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Center for Social Inclusion: A Project of the Tides Center

65 Broadway, Suite 1800, New York, NY 10006

Phone: (212) 248-2785 / Fax: (212) 248-6409


Congress is poised to pass federal economic stimulus legislation, merging the bills that emerged
from the US House of Representatives and the US Senate.

States are poised to receive significant federal funding in an effort to put people back to work
and stabilize the sinking housing market as the first steps in a process toward economic recovery.

Government has to be smart about how it uses our money. The stimulus package alone will not
be enough to put everyone who needs a job back to work and it will not be enough to make sure
every family has a safe place to live. But if it is allocated wisely and fairly, it can be a powerful
boost to the economy and help fix the damage done to our housing system.

To do that, states must ensure that those in the most need benefit from stimulus. While we have
made much progress on race and gender equality in this country, we have not yet achieved full
fairness, and these inequities limit prosperity for all of us.

Targeting stimulus funds to communities in need is not only the fair thing to do, it is the effective
thing to do. Considerable research, by Professor Manuel Pastor and others, shows that investing
in equity builds the regional economy and helps everyone.i

A Racial Equity Lesson

The nation’s financial crisis was jump-started by the mortgage crisis. There is an important
lesson to be learned from looking at the origins of the crisis in racial exclusion from fair lending

• National research has shown that up to 35% of those with subprime loans could have
qualified for normal, prime mortgages.ii

• Blacks and Latinos are much more likely to have sub-prime mortgages than their White
counterparts even when they have the same income.iii In fact, there is a larger sub-prime-
prime gap between Blacks and Whites at higher income levels.iv

• Because of usurious loans, Black and Latino communities are much more unstable in the
current crisis than White communities, facing higher foreclosure rates as well as the ripple
effects of this crisis – higher unemployment rates, lower wages, fewer assets and greater
health care related stresses.
If we had paid attention to the most distressed communities, we would have identified some
problems that needed correcting for all mortgage seekers and possibly averted the financial crisis
we now face. The good news is we can learn from this mistake. With the economic stimulus
package, we have the opportunity to adopt policies of inclusion and prosperity for all. Several
key principles can help achieve that goal:

1. Stimulus money must address the housing crisis by alleviating foreclosures,

developing truly affordable housing for those most in need, and connecting low-cost
housing to opportunity infrastructure such as public transportation, jobs, and good

Affordable housing is disappearing across the country. For many, incomes are just not keeping
up with the increasing cost of rent or mortgage payments.

The foreclosure crisis, the central cause of the current recession, is stripping wealth from every
community, but especially communities of color. Additionally, waves of foreclosures are
pushing homeownership further out of reach for many and destabilizing communities as tax
revenues shrink and public services, such as education, struggle to stay fiscally solvent.

Stimulus spending can stem foreclosures, rehabilitate already-lost properties, and build
housing opportunity through strategic use of the Neighborhood Stabilization Program.

The Neighborhood Stabilization Program (NSP) is authorized by Title III of the Housing and
Economic Recovery Act of 2008. NSP offers grants to states and certain smaller municipalities
to buy and redevelop foreclosed properties. Granted funds must be used as part of a
comprehensive plan for revitalization or redevelopment of the sites for affordable housing.

Funding decisions prioritize areas with the greatest percentage of current and expected
foreclosures, the greatest percentage of homes financed with subprime mortgages, and the
greatest amount of vacancies. Guidelines state that funds benefit households below 120% of the
local Area Median Income (AMI). Additionally, 25% of funds must assist households that have
no more than 50% of AMI.

Rehabilitating foreclosed homes is an important goal, but state implementation of NSP can
improve on the original goals:

• AMI is an inappropriate standard from which to determine affordability. For example,

AMI for New York City is $74,600, but 68% of households earn less than this.v
Furthermore, those most likely to be in foreclosure almost certainly have even lower
incomes. By relying on AMI to decide affordability, NSP could result in further pulling
housing opportunity away from economically-distressed households. NSP should use a
smaller geographic area than that used in AMI to determine affordability.

• To get at the root cause of the problem, NSP needs to dedicate more money towards
stopping foreclosures, rather than addressing already-foreclosed homes. Foreclosure
activity was up a distressing 81% in If NSP does not get in front of this trend, we
will be unable to deal with the consequences.

• Program funds should be linked to programs that ensure that people who have lost homes
in foreclosure have the opportunity to buy homes they can afford at interest rates that are

• In addition to already-existing criteria, NSP should prioritize saving and rehabilitating

housing located near other opportunity structures – jobs, public transit, good schools, etc.

2. Stimulus money should focus on building homeownership opportunities for the

poor and other disadvantaged communities.

Homeownership built the middle class, and home equity accounts for the majority of asset
wealth of the typical middle class family. In addition to making families more financially stable,
homeownership makes communities more stable by securing residents and establishing tax

Unfortunately, not everyone has the same access to homeownership. Because of historic and
present-day discrimination and exclusion, people of color have significantly lower
homeownership rates than Whites. Unfair lending practices, at the heart of the current crisis,
have pushed the dream of homeownership further out of reach for many people of color. For
example, Black and Latino mortgage seekers earning over $350,000 per year were more likely to
be offered a subprime loan than White mortgage seekers earning under $50,000 per year.vii

States should ensure that lower-income people can take advantage of low home prices and the
home tax credit to become homeowners and get on the road to asset development.

The stimulus legislation includes a tax credit for homebuyers buying a primary residence. As
many as 1 million home sales could result from the tax credit, according to Mary Trupo of the
National Association of Realtors. Unfortunately, not all homebuyers will benefit equally. To
take full advantage of the credit, buyers would have to earn enough to use it and spend at least
$150,000 on a home.viii

The National Low Income Housing Coalition points out that, since the money comes as a
deductible tax credit, homebuyers must earn enough to pay taxes to get any benefit and as much
as $81,900 per year for a family of four to get the full benefit. However, the median income for
a Black or Latino family was only $40,000 in 2007.

Additionally, when the home costs less than $150,000 the deduction is only worth 10% of the
house's value, meaning that those buying the cheapest homes wouldn't receive the full benefit.

• Lower-income families could be given an opportunity to buy homes if government finds

creative ways to use CDBG funds to support their access to homeownership opportunities.
• Tax credits for home purchases should be on a progressive scale, with lower-income
buyers receiving proportionally-larger credits and a cap on the largest credit possible.

3. Housing stimulus programs should address the growing rental crisis made worse
by foreclosures.

Affordable rental housing is disappearing, especially government-subsidized housing.

Subsidized housing that still exists, largely in the form of Section 8 or Low Income Housing Tax
Credit (LIHTC) units, often remains isolated in a few communities far from good jobs,
transportation options, or decent schools.

Additionally, an often-ignored aspect of the foreclosure crisis is foreclosures in the rental market.
Some research shows that almost 40% of foreclosed properties nationally were rental properties,
with rates approaching or surpassing 50% in Nevada, Illinois, and New York.ix The poor,
women, and people of color are all more likely to be renters and are therefore disproportionately-
harmed by this distressing reality.

Policies and programs must stabilize the rental market by stemming foreclosures, preventing
evictions, and easing the transition for distressed renters.

The National Low Income Housing Coalition recommends these strategies to protect renters in
the case of foreclosure:

• Adopt laws that prevent tenants from being evicted due to foreclosure

• Adopt or increase requirements for notice to tenants of a pending foreclosure

• Ensure that multifamily foreclosures do not harm renters’ future housing options

In addition, government should:

• Provide funding for land banks to buy foreclosed properties and rent them back to the
former homeowners

• Provide funds for credit repair counseling

• Provide assistance with first- and last-month’s rent, security deposits, and the housing
search process

4. Stimulus programs must ensure that all communities are benefiting from this
public investment.

While the whole country is suffering in this economic downturn, some communities are hurting
more than others. Communities of color were worse off before the crisis and were most likely to
be victimized by predatory lenders. Because of this, even the most well-intentioned policies
could end up harming or leaving out communities of color.
For example, research on the Housing Choice Voucher Program in Southern California found
that people of color who participated in the program ended up living in neighborhoods with
higher poverty than White participants, even when controlling for factors like rent and mobility.x
In other words, even though a policy is race-neutral on its face, its impact can be different across

In the construction industry, which will benefit heavily from investment in “shovel ready”
projects, men of color and women of all races are significantly under-represented.

• Blacks, who make up 11% of the total workforce, only make up 6% of those working on

• Latinos, on the other hand, are generally over-represented, but their jobs typically are less
skilled, less unionized, pay less and are more dangerous.xi

• Women only hold 3% of construction jobs.

A study by the Brookings Institution shows that, nationally, over half of all Blacks live more
than five miles from job centers, as do more than forty percent of all Latinos and Asians,
compared to a third of Whites. Blacks and Latinos are six times as likely to rely on public transit
compared to Whites.

Stimulus-funded housing investments should recognize differences in labor segmentation by

race and gender to ensure an equitable distribution of the stimulus’ benefits.

• Housing construction and rehabilitation projects funded by the stimulus package can
benefit unemployed people of color and women if specific incentives and enforcement
tools are enacted to ensure fair access to these opportunities. All stimulus projects should
require local resident hiring goals and create a link to community-based groups as the first
line contact for construction jobs. Local hiring requirements are a proven approach to
bring jobs to under-represented constituencies in construction trades. These requirements
can be applied to permanent jobs as well.

Stimulus investments should support infrastructure projects that benefit distressed

communities, not solidify inequities.

• The term “shovel ready” conjures up images of highways and bridges, but investment in
public transit options that help connect communities with high rates of unemployment to
job centers will create more jobs and longer term benefits to the economy than road repair
alone. Public transit investments should go beyond urban centers to benefit rural poor
communities and help urban communities reach suburban job centers.

Affordable housing initiatives must target those communities worst-off in this economic crisis
and establish mechanisms to monitor and analyze results.
• Data collection on the race, ethnicity and gender of those served by stimulus money is
critical to evaluating the success of the stimulus package and to inform government
officials, advocates, and the public about what works and what does not.
Manuel Pastor et al., Regions That Work: How Cities and Suburbs Can Grow Together (University of Minnesota
Press, 2000)
Christy Rogers, john a. powell, Andrew Grant-Thomas. “Subprime Loans, Foreclosure, and the Credit Crisis What
Happened and Why? - A Primer,” Kirwan Institute for the Study of Race and Ethnicity at the Ohio State University.
December 2008
Allen J. Fishbein, Patrick Woodall, “Subprime Locations: Patterns of Geographic Disparity in Subprime
Lending”, Consumer Federation of America, September 5, 2006
Debbie Gruenstein Bocian, Keith S. Ernst and Wei Li, “Unfair Lending: The Effect of Race and Ethnicity on the
Price of Subprime Mortgages,” Center for Responsible Lending, May 31, 2006
2008 HUD Area Median Incomes
“Foreclosure Activity Increases 81 Percent in 2008” RealtyTrac Jan. 15, 2009
Vikas Bajaj and Ford Fessenden “What’s Behind the Race Gap?” The New York Times November 4, 2007
Ben Meyerson and Sarah Gantz “Housing tax credit little benefit for many” Chicago Tribune February 9, 2009
“Policy: Prevent Foreclosures and Help Affected Renters and Owners” Accessed
February 11, 2009
Victoria Basolo, Mai Thi Nguyen. “Does Mobility Matter? The Neighborhood Conditions of Housing Voucher
Holders by Race and Ethnicity”, Housing Policy Debate 16, no 3/4 (2005): 297.
Todd Swanstrom, “The Road to Good Jobs: Patterns of Employment in the Construction Industry”, Second
Annual Report, Transportation Equity Network, Public Policy Research Center, University of Missouri, St. Louis,
September 30, 2008

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