Outperforming the market Emily Thaden, Ph.D. Research & Policy Development National CLT Network Low rates of Foreclosure in U.S. community land trusts

History of u.s. housing values

Foreclosure filings on u.s. properties by year 1 in 45 housing units 1 in 45 housing units RealtyTrac.com

2009 Homeownership rates by income quartile Economic Policy Institute, 2011

2004 & 2011 Homeownership rates by income RACE www.infoplease.com

Before the crisis… For Sale However, what less people are aware of is that the conventional market’s 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. 1 of 2 low-income or minority households do not maintain homeownership for 5 years

“Homeownership 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. “Homeownership is not for everyone.”

Homeownership matters Proportion 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. Herbert & Belsky, 2008; McCarthy, Van Zandt, & Rohe, 2001

“Homeownership 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 differently—to 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. “Homeownership needs to be done differently.”

shared equity homeownership 15 units, Seattle shared equity homeownership 2,820 units, New York Resale-restricted, owner-occupied housing for lower income households that remains affordable in perpetuity. Montgomery County, MD

The primary models of shared equity homeownership Limited Equity Housing Cooperatives Capital Manor Coop 102 units, Washington D.C. Community Land Trusts Single-family homes Albuquerque, NM Deed-restricted Housing Programs While 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: LECs CLTs DRH designed for permanent affordability. This legal instrument is often used for other purposes including affordable housing that doesn’t maintain long-term affordability. Armstrong Townhomes 102 units, San Francisco The primary models of shared equity homeownership

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

1. Increased access to homeownership 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 program’s 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. 1. Increased access to homeownership Temkin, Theodos, & Price, 2011

2. Wealth Creation Temkin, Theodos, & Price, 2011 They are also likely to build wealth. At first glance, many folks are concerned that shared equity homeowners won’t 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. 2. Wealth Creation Temkin, Theodos, & Price, 2011

3. Permanent affordability % of Median Income needed for first purchase % of Median Income needed for subsequent purchases Lastly, 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 public’s investment in affordable homeownership. 18:00 3. Permanent affordability Temkin, Theodos, & Price, 2011

Affordability preserved Access increased Wealth built Is homeownership sustained? Affordability preserved Alright so now let’s 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?

v. MBA loans National research studies Of community land trusts CLT Samples Organizations Outstanding Loans 2010 62 3,143 2009 42 2,173 2008 50 1,936 v. MBA loans In 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, it’s important to recognize the CLT loans are held by lower income borrowers—who 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 I’m about to present would have been even more robust if I was able to isolate lower income borrowers in the MBA sample. National research studies Of community land trusts

CLT LOANS outperform the market In 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, it’s important to recognize the CLT loans are held by lower income borrowers—who 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 I’m about to present would have been even more robust if I was able to isolate lower income borrowers in the MBA sample. CLT LOANS outperform the market

Clt 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 loans…not just subprime loans.

Approve home financing Stewardship matters Policies & Practices Approve home financing Educate pre-& post-purchase Interact with mortgage lenders Intervene in delinquencies Intervene 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 loans…not just subprime loans.

Stewardship 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 loans…not just subprime loans.

Homeownership is entered & sustained Stewardship matters CLTs provide a better way to do homeownership Hence 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. implications

Questions?