1 Lessons from the Community Advantage Program Research Funded by the Ford Foundation

2 Research Funded by the Ford Foundation Partnership between Self-Help, Ford Foundation, Fannie Mae Secondary market outlet for CRA/Affordable Housing loans Fixed rate, 30-year, prime mortgages 50,000 loans funded; $4.5 Billion Who is served? Low down-payments More than half had original LTV of 97% or above Flexibility on credit and income More than 40% minorities; more than 40% female-headed Average income $32,600 (62% of Area Median Income). Program Overview

3 Research Funded by the Ford Foundation Performance by Loan Type Source: Mortgage Bankers Association and Self-Help. 90+day delinquencies include loans in different foreclosure stages. Prime ARM 90+day Delinquency Rate (4/ /2008 )

4 Research Funded by the Ford Foundation A Unique Resource Research Components Loan database (origination, payment, property values, credit scores) Panels (owners and renters, longitudinal surveys) Attributes Large, focused sample Loan, demographics & geographic characteristics Panel data (Trigger events, Attitudes, Refinancing behavior, Housing transitions, etc.) Accessible for research Observing the affordable/community reinvestment experience through the entire business cycle.

5 Research Funded by the Ford Foundation Research Questions (Why) Do we want to promote low-income home ownership? Michal Grinstein-Weiss, Faculty Fellow, UNC Center for Community Capital and UNC School of Social Work (How) Do we want to promote low-income home ownership? Roberto Quercia, Director, UNC Center for Community Capital and UNC Department of City and Regional Planning

6 Research Funded by the Ford Foundation Social Impacts of Homeownership

7 Research Funded by the Ford Foundation The Social Impacts of Home Ownership: Evidence from CAP Individual Families Communities

8 Research Funded by the Ford Foundation Study Design and Methods Address Traditional Challenges in Homeownership Research Quasi-experimental design – homeowners in the sample were matched with renters. Longitudinal design – the process of homeownership. Multi-level modeling – individual nested within neighborhoods. Two-stage regression modeling – to account for self selection of homeownership.

9 Research Funded by the Ford Foundation Neighborhood Characteristics Outcomes Control Variables HH Demographic Characteristics HH Financial Characteristics Independent Variable Homeownership Social Capital Neighborhood Satisfaction Parenting Political Participation Volunteering

10 Research Funded by the Ford Foundation Homeownership and Social Capital Social Capital Resources accessed through an individuals social network Measures: Help finding a job Local media contacts Help moving Bring you food when sick Local political connections Good with computers Lend money Advice on handling stress Models showing differences between owners and renters are significant at the p<0.001 level and control for: age, race, employment status, education, income, family structure, marital status, and length of time living in the neighborhood

11 Research Funded by the Ford Foundation Homeownership and Neighborhood Satisfaction Recommend to Others Would you recommend your neighborhood to someone thinking about moving? Safe Place for Children How would you rate your neighborhood as a place to raise children? Models showing differences between owners and renters are significant at the p<0.001 level and control for: age, race, employment status, education, income, family structure, marital status, credit and card ownership, length of time living in the neighborhood, and neighborhood size and characteristics

12 Research Funded by the Ford Foundation Homeownership and Parenting Parental School Involvement Attendance of parent- teacher meetings and school events Child Organized Activities Children's participation in organized activities such as dance, karate lessons, boy/girl scouts Models showing differences between owners and renters are significant at the p<0.001 level and control for: age, race, employment status, education, relative income, family structure, marital status and neighborhood variables

13 Research Funded by the Ford Foundation Homeownership and Parenting Read to child About how often do you or your spouse read to your child? Child screen time Total hours per day child spends watching television, videos, or playing video games Models showing differences between owners and renters are significant at the p<0.001 level and control for: age, race, employment status, education, relative income, family structure, marital status and neighborhood variables

14 Research Funded by the Ford Foundation Homeownership and Political Participation Local Election Voting Did you vote in the last local election? National Election Voting Did you vote in the 2000 election? Models showing differences between owners and renters are significant at the p<0.001 level and control for: age, race, employment status, education, income, family structure, and marital status

15 Research Funded by the Ford Foundation Homeownership and Volunteering Volunteer Hours How many hours each month do you volunteer for all of the different religious, school, neighborhood, and community groups you belong to? Models showing differences between owners and renters are significant at the p<0.001 level and control for: age, race, employment status, education, relative income, family structure, marital status and neighborhood clustering

16 Research Funded by the Ford Foundation Implications There are potential social benefits of homeownership for low income households, as for higher income households; consistent with the policy emphasis on extending homeownership opportunity. Its early in study, more research to come Child outcomes Civic and community involvement Sense of community Changes over time

17 Research Funded by the Ford Foundation Financial Considerations

18 Research Funded by the Ford Foundation CAP provided both Fair Access to Capital and Access to Fair Capital In early years, CAP provided funding that was otherwise not available Most loans represented new financing Small share substituted for FHA. In later years, CAP kept people out of subprime market Most CAP loans substituted for subprime.

19 Research Funded by the Ford Foundation 2004 Originations 2006 Originations CAP Subprime For similar Borrowers – Subprime Loans Do Worse Predicted Serious Delinquency 24 Months after Origination Note: Estimation is based on a borrower with a FICO score between with the mean value of other regressors. Controlling variables include borrower DTI, FICO_score, home equity, loan age, loan size, area credit risk, area unemployment rate, and interest rate environment. 3.99x 3.5x

20 Research Funded by the Ford Foundation CAP Borrowers have realized Substantial Wealth Gains Overall Before 4Q05 Since 4Q05 Median Equity Increase

21 Research Funded by the Ford Foundation Most CAP Borrowers who Refinance do not use Higher-Cost Subprime Products Rate Refinance: The majority (66%) refinanced solely to secure a lower- cost product When rates are low When credit score is high More likely if older borrower Cash-Out Refinance: A minority (34%) also extracted equity, only 1/3 of these got high-cost ARMs If unemployed, if income loss, or other triggers create a need to tap equity No systematic effect of credit scores Likely to be broker originated

22 Research Funded by the Ford Foundation Well-timed, situation appropriate delinquency intervention is effective Odds of curing are 2.2 times higher for counseled borrowers. Even over the phone, counseling effectively increases the probability of cure. Even when received after borrowers enter a 60-day delinquency, the probability of curing is 18% higher than for un-counseled borrowers. More intensive counseling is more effective. Financial assistance is linked to a lower default probability.

23 Research Funded by the Ford Foundation Implications

24 Research Funded by the Ford Foundation Implications How-To -- underwriting (focus on ability to pay, fixed rate, escrows, etc), smart servicing, long-term engagement for borrowers and lenders. Servicing should be aligned to the front-end. CRA lending occurs in context of broader lending markets. Accountable participants with market power are key. Done right, homeownership is safe and sound.

25 Research Funded by the Ford Foundation Please visit