Forging a New Housing Policy: Opportunity in the Wake of Crisis !"#$!"%&'% ()*#+$,-)!*%.#!"$ /0*(%+#12!* -3456789:%3;:9<%=89%>37?6@97%AB%$89%.>=6A;>5%(9;=9<%BA<%+343<4>;%+=3:697C%>=%)AB7=<>%D;6E9<76=F ACKNOWLEDGEMENTS & DEDICATION !"#$%&'(")*)+,%#$%-&$./0%#'%1&2(0%)'%(".%.$$&,$%12.$.'(./%&(%&%3)'4.2.'3.%)4%(".%$&5.%'&5.%&(%6)4$(2&%7'#8.2$#(,% #'%9)8.5-.2%:;;<=%>.%("&'?%&**%)4%(")$.%@")%$A11)2(./%(".%3)'4.2.'3.0%.$1.3#&**,%B&@2.'3.%B.8,%&'/%C'&% D&(E%&(%(".%9&(#)'&*%F.'(.2%4)2%GA-A2-&'%G(A/#.$%&(%6)4$(2&%7'#8.2$#(,0%&'/%H(".*.'.%F)**#'$%&'/%9&(&*#.%I&(*)4% )4%(".%6)4$(2&%7'#8.2$#(,%FA*(A2&*%F.'(.2=%>.%+2&(.4A**,%&3?')@*./+.%(".%$A11)2(%)4%(".%J&A3"%&'/%CCKLM)2/% M)A'/&(#)'$=%M#'&**,0%@.%("&'?%(".%3)'4.2.'3.%1&2(#3#1&'($%&'/%&'(")*)+,%3)'(2#-A()2$%4)2%(".#2%#'$#+"($%&'/% 3)55#(5.'(%()%(".%12)N.3(= !"#$%&'(")*)+,%#$%/./#3&(./%()%(")$.%@")%"&8.%*)$(%(".#2%")5.$0%@")%$(2#8.%()%5&#'(&#'%$".*(.2%4)2%(".5$.*8.$% &'/%(".#2%4&5#*#.$0%@")%$.&23"%4)2%&44)2/&-*.%")A$#'+0%&'/%()%(")$.%@")%@&+.%(".%$(2A++*.%4)2%5)2.%.OA#(&-*.% &'/%/.5)32&(#3%4)25$%)4%")A$#'+= PHOTO CREDITS !"#$% M)2.3*)$A2.P%JM%C5&+.L#$()3?1")() J.3.$$#)'P%JM%C5&+.L#$()3?1")() 6)A$.%)'%Q)'.,P%JM%C5&+.L#$()3?1")() &'($)* !)A+"%!#5.$P%JM%C5&+.L#$()3?1")() &'($)+ M)2.3*)$A2.P%JM%C5&+.L#$()3?1")()% &'($),+ R&*.%F#'3)((&P%F)A2(.$,%)4%9&(#)'&*%S.)1*.T$%H3(#)' &'($)-+ U)&2/./%6)A$.P%F)A2(.$,%)4%C)@&%F#(#E.'$%4)2% F)55A'#(,%C512)8.5.'( Table of Contents Introduction Christopher Niedt and Marc Silver ........................................................................................................................... 2 PART I: Foundations of the Housing Crisis: How Did We Get Here? Housing and the Financial Crisis: What Happened, What to Do About It .............................................................. 6 Michael Stone The Three Pillars of the Foreclosure Mortgage Crisis: Analysis and Remedies ..................................................... 12 Peter Marcuse PART II: Impact of the Housing Crisis: A Fertile Ground for Innovation? WWGCD? Fair Lending and Community Reinvestment After the Crisis: What Would Gale Cincotta Do? ................................................................................................................................ 16 James Mumm and Elvin Wyly Regional Resilience in the Face of Foreclosures: The Role of Federal and State Policies ...................................... 29 Todd Swanstrom, Karen Chapple and Dan Immergluck Addressing the Housing Crisis in Minnesota: State Legislative Responses ............................................................ 34 Jeff Crump The Evolving Crisis in Context: Recent Developments for Tenants in the Foreclosure Crisis ............................... 40 Josiah Madar and Allegra Glashausser Avenue to Wealth or Road to Financial Ruin? Homeownership and the Racial Distribution of Mortgage Foreclosures .................................................................................................... 45 Elena Vesselinov and Andrew Beveridge PART III: Out of the Crisis: The Search for Policy Alternatives Two Strategies to Confront the Crisis: Value Capture in Inclusionary Zoning and Converting Foreclosed Properties to Community Land Trusts ......................................................................... 56 Anthony Flint Organizing Against the Economic Crisis by Creating a Bank Tenant Association ................................................. 59 Steven Meacham The Community Land Trust Solution: The Case of the Champlain Housing Trust ................................................. 64 Brenda Torpy Page 1 Introduction Housing efforts at the federal level have been almost exclusively oriented toward reviving the housing “market.” The ideological blinders that preclude a vision beyond market relations restrict policy debates to questions such as “which market actors need to be bailed out?”, “how much should the government regulate the financial sectors?” and “what are the best ways to stimulate demand?” Short-run efforts to prevent foreclosures and to keep people in their homes have been anemic, at best. And now, the latest manifestation of the crisis—widespread sloppiness and malfeasance on the part of lenders in the handling of mortgage-related paperwork and records—has stalled fore- closure processes across the nation. Rather than welcoming the prospects of relief for millions of unemployed and underemployed homeowners who may be able to remain in or reclaim their homes, market apologists are now fretting that the real estate market’s recent signs of recovery will be reversed. It is a strange moment, indeed, to include the word “opportunity” in the title of a policy report. As this collection goes to press, an atmosphere of Yet we believe that housing represents a viable and frustration pervades American politics. The United largely unexplored arena for bold action. As the papers States languishes in the longest recession since World in this report suggest, a careful look reveals that market War II. Economists are divided between those who predict relations and the behavior of market actors themselves another long “jobless recovery” and those who haunt are at the core of the crisis. The private housing market the cable news networks with warnings of a “double dip commodifies basic human needs and motivates market recession.” Falling tax revenues and tax expenditure transactions with the promise of profit and wealth. These limitations have strangled state and local budgets. market relations unavoidably contribute to the economic When the United States faced economic crisis seventy-five and social conditions we now face. Once that fact years ago, public protest spurred on the development of is recognized, it is possible to explore new avenues for robust and broad-ranging New Deal initiatives. But today non-market policies that can lead us out of the present the federal government seems unable to find coherent crisis and, quite possibly, avoid new ones in the future. policies—particularly in the fields of jobs and healthcare— The opportunities for intervention are plentiful. Many of that are sizable enough to work or exciting enough to them would take local and state initiatives that have create the grassroots support necessary to overcome the already been developed by the public and nonprofit naysayers. sectors and bring them to the national scale. The effects of these failures are clear enough: conservative The housing crisis is certainly not over. In the first quarter victories at the state and national levels, the rise of the of 2010, 14% of 1-to-4-unit residential properties were populist-right Tea Party movement, and widespread liberal either delinquent or in foreclosure.1 Tenants in foreclosed disillusionment with a president whose only consistent policy properties have gained some protection in certain states seems to be one of retreat. Few politicians have attempted and localities, but largely remain subject to eviction on to mobilize their constituencies around the problems that little notice if their landlord fails to notify them of fore- lie at the core of the present crisis, even though the effects of closure proceedings. Those who have managed to hold the housing crisis cut across the working and middle class. onto their property now collectively own less than 40% of All of these developments suggest that the possibilities their homes’ values2—having suffered losses equivalent for innovative federal housing policy, supported by the to $7 trillion in equity. Individually, nearly one in four grassroots, have been severely circumscribed. homeowners with a mortgage now owes more than their homes are worth.3 Page 2 / INTRODUCTION Christopher Niedt & Marc Silver 2005 2009 Many economists shake their heads at even these limited measures, arguing that they will prolong the crisis. Owners’ equity, (trillions of US$) $13.2 $ 6.2 They point out that loose monetary policy promoted the Owners’ home values (trillions of US$) $22.1 $16.6 rapid inflation of asset values, creating a new round of Equity as a percentage of home value 59.9% 37.6% “irrational exuberance” in the 2000s. In this light, the present crash in property values is a painful but necessary Federal actions to address the housing crisis have been timid readjustment, and foreclosures are hard lessons that and halting. (Some state and local courts and governments must be learned to avert future moral hazards. Allowing have arguably been more innovative, and are discussed in bankruptcy judges to devalue mortgages through a this report.) Nevertheless, over $100 billion has now been “cram-down” process would produce exactly the types committed, in some form, to help homeowners and com- of moral hazards that worry some economists. On the munities affected by the financial crisis, most notably: other hand, the most recent program launched by the Obama Administration, the Home Affordable Foreclosure • The Help for Homeowners program: Hampered by Alternatives Program, attempts to “fix” the market by partisan debate in Congress and (at best) executive- encouraging both lenders and borrowers to devalue their branch indifference, the program quickly became a assets through the short sale process. dead letter and rescued few homeowners in the first year of its existence. If such policies help establish a new market equilibrium in the coming years, they do little to ameliorate the effects of • The homebuyers’ tax credit: Passed with the eager the crisis upon communities in general and communities support of the real estate industry, the