We’ve recently been discussing the non-profit Self-Help, a group in North Carolina that starting in 1998 helped backstop mortgages for low-income families, helping them participate in the joys of homeownership.
NYU dean Dalton Conley wrote in a NYT op-ed that their program, which hasn’t resulted in severe foreclosures, is a model for expanding homeownership among the poor. We were sceptical of the premise (of wanting to expand homeownerhip to everyone) as well as the repicability of the scheme.
…what Conley leaves out is what happened next. Researchers at the University of North Carolina’s centre for Community Capitalism have been following Self-Help’s borrowers to see how they’ve fared, and while Self-Help’s loans have indeed performed well and seen relatively few foreclosures, a significant minority of Self-Help borrowers ended up refinancing with other mortgages, often to get cash back out of home equity, or took out home equity loans or second mortgages. This otherwise successful program was sabotaged by a very rotten home lending market that in these low-income buyers saw a profitable opportunity for selling high-cost debt. Self-Help founder Martin Eakes went on to establish the centre for Responsible Lending and has said that he did so because he was tired of seeing the homebuyers Self-Help was helping go on to get stung with subprime loans.
So for one thing, when we’re talking about Self-Help’s low foreclosure rate, we’re looking at a population that excludes those who were inclined to get more aggressive about financing their home — we don’t know, but we might guess, that the people who went out in search of a subprime refi or HELOC might have been more likely to default on their original plain vanilla mortgage (just a hunch, though we’re not sure).
But the question is: should low-income homeowners be prevented from doing what everyone else is doing? Should their home equity not be monetizable just because a non-profit stepped in to back up their loan? There’s something oddly pedantic about this, and we don’t mean that in the typical way, where all regulation to protect consumers is wrongly called pedantic. But this feels like situations where someone is given a gift, but then told they can’t sell it for cash, because it may offends the intentions of the giver.
If we’re going to expand homeownership to more people — a dubious goal — it makes it even sillier if we start talking about a second-tier fo homeowners that can’t refi and can’t take advantage of home-equity loans (which aren’t always eveil). If a home is just going to be a place of dwelling, and not a financial instrument, why don’t we just subsidise rent?
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