and ultimately a move up to long-term homeownership. This approach can be used as a tool to examine the federal subsidies provided at each level to determine where the allocation of public resources might be more effectively and appropriately redirected to create upward mobility on the housing continuum. Provide exceptional support for low- and moderate-income and minority borrowers Homeownership as a source of wealth creation is particularly important for minority communities. For African American households, for example, home equity accounts for 63 percent of total average net worth, compared to 35.8 percent for white households (Olver and Shapiro 2010). The foreclosure crisis has set African American homeownership rates back more than a decade; because more than half of all home loans made to African Americans in recent years were high-cost, the resulting foreclosures have already triggered a 3.7 percentage point drop in their homeownership rate since its height in the second quarter of 2004 (US Census Bureau 2010). At the same time, communities of color have experienced disproportionately high unemployment; while the national unemployment rate is at an uncomfortable 9.6 percent, the rate for African Americans and Hispanics is 16.3 percent and 12 percent, respectively, compared to 8.7 percent for non-Hispanic whites. This reality creates a self-perpetuating cycle of inequality across generations, as family wealth often begets opportunity: 30 percent of white first-time homebuyers receive down-payment assistance from their family, while only 8 percent of minority homebuyers receive such assistance (Center for American Progress 2010). Consequently, the nation’s significant racial wealth gap, which had already quadrupled in the 20 years preceding the economic and foreclosure crises (Powell 2010), is likely growing. United for a Fair Economy, a Boston-based policy group, has concluded that the net impact of foreclosures and unemployment on African Americans could lead to the greatest loss of wealth for that group since Reconstruction. According to their estimates, as much as one third of

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African-American households and more than 40 percent of Latino households are at risk of falling out of the middle class and into poverty (Rivera et al. 2009). Meanwhile, national demographic shifts indicate that the majority of the country’s population will be non-white by 2050. This prospect further reinforces the need to minimize the racial homeownership and wealth gap as the economic future of the country will be increasingly driven by the success of minority populations. To this end, housing policy should provide exceptional support to low- and moderate-income and minority borrowers by enhancing the availability, viability, and sustainability of programs to help borrowers maintain their homes, including homebuyer counseling and financial education, renovation and repair initiatives, and homeowner association formation and management. We should also revisit the assumptions of using credit scores as a litmus test for borrower readiness and as a means to extend mortgage credit, particularly where consumers have been harmed by deceptive, high-cost loans. We also need to address the inherent irony of riskbased pricing that increases risk for borrowers deemed to be higher risk. Instead, perhaps financial institutions can offer a lower interest rate in return for a longer repayment period, require larger downpayments, mandate borrower pre- and postfinancial counseling, require credit counseling and improvement in credit score, and/or restrict loan eligibility to shared equity or lease purchase arrangements. Finally, federal housing subsidies should be redirected to expand the use of income-adjusted homeowner tax credits and to increase Choice vouchers for homeownership. Support alternative homeownership models Housing policy should also proactively expand housing options by encouraging alternative forms of homeownership including shared equity and lease-to-purchase. These alternatives would help expand homeownership in minority communities as well as for those who have been impacted by the current recession, which has left millions of Americans with damaged credit, lower income, and diminished wealth. Rebuilding the housing market will be difficult for all potential homeowners as credit markets have tightened but will be particularly difficult for homeowners who have defaulted on their mortgage and/or have faced foreclosure; these families will have damaged credit scores, which may preclude them from homeownership for years, as well as limit rental options and even effect their ability to find employment. To make matters worse, many former homeowners faced foreclosure because they received a high-cost, predatory loan; their performance under these loans does not necessarily predict their ability or willingness to be a homeowner with a legitimate mortgage product. For residents not ready for homeownership, whether due to credit or downpayment deficiencies, and in areas where lenders are tightening home purchase loans, lease-to-purchase programs can offer an intermediate step in which renters gradually build towards ownership. A lease-to-purchase (or rent-to-own) option is an effective tool to rebuild the homeownership market as it offers an alternative between renting and buying. Since families that have experienced a foreclosure cannot become owners again for five to seven years due to credit score damage, this tool provides an alternative that helps former – or new – homeowners build up the credit and capital to buy a home. In general, lease-to-purchase programs are structured as a ‘‘lease-option’’ deal, in which an occupant rents a property for a specified period of time with an option to purchase the home during that time at a

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set price. Often the rent is above-market, but a portion of the rent goes towards a down-payment (Irwin 2002). One of the oldest and largest lease-to-purchase programs in the country is Cleveland Housing Network’s (CHN) Lease Purchase Program, which buys and rehabs abandoned properties and rents them to very low-income residents (Hexter, Greenwald, and Petrus 2008). CHN uses Low-Income Housing Tax Credits to finance the rehabilitation, which requires the property remain as a rental property for 15 years; after this time, the family can choose to purchase the home at a third of the market value.17 Around 90 percent of eligible families have chosen to purchase.18 CHN also provides buyer education for residents ‘‘that can ease transition from welfare to financial independence and sustained homeownership.’’19 Programs with different financing arrangements usually have a shorter lease period. To facilitate growth in the lease-purchase market, Self-Help, in partnership with Fannie Mae and local nonprofits, is developing a national program and a secondary market for a lease-purchase mortgage product. Under this program, local nonprofits acquire and rehabilitate vacant or foreclosed properties – often through partnerships with banks that have large REO inventories (Kalra 2009) – and provide credit and homeownership counseling and property management services to qualified ‘‘tenant purchasers,’’ who will purchase the property within five years. The program is targeted to tenant purchasers whose income is at or below 80 percent area median income or whose income is at or below 115 percent area median income if the property lies in a low-income census tract. To qualify, tenant purchasers need to have 12 months consecutive employment history. The nonprofit will pay off acquisition and rehab financing through a leasepurchase mortgage developed by Fannie Mae from one of Self-Help’s bank partners (any Fannie Mae approved seller-servicer); this mortgage is then sold to Self-Help, who retains the credit risk, and then sold to Fannie Mae. The nonprofit is responsible for all payments – principal, interest, taxes, and insurance – until the tenant assumes the mortgage; while in the leasing phase, the tenant pays rent to cover the above payments plus homeowner counseling, which is required. A portion of the rent also goes towards the tenant’s down-payment and closing costs (Kalra 2009). Once the tenant purchaser buys the home, they assume the mortgage from the nonprofit. To date, Self-Help has been approved to deliver $200 million worth of loans to Fannie Mae and has begun a pilot program in Charlotte, NC,20 which is expanding to Atlanta and Chicago (Kalra 2009). Other viable alternative homeownership models include shared equity and shared appreciation homeownership programs, in which homeowners receive support in buying a home through equity assistance rather than financing the home solely through debt. These programs have most frequently been implemented by a government or nonprofit investor whose goal is to maintain affordability for future homebuyers. These programs come in various forms, including shared appreciation loans (also called shared appreciation mortgages), silent second mortgages, and
17 18

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Cleveland Housing Network Website http://www.chnnet.com/b_lease.asp The Cleveland Foundation. https://tcfonline.clevelandfoundation.org/catalog/org.shtml? org_id¼7830. 19 Cleveland Housing Network News. http://www.chnnet.com/keybank_donates.asp 20 Self-Help Lease-Purchase Program. http://www.self-help.org/neighborhood-stabilizationprogram/Self-Help%20Lease%20Purchase%20Programforwebsite.pdf/view?searchterm¼ fannie%20mae

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subsidy retention programs. In shared appreciation loan arrangements, homeowners receive a low-interest first-lien loan and, when the homeowners sell the home, they share a specified portion of the home’s appreciation with the subsidizing entity to be reinvested in the next homebuyer. Similarly, a silent second mortgage is a second lien that assists homeowners with the purchase of a home but requires no payments until the homeowner sells, at which point they pay back the loan and a specified share of appreciation. Under a subsidy retention program, the price at which homeowners can sell their house is restricted to maintain affordability. Examples of subsidy retention programs include Limited Equity Cooperatives, Community Land Trusts, and Deed Restrictions.21 While the majority of these programs are implemented by state or local governments or nonprofit housing organizations (Foreclosure-Response.org 2010), housing experts have developed programs to leverage private investment for shared equity arrangements (Caplin 2010). A community land trust, for example, is a tool for homeownership in which residents buy homes, but a local organization maintains control of the underlying land. Community-established terms set a limit on resale value, which allows residents to benefit from home price appreciation to some degree but maintains the home’s affordability for future buyers. After an influx of residents and a growing economy created gentrification pressures in the early 1980s, the city of Burlington, Vermont initiated a successful community land trust to preserve affordable housing and leverage asset-building opportunities for low- and moderate-income residents. The Burlington Community Land Trust (BCLT) was incorporated in 1984 and received funding from governmental and private sources, philanthropists, and religious groups. BCLT purchases single-family and multifamily homes and secures private land donations, then sells the housing structures to homebuyers. Low-income home buyers can qualify for down-payment assistance and below-market mortgage financing. The resale agreement allows residents to receive 100 percent of the principal they paid down, 25 percent of estimated market appreciation, and 100 percent of the value of home improvements (Glover, Blackwell, and McCulloch 2002). Shared equity homeownership can provide a more stable opportunity for homebuyers by managing downside risk. This program is particularly beneficial for low-income families who are less likely to experience asset appreciation under traditional homeownership because they are more likely to buy substandard housing, live in declining neighborhoods, and suffer from income instability that may force them to lose their homes. Shared equity programs can limit homeowner risk by establishing a price floor that guarantees home owners will receive at least the amount they paid for their home upon sale. They can also provide counseling to help homeowners avoid predatory loan products and intervene to prevent foreclosure (Jacobus and Sherrif 2009). In fact, a recent study found that, because of these interventions, the foreclosure rate among community land trust homeowners was less than 1/10th the national average despite this population being disproportionately lower-income (NCB Capital Impact 2008). Shared equity homeownership programs can also be a stepping stone for mobility and asset building; while appreciation is limited, many shared equity participants are able to afford market rate homeownership after selling out of the program. In the
For more background on shared equity programs, see http://www.nhc.org/housing/ sharedequity.
21

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Burlington Community Land Trust, for example, the average annual rate of return on the first 97 homes resold was 30 percent; moreover, 74 percent of the participants who resold their homes were able to advance to market rate homeownership within six months after the sale and 5 percent traded up for better homes within the land trust (National Housing Institute 2003). If scaled up, shared equity programs have the potential to create a cost effective and self-sustaining supply of affordable homes. According to NBC Capital Impact, if the $300 to $400 million states and local governments currently invest each year in federal HOME allocations to subsidize low income homebuyers were dedicated to a shared equity homeownership program over 40 years, the country could build a supply of 1.2 million permanently affordable homes. With the half million or more existing shared equity housing units, this investment would meet the needs of almost 20 percent of the potential market for publicly assisted homeownership. The same amount of HOME allocations assists less than three tenths of one percent of this market (NCB Capital Impact 2008). Ultimately, a well-designed and dynamic shared equity homeownership program would augment a comprehensive housing policy and address a range of housing policy priorities, including expansion of homeownership, wealth creation, permanent affordability, and neighborhood stabilization and revitalization.22 Enforce fair-housing and fair-lending laws A final crucial intervention would be to strengthen enforcement of fair-housing and fair-lending laws. Unfortunately, a full 40 years after the passage of the Fair Housing Act, the law protecting the rights and interests of minority families in the housing market remain poorly enforced. Today, a conservative estimate by the National Fair Housing Alliance suggests that roughly 3.7 million instances of discrimination occur annually. At the same time, the number of cases brought by federal agencies responsible for fair-housing and equal credit opportunity enforcement is abysmally low. In fact, for more than a decade, community leaders, civil rights proponents, and consumer groups have warned about unfair, deceptive, and abusive lending practices targeted in communities of color. Yet, those pleas for better lending supervision were not only ignored, but in some cases contradicted by regulatory policy that weakened the ability of states to protect their own citizens from predatory lending. A lack of funding is a major part of the problem of poor fair-lending and fairhousing regulation. But money is not the only issue. A lack of appropriate coordination among various agencies responsible for enforcing civil rights and equal opportunity and insufficient political stature at the federal administrative level of government to make elimination of discrimination a national priority combine to undermine progress on this essential national mandate. In response to this continued failure to enforce the law, the National Community Reinvestment Coalition has asked for the establishment of a new cabinet-level agency focused on Civil Rights Enforcement. This agency would be responsible for measuring, monitoring, and eliminating all forms of discrimination from our society once and for all. And given the importance of housing to accessing opportunities for social and economic advancement, housing related laws would be among the new
22

For more case studies in lease-purchase and shared equity homeownership models and other neighborhood revitalization strategies, see: Carr and Michelle Mulcahy, forthcoming.

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agency’s highest priorities. Enforcing the law would immediately open the door for millions of households who are ready and prepared to access improved housing opportunities and for whom the only impediment is illegal discriminatory actions. Develop a comprehensive housing policy America has long been in need of a comprehensive national housing policy (Carr, 2008a). Today, communities are struggling on various fronts and an effective housing policy must broaden its definition of ‘‘comprehensive’’ to go beyond supplyside and demand-side housing subsidies to intentionally linking housing investment to economic development and land use policies. An historic weakness of community investment initiatives is the lack of coordination between funding sources and programs. Traditionally, housing investment has not been tied to complimentary investment in, for example, infrastructure, the environment, education, job training, and social services. In the current atmosphere – in which local and state governments are struggling to balance their budgets, the federal government is facing a growing deficit, and Americans have seen wealth evaporate due to foreclosures and unemployment – comprehensive development is imperative to make sure that every dollar counts. The traditionally siloed approach prevents communities from simultaneously and sufficiently addressing the self-reinforcing problem of inadequate access to finance, foreclosure, abandonment, unemployment, and neighborhood decline. Two recent federal programs provide an example of a missed opportunity to leverage housing investment to facilitate broader community benefits. The HUD’s Neighborhood Stabilization Program (NSP) addresses vacant and abandoned property left in the wake of the foreclosure crisis by providing funding for housing purchase and rehabilitation. The program does not, however, fund foreclosure prevention, nor does it fund job training, both of which are necessary for full recovery. While federal foreclosure interventions have struggled, some local programs have shown great promise in limiting foreclosures. Allowing NSP dollars to be used to support local foreclosure mitigation efforts would have enhanced community revitalization efforts without requiring additional subsidies. Moreover, many areas hardest hit by the foreclosure crisis have also been hardest hit by unemployment. Without intentional job creation efforts, the housing reclamation funded under NSP may be undermined by stagnant employment options for local residents. To address this disconnect, HUD and the Department of Labor could have coordinated to provide job training and placement funding so that the housing rehabilitation work could have directly provided job opportunities to area residents. The departments could have targeted the subsequent Pathways out of Poverty grant from the Department of Labor, which funded job training and placement programs for unemployed and hard-to-employ residents in green jobs, to communities implementing NSP funds. While both programs targeted funding to communities that need the most help by looking at income, unemployment, poverty and other indicators at the neighborhood level, the two programs could have been coordinated to broaden their impact on these communities. Leverage housing redevelopment to create jobs HUD’s NSP is the largest-scale program implemented to date to address the current economic crisis at a community level. NSP addresses vacant and abandoned

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property left in the wake of the foreclosure crisis by providing funding for housing purchase and rehabilitation. It has assisted communities in taking advantage of deflated property values to pursue the preservation and expansion of affordable housing. Full recovery, however, depends on comprehensive community reinvestment. Concentrated and long-term foreclosures and vacancies wreak havoc on communities, particularly low-income and minority communities with fewer economic opportunities and safety nets. Moreover, many communities hard hit by the foreclosure crisis also suffer disproportionately from unemployment and long-term disinvestment. A comprehensive redevelopment strategy can more effectively limit or even preclude further foreclosures while simultaneously addressing vacant and abandoned properties, fostering the recovery of a homeownership market with diverse housing options, creating jobs for area residents through green building opportunities, investing in quality infrastructure, and providing amenities such as parks and community gardens as community assets and to attract further investment. To spur redevelopment, efforts in strong housing markets should focus on sparking private market investment, including financing mechanisms for rehabilitation and homeownership, nuisance abatement, and beautification. In weaker housing markets, strategies may involve more dramatic measures to reduce the supply of vacant homes, such as deconstruction and rezoning, which could re-envision blighted areas as parks and community gardens. Targeted efforts must also be implemented to rebuild the housing market. While homeowner assistance can help some new homebuyers, intermediary steps are needed to help bridge the gap between renting and owning for low-wealth renters and those with impaired credit scores. Lease-to-purchase and shared equity homeownership, discussed above, are promising approaches. In many communities, job creation is essential to rebuilding the housing market. We need to directly connect housing and infrastructure investments to job creation to get people back to work, particularly in distressed neighborhoods disproportionately impacted by the twin crises of foreclosures and job losses. For years, people have been overburdened with debt because of stagnated wages; the subprime and unemployment crises were just the nail in the coffin, but the box was already built. Housing and infrastructure investments would create immediate jobs through rehabilitation, construction, and retrofitting initiatives. Training and business development programs should leverage these immediate opportunities to promote long-term industry growth and to foster entrepreneurship. A comprehensive strategy should train workers, connect them to ready jobs, provide ongoing opportunities for career advancement, and foster small businesses creation, specifically in green and growing fields. Comprehensive job readiness programs should include training for employment in growing industries and work that offer long-term career ladders. These programs should provide supportive services to overcome barriers to participation, such as transportation and child care, as well as wrap-around services, such as adult education and GED classes. Seamless job placement can be facilitated through a direct connection with apprenticeship programs and first-hire agreements with ready employers. The program should offer ongoing career advancement opportunities for trainees that want to specialize or advance within their field. These programs should be supported by up-to-date labor market research to ensure the occupations and skills being taught are in demand within the regional economy. To ensure that the jobs created offer living wages, benefits and long-term opportunities, Community Benefit Agreements (CBAs), and the public bidding

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process can include local job requirements in housing market and construction activities that ensure a living wage and that offer apprenticeship programs and opportunities to advance. CBAs are legally binding contracts negotiated between developers and community groups that provide community residents with specified benefits, which may include living-wage jobs for local residents, public services such as child care and health care, and community assets, such as parks and open space (Gross, LeRoy, and Janis-Aparicio 2005). Through public bidding specifications, government can require contractors to, for example, provide training, hire lowincome residents, and pay prevailing wages. An immediate opportunity to create jobs through housing investment would be to expand enforcement of and use of best practices in HUD’s Section 3 implementation. HUD’s Section 3 statute requires recipients of HUD money to contract with businesses owned by local low-income residents, those that employ a significant number of low-income residents or those that agree to subcontract with a significant amount of such businesses and requires recipients to train and hire low-income residents on the HUD-funded project. Before 2006, only 4 percent of recipient agencies reported their Section 3 compliance; as recently as 2009, only 25 percent of recipients reported their compliance and 80 percent of those reporting failed to meet the minimum requirements (Trasvina 2010). Enforcing Section 3 could create a significant number of jobs for the most vulnerable residents: It has been estimated that, when HUD’s funding that was eligible for Section 3 requirements was $3 billion, 16,000 jobs could be created annually for low-income residents; now that HUD’s eligible budget is over $20 billion (Sard and Kubic 2009), this number could be closer to 100,000.23 As a whole, HUD’s Section 3 has not been sufficiently enforced. However, some cities have been aggressive at implementation and enforcement of Section 3 locally. Kansas City, Missouri, for example has established an effective program by creating a Section 3 Office within the city’s Human Relations division to ‘‘link contractors with potential employees, alert Section 3 business concerns to opportunities, and monitor and enforce compliance’’ (Sard and Kubic 2009), including on-site monitoring.24 The office certifies Section 3 businesses and residents and is involved in Section 3 planning and reporting. The office also contracts with the Full Employment Council of Greater Kansas City, which certifies and provides skills assessment, job training and placement for Section 3 residents. Contractors and major subcontractors working with the city on applicable projects have to submit Section 3 Utilization Plans, which require a designated Section 3 coordinator; a projection of new hires and a commitment to hire low-income residents as a specified percentage of these new hires; and a Section 3 Business Concerns Utilization Plan that lists the eligible businesses – those that are owned by local low-income residents or that employ a significant number of low-income residents – to be used on the project. The contractors are also required to aggressively outreach and market bid opportunities to Section 3 businesses.25
23

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For examples of effective strategies for local implementation of Section 3, see Carr and Mulcahy, forthcoming. 24 Kansas City, Missouri Section 3 Program. September 9, 2009. www.hud.gov/local/shared/ news/r4/pres/section3-090909/kansascity.ppt 25 Kansas City, Missouri Section 3 Program. September 9, 2009. www.hud.gov/local/shared/ news/r4/pres/section3-090909/kansascity.ppt

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The Section 3 Office also provides assistance for Section 3 businesses, including case managed technical assistance, bidding assistance, and bonding assistance.26 The program’s successes include providing free training for more than 90 Section 3 business concerns and small businesses and awarding 16 percent of the City’s HUDfunded contracting activity with Section 3 businesses.27 Support business development to expand job creation opportunities Supporting small businesses is also crucial for job creation, economic development, and community reinvestment. Small businesses comprise the majority of economic activity in America; in fact, small businesses employ more than half of American workers, produce more than half of the country’s non-farm private GDP, and have created 60 to 80 percent of the nation’s net new jobs annually over the past decade (Covel 2008). The proportion of new jobs located in disadvantaged communities that are created by small firms is even higher (Porter 2010). Job training programs should integrate small business creation and incubation into their curriculum; construction training programs, for example, can offer support for their trainees to establish small contractors or salvage shops. To support business development, governments and local financial institutions should expand access to credit, particularly for minority-and women-owned businesses. Congress recently expanded the Community Reinvestment Act examination criteria to include the collection of race and gender of small business owners and other characteristics; this measure will likely increase responsible lending to minority- and women-owned businesses just as lending to minority and women homebuyers increased when the Home Mortgage Disclosure Act was amended in 1988 to require the reporting of race and gender of the borrower (National Community Reinvestment Coalition 2007). At the local level, municipalities and economic development organizations can establish programs to support small businesses that fill in gaps in the private market by providing, for example, seed money, below-market rate loans, loan guarantees, and business incubation. They should also create or expand programs that provide technical assistance and capacity building for small businesses. Establish more efficient land use patterns National housing policy should also look beyond crisis recovery and take a proactive approach by facilitating more efficient land use patterns. Lower cost, more efficient and environmentally sensitive land use in which housing investment is accessible to transportation options, schools, and green space and zoning laws facilitate mixeduse development would reduce living costs, ameliorate the jobs-housing imbalance and create healthier and more sustainable communities. Directly tying housing to land use will also support Americans who want to age in place. As nearly 20 percent of the US population will be over 65 by 2030 (Administration on Aging 2010), providing a mix of housing types in proximity to retail and services and around multi-nodal transit should be an explicit policy goal.
Councilwoman Saundra McFadden-Weaver. Building a stairway to economic selfsufficiency. http://www.hud.gov/offices/fheo/partners/04conference/kc_section3.pdf 27 Kansas City, Missouri Section 3 Program. September 9, 2009. www.hud.gov/local/shared/ news/r4/pres/section3-090909/kansascity.ppt
26

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Better land use policy would comport well with the President’s call for significant infrastructure investment, which would in turn expand job creation opportunities. Last year, President Obama articulated the need to put America back to work through a major infrastructure investment program. Congress should return to that idea and enact such a program. Much of the nation’s infrastructure is aging and in dire need of repair or replacement. Infrastructure spending should not be limited to bridge and highway construction in the suburbs. Rather it should focus on improving or building commuter and high-speed rail lines, upgrading communications systems, renovating or building schools and community colleges, as well as state of the art job training facilities, investing in dams, waterways, and water treatment facilities, reclaiming key wetlands, and improving the basic livability of impoverished neighborhoods. Investing in infrastructure could create important efficiencies to the economy, promote green jobs, improve the environment, and provide needed and targeted employment and training opportunities in disadvantaged urban and rural communities, as well as Native American tribal lands.
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Comprehensive redevelopment: a case study Some communities have successfully coordinated efforts to proactively facilitate comprehensive redevelopment. Communities are also beginning to proactively leverage their redevelopment work to train residents in basic skills, as well as to develop and grow the green economy and create an experienced workforce. The ‘‘Green Impact Zone,’’ for example, is a comprehensive initiative located in one of Kansas City, Missouri’s most distressed neighborhoods. That area has struggled for decades with ‘‘abandoned homes, an unemployment rate that’s as high as 53 percent in some census tracts and gun violence that takes many young lives.’’ The program envisions this neighborhood as ‘‘a center of green jobs, retrofitted energy-efficient homes, a green transportation system and hopeful residents’’ (Grady 2009). Championed by Representative Emmanuel Cleaver (D-Missouri), the Green Impact Zone establishes a 150-block area where funding from the city, grants established under the American Recovery and Reinvestment Act (ARRA), and other federal funding programs will be funneled to implement the program. The main components include: a home weatherization project for 2,500 homes, which would create jobs and lower energy costs for area residents through energy audits and weatherization; green infrastructure, including park, public space, and streetscape improvements; and a bus rapid transit system; energy and water conservation, including a ‘‘green sewer’’ demonstration project and a smart electric grid; and a job training and placement program for ex-offenders in green building, park restoration and transit work (Grady 2009; Bell 2009). The initiative also includes community policing and social services including health and wellness programs (The Green Impact Zone 2009a). These initiatives will leverage and coordinate existing programs and resources as well as establish new programs with grants and other resources (The Green Impact Zone 2009b). Kansas City is also studying the potential of developing a Climate Sustainability Center in the Zone, which would involve ‘‘the construction of a ‘living campus’ that is powered by renewable energy and fosters green jobs and training’’ (Koppen 2009). The Center would be developed and run by the City – through its Board of Parks and Recreation Commissioners and the Parks and Recreation Department – in

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partnership with the University of Missouri and other area corporate, labor, and institutional entities and would focus on three components: . Education and job training – The curriculum, including classroom, laboratory and workshop programs, would be established by the job providers and educational partners. The programs would provide hands-on training and employment opportunity services to students and graduates. . Research – the center would provide educational, research and laboratory studies on climate change and development of environmentally friendly applications and products that reduce our carbon footprint. It would include a green, small-business incubator. . Botanical garden – A cutting-edge, hands-on botanical garden would offer opportunities for botanists, horticulturists, scientists, students and the public to cultivate, categorize, document and tend to a wide variety of plants native to the area, and to focus on climate-friendly agriculture techniques and processes for farmers and related small businesses (Koppen 2009). Although the elements of the Green Impact Zone are not revolutionary, the comprehensive approach makes it a promising best practice model for emulation by other communities across the nation (Bell 2009).28 Implementation of this broader scope within housing policy would require flexible funding and significant coordination between housing agencies and other government departments, including transportation, environment, labor, and health and human services. At the Federal level, HUD has started to take this broader approach with the creation of an Office of Sustainable Housing and Communities with the stated goal of developing ‘‘strong, sustainable communities by connecting housing to jobs, fostering local innovation, and helping to build a clean energy economy.’’29 This new office is managing interdepartmental partnerships between HUD, the Department of Transportation, the Environmental Protection Agency, and the Department of Energy. HUD has also begun to enhance its enforcement of Section 3, which has increased the number of local agencies that report on their Section 3 efforts to 75 percent (Goodloe 2010). The role of Housing Policy Debate over the next twenty years The current economic crisis has revealed weaknesses in the financial system and economy that were years in the making. The resulting damage to household net worth, homeownership, employment prospects, safe communities, reasonable public amenities, and other aspects of American life long taken for granted cannot be effectively addressed with piecemeal and limited subsidies and investments. Fortunately, comprehensive interventions are the most cost-effective ways for government to promote public policies. And the need to leverage available public resources has never been greater.
28
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For more case studies in neighborhood revitalization strategies, see: Carr and Mulcahy, forthcoming. 29 Sustainable housing and communities: overview. Department of Housing and Urban Development. http://portal.hud.gov/portal/page/portal/HUD/program_offices/sustainable_ housing_communities

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Having said that, leveraging public funds for housing and community investment without significant increases above today’s spending levels, will be inadequate to bring about significant positive change in the lives of low- and moderate-income and minority families across America. In fact, the current economic environment will continue to be a painful one for a large share of the general US population without substantially greater investment in job creation and economic mobility. Perhaps a useful exercise would be for federal urban policy experts to review the past 20 years of Housing Policy Debate to extract best practices to promoting more empowering and effective community investment strategies and ultimately a more vibrant, healthy, and equitable America. Going forward, these best practices can be updated in future issues of Housing Policy Debate to take into consideration today’s economic realities. The pages of the past two decades of Housing Policy Debate already contain many if not most of the solutions currently needed to succeed over the next twenty years! References
Administration on Aging. 2010. Aging statistics. May 11. http://www.aoa.gov/AoARoot/ %28S%28ela1biqvjn2q3aadbzdmbt45%29%29/Aging_Statistics/index.aspx. Appelbaum, Binyamin, and Ellen Nakashima. 2008. Banking regulator played advocate over enforcer. Washington Post, November 23. http://www.washingtonpost.com/wp-dyn/content/ article/2008/11/22/AR2008112202213.html?nav¼rss_politics. Baker, Dean 2010. Testimony on the subject of the successes and shortcomings of the Home Affordable Modification Program. Presented to the US House of Representatives, Committee on Financial Services, Subcommittee on Housing and Community Opportunity, April 14. http://www.house.gov/apps/list/hearing/financialsvcs_dem/testimony_-_baker_ 4.14.10.pdf. Bell, Judith. 2009. Innovative stimulus spending in Kansas City. Nieman Foundation for Journalism at Harvard University, June 19. http://www.niemanwatchdog.org/index.cfm? fuseaction¼ask_this.view&askthisid¼00415. Bureau of Labor Statistics, US Department of Labor. 2010. Employment Situation Summary: August 2010, September 3. http://www.bls.gov/news.release/archives/empsit_09032010.htm. Caplin, Andrew, James H. Carr, Frederick Pollock, and Zhong Yi Tong. 2007. Shared-equity mortgages, housing affordability, and homeownership. Fannie Mae Foundation. http:// ssrn.com/abstract¼983100. Carr, James H. 2007. Responding to the foreclosure crisis. Housing Policy Debate 18, no. 4: 837–60. Carr, James H. 2008a. Reconsidering national housing policy. Special issue, Partners in community and economic development. Federal Reserve Bank of Atlanta 18, no. 3. http:// www.frbatlanta.org/pubs/partners-no_3_2008-reconsidering_u_s_housing_policy.cfm. Carr, James H. 2008b. Understanding the foreclosure crisis: don’t believe the hype. Speech before Annual Convention of the National Association for the Advancement of Colored People. Cincinnati, Ohio, July 14. Carr, James H., and Katherine Lucas-Smith. Forthcoming. Five realities about the current crisis. Suffolk Law Review. Carr, James H., and Michelle Mulcahy. Forthcoming. Rebuilding communities in economic distress: Local strategies to sustain homeownership, reclaim vacant properties, and promote community-based employment. Cauchon, Dennis 2010. Banks receiving government aid cut loans. USA Today. April 22, http://www.usatoday.com/money/industries/banking/2010-04-21-tarp-banks_N.htm. Center for American Progress. 2010. A New Way Forward. February 24. http:// www.americanprogress.org/events/2010/02/sharedequity.html. Center for Housing Policy. 2010. Analysis of HUD fiscal year 2011 budget proposal. http:// www.nhc.org/index/FY2011-budget-proposal. Center for Responsible Lending. 2007. Subprime lending: a net drain on homeownership. CRL Issue Paper #14, March 27. http://www.responsiblelending.org/mortgage-lending/ research-analysis/Net-Drain-in-Home-Ownership.pdf/.
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NCB Capital Impact. 2008. Shared Equity Homeownership: A New Path to Economic Opportunity. http://www.ncbcapitalimpact.org/uploadedFiles/downloads/SEH_Vision1008.pdf. Porter, Michael. 2010. How Big Businesses Can Regain Legitimacy. Business Week, May 6. http://www.businessweek.com/smallbiz/content/may2010/sb2010055_195618.htm?chan ¼smallbiz_specialþreportþ–þinnerþcityþ100þ2010_specialþreportþ–þinnerþcityþ100 þ2010. Powell, Michael. 2010. Wealth, Race, and the Great Recession. New York Times, May 17. Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). 2010. Factors affecting implementation of the Home Affordable Modification Program. SIGTARP-10-005, March 25. Olver, Melvin, and Thomas M. Shapiro. Sub-prime as a Black catastrophe: first came racial redlining. Then came racial targeting of toxic and predatory loans. Both spelled economic disaster for African Americans. The American Prospect, October 1, 2010. http://www. allbusiness.com/economy-economic-indicators/economic-indicators-home/12003591-1.html. Out of Reach. 2010. National Low Income Housing Coalition, 2010. http://www.nlihc.org/oor/ oor2010/introduction.pdf. Reilly, David. 2010. Rule switch is liable to hit banks’ books. Wall Street Journal, May 27. http://online.wsj.com/article/SB10001424052748704717004575268893191849602.html? KEYWORDS¼bankþbalanceþsheets. Reuters. 2010a. Home prices show renewed pressure. May 25. http://www.nytimes.com/ reuters/2010/05/25/business/business-us-usa-economy-homes-index.html?_r¼1&ref¼ business. Reuters. 2010b. Mortgage Investors See Headway on Second Liens, April 12. http:// www.reuters.com/article/idUSTRE63B63F20100412. Riordan, Christine. 2010. The crisis of long term unemployment and the need for bold action to sustain the unemployed and support the recovery. National Employment Law Project, June. http://www.nelp.org/page/-/UI/2010/long.term.unemployment.fact.sheet.pdf?nocdn ¼1%20?nocdn¼1. Rivera, Amaad, Jeannette Huezo, Christina Kasica, and Dedrick Muhammad. 2009. State of the dream 2009: The silent depression, January. United for a Fair Economy. http:// faireconomy.org/files/pdf/state_of_dream_2009.pdf. Roberts, Buzz. 2009/2010. Strengthening the low income housing tax credit market. Community Investments 21, no. 3. http://www.frbsf.org/publications/community/investments/ 0912/roberts_buzz.pdf. Saphir, Ann. 2010. US business loan demand climbs in March. Reuters, May 3. http:// www.reuters.com/article/idUSTRE64218X20100503. Sard, Barbara, and Micah Kubic. 2009. Reforming HUD’s ‘‘Section 3’’ requirements can leverage federal investments in housing to expand economic opportunity. Center on Budget and Policy Priorities, June 10. http://www.cbpp.org/files/6-10-09hous.pdf. Sharga, Rick. 2010. Presentation at Neighborhood Stabilization in 2010 Conference. Fannie Mae, Washington, DC, January 26–27. Shenn, Jody, and John Gittelsohn. 2010. FHA home-financing volume sign of ‘very sick system’. Bloomberg, May 27. http://www.businessweek.com/news/2010-05-24/fha-homefinancing-volume-sign-of-very-sick-system-update2-.html. Streitfeld, David. 2010. US home sales at lowest levels in more than a decade. New York Times, August 24. http://www.nytimes.com/2010/08/25/business/25econ.html. Taylor, John. 2010. Testimony on the subject of the impact and execution of the Department of the Treasury’s foreclosure prevention efforts and the Home Affordable Modification Program (HAMP). Presented to the US House of Representatives, Committee on Oversight and Government Reform. March 25; Mortgage modification survey. 2010. National Community Reinvestment Coalition, April. http://www.ncrc.org/images/stories/ mediaCenter_reports/hamp_report_2010.pdf. The New York Times. 2010. Three bank failures bring total for year to 81, June 4. http:// www.nytimes.com/2010/06/05/business/economy/05bank.html?scp¼2&sq¼&st¼nyt. Timiraos, Nick. 2010. US role in mortgage market grows even larger. Wall Street Journal, April 30. http://online.wsj.com/article/SB10001424052748704093204575216530213580458. html.

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