Twenty Years of Housing Policy_Housing Policy Debate

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 theshadow of the foreclosure crisis, the collapse of the financial system, andpersistent unemployment. The authors outline the policy priorities necessary tofacilitate the recovery of the housing market in general and to encouragecomprehensive revitalization of the hardest hit communities.

Keywords: financial reform; housing market; foreclosure; unemployment; greendevelopment; 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: [email protected] Policy Debate has been successful in attracting many of the nation’s most prominenthousing scholars to serve as advisory board members since its first issue. The original boardconsisted of William Apgar, Robert Burchell, Stephen Buser, Stuart Butler, Peter Chinloy,Phillip Clay, Denise DiPasquale, Anthony Downs, James Follain, Anthony Freedman, JackGuttentag, David Listokin, Kenneth Lore, Richard Muth, Mary Nenno, Edgar Olsen, JohnQuigley, Kenneth Rosen, Anthony Saunders, Morton Schusseim, C. F. Sirmans, MichaelStegman, George Sternlieb, Raymond Struyk, and Susan Wachter.

Housing Policy Debate

Vol. 20, No. 4, September 2010, 551–576

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

Downloaded By: [Carr, James H] At: 16:36 6 October 2010

first associate editors, Steven Hornburg and Ellen Roche,2 who ensured thatHousing

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 individ-

uals 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 invest-

ment. 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

2Housing Policy Debate would not have been successful without its dedicated and talentedinitial assistant editors Patrick Simmons, Kathryn McLean, and Ellis Leslie.

552 J.H. Carr and M. Mulcahy


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.

3Office of Thrift Supervision. Mission and goals. http://www.ots.treas.gov/?p¼MissionGoal.

Housing Policy Debate 553


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

4RealtyTrac has reported over 300,000 foreclosure filings each month throughout 2010 and in10 of the 12 months of 2009.559 percent of homeowners with a mortgage would not consider walking away from theirhome no matter how much their home is ‘‘underwater’’ according to a new survey from Truliaand RealtyTrac, May 20, 2010. Available at: http://www.RealtyTrac.com/contentmanagement/pressrelease.aspx?channelid¼9&itemid¼9230.6Underwater mortgages are on the rise according to First American (CoreLogic 2010).



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 unemploy-

ment,’’ 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

7Annual Foreclosure Report 2009, Press Release. RealtyTrac.8HAMP’s total $75 billion budget is funded with $50 billion from TARP and $25 billion fromFannie Mae and Freddie Mac.9Gene L. Dodaro, Testimony on the subject of the Troubled Asset Relief Program: HomeAffordable Modification Program continues to face implementation challenges. GAO-10-556T. Presented to the US House of Representatives, Committee on Oversight andGovernment Reform. March 25, 2010.10For more information on the shortcomings of the HAMP program, see Carr and Lucas-Smith, forthcoming.11Gene L. Dodaro, Testimony on the subject of the Troubled Asset Relief Program: HomeAffordable Modification Program continues to face implementation challenges. GAO-10-556T.



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

12Except for 32 Municipios in Puerto Rico.



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).

13FDIC Failed Bank List: http://www.fdic.gov/bank/individual/failed/banklist.html.14FDIC Failed Bank List: http://www.fdic.gov/bank/individual/failed/banklist.html.



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 informa-

tion 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

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 high-

impact 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

15For more information on the shortcomings of the HAMP program and for more detailedrecommendations on ways to stem the foreclosure crisis and mitigate the damage fromdefaults, see: Carr and Lucas-Smith forthcoming).



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 mitiga-

tion 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

16For details regarding NCRC’s HELP Now proposal, please see: http://www.ncrc.org/index.php?option¼com_contentamp;task¼viewamp;id¼274amp;Itemid¼195.



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 exploitationof borrowers and the riskypractices of financial

institutions.Themeltdownof thehousingmarketwas 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 2006were

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).



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



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 risk-

based 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 post-

financial 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, whichmay 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 down-

payment 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



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 lease-

purchase 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

17Cleveland Housing Network Website http://www.chnnet.com/b_lease.asp18The Cleveland Foundation. https://tcfonline.clevelandfoundation.org/catalog/org.shtml?org_id¼7830.19Cleveland Housing Network News. http://www.chnnet.com/keybank_donates.asp20Self-Help Lease-Purchase Program. http://www.self-help.org/neighborhood-stabilization-program/Self-Help%20Lease%20Purchase%20Programforwebsite.pdf/view?searchterm¼

fannie%20mae



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 disproportio-

nately 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

21For more background on shared equity programs, see http://www.nhc.org/housing/sharedequity.



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 res-

ponsible 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 fair-

housing 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

22For more case studies in lease-purchase and shared equity homeownership models and otherneighborhood revitalization strategies, see: Carr and Michelle Mulcahy, forthcoming.



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 supply-

side 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



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 andminority 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 proper-

ties, 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



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 low-

income 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

23For examples of effective strategies for local implementation of Section 3, see Carr andMulcahy, forthcoming.24Kansas City, Missouri Section 3 Program. September 9, 2009. www.hud.gov/local/shared/news/r4/pres/section3-090909/kansascity.ppt25Kansas City, Missouri Section 3 Program. September 9, 2009. www.hud.gov/local/shared/news/r4/pres/section3-090909/kansascity.ppt



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 HUD-

funded 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 busi-

nesses 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 mixed-

use 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.

26Councilwoman Saundra McFadden-Weaver. Building a stairway to economic self-sufficiency. http://www.hud.gov/offices/fheo/partners/04conference/kc_section3.pdf27Kansas City, Missouri Section 3 Program. September 9, 2009. www.hud.gov/local/shared/news/r4/pres/section3-090909/kansascity.ppt



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 envi-

ronment, and provide needed and targeted employment and training opportunities

in disadvantaged urban and rural communities, as well as Native American

tribal lands.

Comprehensive redevelopment: a case study

Some communities have successfully coordinated efforts to proactively facilitate com-

prehensive 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



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.

28For more case studies in neighborhood revitalization strategies, see: Carr and Mulcahy,forthcoming.29Sustainable housing and communities: overview. Department of Housing and UrbanDevelopment. http://portal.hud.gov/portal/page/portal/HUD/program_offices/sustainable_housing_communities



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 ofHousing Policy Debate already

contain many if not most of the solutions currently needed to succeed over the next

twenty years!

References

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Wartell, Sarah Rosen. 2010. Hearing on housing finance – What should the new system beable to do?. The Committee on Financial Services, March 23. http://www.americanprogressaction.org/issues/2010/03/pdf/Wartell_testimony.pdf.

Whalen, Gary. 2004. The wealth effects of OCC preemption announcements after the passage ofthe Georgia Fair Lending Act. Economics and Policy Analysis Working Paper. Office of theComptroller of the Currency, December. http://www.occ.treas.gov/ftp/workpaper/wp2004-4.pdf.

White, Allen. 2010. Testimony on the subject of recently announced revisions to the HomeAffordable Modification Program. Presented to the US House of Representatives,Committee on Financial Services, Subcommittee on Housing and Community Opportu-nity. April 14. http://www.house.gov/apps/list/hearing/financialsvcs_dem/testimony_-_white_4.14.10.pdf.

Wood, Christopher. 2010. Don’t rule out a double dip recession. Wall Street Journal, May 24.http://online.wsj.com/article/SB10001424052748704852004575258332608266808-search.html?KEYWORDS¼%22doubleþdipþrecession%22&COLLECTION¼wsjie/6month.



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