Friday, October 10, 2008

Guest Blogger John McIlwain: It’s All About Workforce Housing – Neighborhood Stabilization

Well, almost all, anyway. The subprime and Atl-A mortgage crisis is about workforce housing - the families in default or foreclosed on, as well as the families with underwater home values less than their mortgages, are virtually all members of the moderate income workforce with incomes below that needed for housing near jobs, services and transportation. Most of their incomes fall below120% of the area median incomes except in higher cost areas such as California.

Why this is so is easy to answer. These are the households that were priced out of neighborhoods around job centers and transportation nodes. Instead they had to “drive ‘til they qualified,” heading out to the “more affordable” outer suburbs. There, with the help of sub-prime and Alt-A mortgage products – “No-Doc” loans, “Liar Loans,” no down-payment loans, flexible payment loans, etc. – they bought new homes in newly built subdivisions, precisely the subdivisions now hardest hit by foreclosures.

By moving to these outer edge communities, workforce families fell into two traps. The first, of course, was the mortgages they were encouraged to use to buy homes they never thought they could afford; these have become poisonous as resets and higher rates force hundreds of thousands of families into default and foreclosure. The second trap was equally cruel – the cost of gas jumped after the families moved far away from their jobs, making the long commutes cost them as much as the houses they had just purchased. And other costs jumped as well; homeowner’s insurance rates and taxes rose (see the new report by the Center for Housing Policy called “Stretched Thin, The Impact of Rising Housing Expenses on America’s Owners and Renters” ) along with food, healthcare and so on. The result: the highest rates of defaults and foreclosures since the Depression.

What help is there for these families? So far there is the voluntary HOPE Now program and FHA’s new HOPE for Homeowners program for refinancing mortgages, also voluntary on the part of banks. In addition, Fannie Mae and Freddie Mac are presumably authorizing modifications on mortgages they own, more now that they are in conservatorship. There is also the $8.7 Bank of America deal with Jerry Brown and other state Attorneys General to modify mortgages made by Countrywide. And finally there is John McCain’s proposal for the federal government to buy all defaulted mortgages which may or may not be workable or adopted. Despite all these efforts and ideas, however, it is far from clear how many struggling homeowners actually will be helped.

What about the communities being wasted by the foreclosure virus? So far there is only HUD’s new $4 billion Neighborhood Stabilization Program authorized by the Housing and Economic Recovery Act (HERA) passed this past summer. HUD has moved quickly and already allocated the funds to states and localities around the country, including both central cities and outer suburbs. Good as this program may be, it is but a drop in the bucket compared with the need.

But how these HUD funds should be used in outer edge suburbs is a fundamental question. Along with vacant homes left by foreclosures have come falling home prices, rising crime, and neighboring families struggling to pay mortgages (many of which are underwater) while prices for gas, food, taxes, etc. continue to rise. Is it fair to take foreclosed homes and rent or sell them to lower income families who will face the same dilemma – pay the mortgage or pay for gas to drive back to jobs? Isolating low and moderate income families on the outer edges of metro areas will only push them further into poverty and create new ghettos (further lowering home prices and pushing yet more families to default on their mortgages). In fact the economic sustainability of many of these outer ring communities is now in question; entirely new thinking will be needed to give them and their residents hope for a sustainable future.

In short, the national workforce housing crisis has now become both larger and more complex. It has become yet harder to solve even as home prices fall around the country, a move that was supposed to make homes affordable again for the workforce.

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