Outperforming the market

Outperforming the marketLow rates of Foreclosure in U.S. community land trusts

Emily Thaden, Ph.D.Research & Policy Development National CLT Network

History of u.s. housing values

Foreclosure filings on u.s. properties by year1 in 45 housing unitsRealtyTrac.com1 in 45 housing units2009 Homeownership rates by income quartileEconomic Policy Institute, 2011

2004 & 2011 Homeownership rates by income RACE

www.infoplease.comBefore the crisis

For Sale1 of 2 low-income or minority households do not maintain homeownership for 5 years However, what less people are aware of is that the conventional markets provision of homeownership has been failing to deliver successful homeownership opportunities to lower income and minority households long before the crisis. Reid conducted a longitudinal analysis on a nationally representative sample of first-time low income and minority homebuyers and found that less than 50% of them were sustaining homeownership for five years. We also know that owners of lower cost homes need to retain ownership for roughly 5-10 years in order to see financial returns. Hence, economic gains from homeownership has literally been equal to a coin toss for lower income and minority families when they enter in the conventional market.

6Homeownership is not for everyone.

And this has led some commentators, especially political conservatives, to state that the lesson of the foreclosure crisis is that, homeownership is just not for everyone. However, the implicit everyone [CLICK] in these statements are lower income and persons of color.

But limiting access to homeownership for these households would likely cause more injury, not less.

7Homeownership mattersHerbert & Belsky, 2008; McCarthy, Van Zandt, & Rohe, 2001Proportion of Wealth from Homeownership in 2000

As homeownership is the #1 factor that explains wealth among lower income and minority households. In fact, it is the majority of wealth held by these households. And there are good reasons for this:No other investment can be leverage as much as homeownership.Homeownership functions as a consumption good as well as financial investment, as these households need to pay for shelter any way.Lastly, homeownership comes with an array of benefits, including individual and social benefits that indirectly support economic outcomes.

Hence, homeownership matters to positively change the intergenerational outcomes of lower income and minority households.

8Homeownership needs to be done differently.

Consequently, other housing advocates reject that homeownership is not for everyone and instead posit that it needs to be done differentlyto find an alternative to conventional renting or home owning options that will be more sustainable, retain opportunities to build wealth, and change the intergenerational outcomes of lower income and minority families.

The model they are turning to is shared equity homeownership, in hopes of a building a third sector that is not renting and not conventional homeownership, but a tenure alternative.

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15 units, Seattle

shared equity homeownershipResale-restricted, owner-occupied housing for lower income households that remains affordable in perpetuity.

2,820 units, New York

Montgomery County, MDLimited Equity Housing Cooperatives

Capital Manor Coop102 units, Washington D.C.

Single-family homesAlbuquerque, NMCommunity Land TrustsDeed-restricted Housing ProgramsArmstrong Townhomes102 units, San Francisco

The primary models of shared equity homeownership 11While we use the term Shared Equity homeownership to refer to the concept of resale-restricted, owner-occupied with permanent affordability, there are actually different types or submodels of SEH. These include:LECsCLTsDRH designed for permanent affordability. This legal instrument is often used for other purposes including affordable housing that doesnt maintain long-term affordability.

What Shared equity homeownership achieves Wealth creation for householdsIncreased access to homeownershipPermanent affordability of homes (i.e. sustained public investment)

1. Increased access to homeownershipTemkin, Theodos, & Price, 2011

And there is data to backup the performance of SEH programs on these three main outcomes.

A study of 7 large shared equity programs from different cities located in different regions was conducted. All programs had anywhere from 60-440 homes and had resold anywhere from 40-200 homes over time.

This darker bars shows the median income of the cities where the programs are located and the lighter bar shows the average income of homebuyers in their programs. They found that homeowners made anywhere from 35-73% of the median household income, and the average was around 50% of the AMI.

132. Wealth Creation

Temkin, Theodos, & Price, 2011They are also likely to build wealth. At first glance, many folks are concerned that shared equity homeowners wont realize financial returns due to the restrictions on the resale prices that they agree to. However, that study of 7 shared equity programs showed that the individual rates of return-shown here in green-for shared equity owners was significant. And it was much better returns than if the households invested the same amount money in the stock market or treasury bonds.

Hence, investing in SEH homeownership does in fact yield wealth. 143. Permanent affordabilityTemkin, Theodos, & Price, 2011

% of Median Income needed for first purchase% of Median Income needed for subsequent purchasesLastly, the study of the 7 SEH programs also showed that the model did what is promised: When SE homes are resold, they maintain their affordability for lower income households in the future. This graph shows the median household income for the first purchase in gray and then every subsequent purchase in black. As you can see here, the majority of programs did not see erosion in affordability. Hence, they were in fact preserving the publics investment in affordable homeownership.

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Access increased

Wealth built

Affordability preservedIs homeownership sustained?

Alright so now lets move to the second article of the dissertation, which focuses on the national level.

As I reviewed previously, an existing study of 7 shared equity programs found that SE increased access to homeownership for lower income households, it also supported that those households build wealth, and lastly it showed that the program were in fact, preserving affordability over time. However, this study was conducted on longitudinal program data before the foreclosure crisis, so the question remained: Do owners of shared equity homes sustain homeownership, especially during a market bust? 16CLT SamplesOrganizationsOutstanding Loans2010623,1432009422,1732008501,936v. MBA loansNational research studiesOf community land trustsIn order to examine this question, I conducted the largest survey of SE programs that has been conducted to date. The sample focused in on one form of SEH, community land trusts. And I asked these CLTs to report on the mortgage loan performance of their homeowners in two separate surveys for 2009 and 2010, and the National CLT Network had similar data from a survey in 2008.

Next, I compared the rates of delinquencies and foreclosures in CLT homeowners to the rates of homeowners in the conventional markets as reported by the Mortgage Bankers Association. The MBA data represents roughly 80% of all home loans in the market.

However, its important to recognize the CLT loans are held by lower income borrowerswho are much more likely to be delinquent and foreclose, while the MBA data reports the loans of borrowers across all income levels. Hence the findings Im about to present would have been even more robust if I was able to isolate lower income borrowers in the MBA sample. 17

CLT LOANS outperform the marketIn order to examine this question, I conducted the largest survey of SE programs that has been conducted to date. The sample focused in on one form of SEH, community land trusts. And I asked these CLTs to report on the mortgage loan performance of their homeowners in two separate surveys for 2009 and 2010, and the National CLT Network had similar data from a survey in 2008.

Next, I compared the rates of delinquencies and foreclosures in CLT homeowners to the rates of homeowners in the conventional markets as reported by the Mortgage Bankers Association. The MBA data represents roughly 80% of all home loans in the market.

However, its important to recognize the CLT loans are held by lower income borrowerswho are much more likely to be delinquent and foreclose, while the MBA data reports the loans of borrowers across all income levels. Hence the findings Im about to present would have been even more robust if I was able to isolate lower income borrowers in the MBA sample. 18Clt loans Outperform all loan types

And when you examine these rates by loan type in the MBA data, the results remain impressive. As you can see here, CLT loans were still outperforming VA loans, which have very stringent underwriting criteria and FHA loans, and prime loansnot just subprime loans.

19Stewardship mattersPolicies & PracticesApprove home financingEducate pre-& post-purchaseInteract with mortgage lendersIntervene in delinquenciesIntervene in foreclosures

And when you examine these rates by loan type in the MBA data, the results remain impressive. As you can see here, CLT loans were still outperforming VA loans, which have very stringent underwriting criteria and FHA loans, and prime loansnot just subprime loans.

20Stewardship matters

And when you examine these rates by loan type in the MBA data, the results remain impressive. As you can see here, CLT loans were still outperforming VA loans, which have very stringent underwriting criteria and FHA loans, and prime loansnot just subprime loans.

21Homeownership is entered & sustainedStewardship mattersCLTs provide a better way to do homeownership

implicationsHence this study supported that SEH, or CLTs at least, not only help lower income households enter homeownership but help them to sustain it over time.It also found that the comprehensive services and support that CLTs provide homeowners seemingly really matter to reach these positive outcomes. And lastly, the study implies that perhaps SEH is a way to deliver homeownership more effectively and with positive outcomes for more lower income and minority households than current conventional market options.

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Questions?23