HELPing Save a Neighborhood
As of April 2008, foreclosures increased 65 percent nationally from a year ago according to RealtyTrac.com. The housing crisis and subsequent rise in foreclosures are a national issue. However, foreclosures have decimated some neighborhoods on a muchmore local scale. In some of these neighborhoods, vacant homes are the norm, causing increases in vandalism and other crimes. One of the areas hit especially hard is in suburban Charlotte, North Carolina.
A neighborhood known as PeachtreeHills is located northwest of the city. It is a 147-unit subdivision, and as many as 40 of the houses lay vacant due to foreclosures driven by predatory lending activity (CU Journal). One Peachtree Hills resident says, ‘I feel likeI live in an old ghetto. You never know when somebody’s going to come kick your door in. And it seems like the city is just ignoring our problems.(Charlotte.com).
Two affiliates of Self-Help CU ($297million in Durham, NC) recently became involved in a pilot program to fix this hard-hit neighborhood. Self-Help Ventures Fund and Self-Help Community Development Corporation propose to buy the foreclosed homes from the lien holders, fix damage fromvandalism or neglect, then sell or lease-to-own to potential borrowers. In addition, future homeowners may be financed through the Self-Help Credit Union.
The Trigger
Early last fall, Self-Help discussed the variouslevels of assistance that needed to be provided as the crisis worsened. Hard-hit neighborhoods are long-term problems for cities as crime rates increase, property values drop, and tax revenues fall. They asked the question, ‘Howcan we stem the effects of foreclosures in these cities? The Center for Responsible Lending (another Self-Help affiliate) estimates that home values decline $5,000 for each nearby foreclosed property. To stem price declines, Self-Helpdecided to take action.
This program required the involvement of local and national entities. Self-Help had an existing relationship with Fannie Mae through its national single-family mortgage secondary market. Through this program, Self-Helphas credit-enhanced $5 billion of single-family home loans to low and moderate-income households across the country. These loans were originated by other financial institutions, purchased and credit-enhanced by Self-Help, then sold to Fannie Mae.In recent months, the Self-Help Ventures Fund has been working with Fannie Mae to incorporate a lease-to-purchase product into Self-Helps existing secondary market program. The product is designed to allow households who can affordthe lease payments, but who are not eligible for a home loan, to lease the home from a nonprofit while they build up a down payment and/or repair their credit for up to five years, until they can qualify to assume that mortgage. Self-Help also hopesthe program will facilitate more rapid redeployment of foreclosed homes in neighborhoods thus increasing the stock of wealth-building community assets once again. As part of this agreement, lease-purchasers will participate in financial counseling.Fannie Mae has given Self-Help $200 million in lending authority for the lease purchase program.
Self-Help also partnered with the city of Charlotte. According to Evan Covington-Chavez, Residential Development Director for Self-Help,the ‘stars aligned to make this relationship possible. The city focused attention on this neighborhood and others in formulating plans on how to deal with vandalism, poor infrastructure and safety. With Self-Help workingon the home financing side of the issue, the two sides met and realized they complemented each others initiatives. In addition, the city will cover some neighborhood renovation costs, increase code enforcement, improve recreationalfacilities, ensure all solid waste is removed from the neighborhoods, and increase police coverage to reduce vandalism and other crimes. The two sides now have weekly meetings to discuss progress and strategize around next steps.
Going Forward
Dealing with vacant properties and crime issues was the first goal of this pilot program. The institution is also eyeing ways to help borrowers currently in or at risk of entering the foreclosure process. Short sales and possible leasing back tothe borrower is one strategy they are analyzing. Each case will be unique and will require careful review of the homeowners financial situation. Self-Help will work hard to ensure that all participants in the program will be ableto assume a mortgage. Through the partner counseling agency, Self-Help will be able to offer both credit counseling and homebuyer preparation for its participants as well as other neighborhood residents.
On a national scale, Fannie Maeand Self-Help wish to continue their efforts with the rent-to-own program. ‘This is really just one tool out of many that need to be implemented. We are also looking to prove to city and state leaders that services and partnershipssuch as these can keep our neighborhoods from falling into disrepair, Covington-Chavez states.
Credit unions across the country can learn from what is happening in Charlotte, NC. Partnering with community organizations andlocal governments can go a long way to helping stem the foreclosure crisis. These groups face decisions relating to local housing and crime trends every day and know where a local credit union would be the best fit to help.
