Alarmed by the hemorrhaging of homeownership in their communities, a coalition of African-American, Hispanic and Asian-American real estate groups recently appealed to lawmakers in Washington, D.C., to take action to stabilize the housing market, expand consumer protections, preserve mortgage liquidity and stop the spiral of losses in minority communities.
Representing the National Association of Real Estate Brokers, the National Association of Hispanic Real Estate Professionals and the Asian Real Estate Association of America, the coalition unveiled recommendations for such action at their joint 2010 Multicultural Real Estate & Policy Conference in March, in a document titled “The Five-Point Plan: Creating a Sustainable Path to Minority Home-
ownership.” Coalition leaders subsequently paid visits to Capitol Hill to press their appeal.
“Minority communities have experienced previously unimaginable losses since the onset of the mortgage loan debacle and the subsequent far-reaching economic crisis,” said NAREB President and CEO Vincent Wimbish. “We firmly believe that the five-point plan offers a solutions-based approach to making homeownership not only sustainable, but once again desirable for communities of color, as well as for all Americans.”
Meanwhile, real estate entrepreneur N. Xavier Arnold, author of The Best Real Estate Investing Method…Ever! and founder of Real Smart Investor L.L.C. in Stirling Heights, MI, warns that the housing market crisis is “ripping into the wealth” of African-Americans. “Statistics show that for most African-Americans, most of their wealth – 90 percent — is tied to the equity in their homes,” he told The Network Journal in a telephone interview. “If your property goes down in value, that means your equity has gone down in value, so you can no longer do a home equity line of credit, or HELOC, to go on vacation, get a new car, help your kids through school.”
Just before this issue of TNJ went to press, the Obama administration announced new steps to staunch the bloodletting, including providing financial incentives to lenders that cut the balance of a borrower’s mortgage and requiring lenders to temporarily reduce or eliminate monthly mortgage payments for many borrowers who are unemployed.
Lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan. Lenders also would have to reduce monthly payments to no more than 31 percent of a borrower’s income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, lenders could allow borrowers to skip payments altogether.
Addressing the multicultural conference in Washington, Sheila C. Blair, chairman of the Federal Deposit Insurance Corporation, conceded that the outlook for the housing market remains problematic, despite signs of stabilization. “We’re not yet out of the woods when it comes to problem mortgages and long-term stability of our housing markets,” she said.
She cited the most troubling challenges: The scheduled expiration of the Homebuyer Tax Credit on April 30 and the simultaneous end to the Federal Reserve’s purchases of mortgage-backed securities, which helped to hold down mortgage rates, could slow or reverse some of the housing market gains of the past year; problem mortgages continued to grow through the end of 2009, while new sources of credit distress have emerged.
Some 2.8 million loans entered foreclosure last year, up 24 percent from 2008, and about three times the level of 2007; nontraditional mortgages — the interest-only and negative amortization loans that were popular in high-cost areas at the peak of the market — likely will be recast to higher, fully amortizing monthly payments between now and 2012, in many cases resulting in “crushing” payment increases for borrowers.
“As loss mitigation efforts continue, we need to recognize the evolving nature of the mortgage problem. The initial phases of the crisis involved poorly structured mortgages that posed an affordability problem. Now we’re dealing with underwater mortgages,” Blair said.
The coalition’s plan, meanwhile, calls for:
Expanding the scope of the Community Reinvestment Act to include loan servicing. Enacted in 1977, CRA traditionally has focused on broad access to credit for low- and moderate-income communities through CRA-regulated institutions;
Mandating pre-purchase, face-to-face homebuyer education and household budget management training for first-time buyers. Between 15 million and 16 million Americans currently are “underwater” on their mortgage, the group argues;
Providing principal forgiveness for homebuyers who are underwater on their mortgage and have more than 10 percent negative equity;
Advocating the role of the government-sponsored enterprises (Fannie Mae, Freddie Mac and the Federal Home Loan Banks) and the Federal Housing Authority to expand the flow of stable capital to the mortgage market;
Promoting the role of a consumer protection agency that puts consumer interests first and is empowered to implement robust reforms that align industry practices with values that serve the common good. “Too often, the debate has centered on the politics of where the agency is housed rather than how to empower it to take decisive action against harmful products and unscrupulous industry players,” the plan states. “The agency must have the power to review products and services that are being offered in the market.”
“Clearly, we need to rebuild mortgage finance and to put it on a stronger footing for the long term. And there are many moving parts to this process,” Blair said. “It will require banks to repair their balance sheets, which they are in the process of doing. It will require regulatory reform by Congress and by federal regulators. And to be frank, it will take longer to get the job done than any of us would like.”
Still, Arnold says, there’s money to be made even in such a tumultuous market.
“We need to be more active in our real estate investing, considering that there are so many great opportunities out here. There are pockets of business being done. Sales are brisk in the $325,000-and-below market and it will remain that way because prices are adjusting downward. You can do residential and commercial both right now” he says. As an investor, however, “you have to find a niche. You have to know what you’re doing. Don’t try to cut your teeth in this market. Get the right people licensed professionals, to work with you up front,” he says.
African-American investors in particular should, “individually and collectively, utilize professionals in our own community who are conversant in real estate investment on things to do to maximize your leverage,” Arnold advises. For example, a lot of people don’t realize they can use their IRAs to invest in real estate and get great returns. “But they have to do it in a particular way and must use professionals to help them do that,” Arnold says.
The U.S. Department of Housing and Urban Development’s Section 203(k) loan program, the department’s primary program for the rehabilitation and repair of single-family properties, may be a good place for investors to start. Not only is the interest rate on these loans low — currently 5 percent or less — but the loans also cover both the amount needed to buy the property and the amount needed to renovate it. In addition, each loan is based on the actual value of the property after it has been renovated. Arnold explains: “You pick up a foreclosure, bank property, or probate estate, which, when repaired, is worth $250,000. But on the market you get it for $100,000 and you put in $50,000 for renovation,” leaving you with $100,000 from your $250,000 loan. “Most agents aren’t aware of that,” Arnold says.
More “hard-money” (private sector) lenders appear to be writing commercial loans for investors in residential properties. “They’re popping up almost everywhere,” Arnold says, perhaps, in part, because Washington has taken steps to facilitate investment in real estate. “The federal government now understands that you have to have investors in the marketplace. They rescinded a rule that says if you buy a house you could not resell it until three or six months down the line. They rescinded that because there are so many bank foreclosures, and investors are the catalyst to get those properties renovated and resold. So now you don’t have to wait a long time before you can resell the property.”