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

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

• 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).

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Performance by Loan Type
90day Delinquency Rate (4/2004 - 9/2008)
Prime ARM
Source Mortgage Bankers Association and
Self-Help. 90day delinquencies include loans in
different foreclosure stages.
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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.
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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

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Social Impacts of Homeownership
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The Social Impacts of Home Ownership Evidence
from CAP

• Individual
• Families
• Communities

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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.

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Outcomes
Independent Variable

• Social Capital
• Neighborhood Satisfaction
• Parenting
• Political Participation
• Volunteering

• Homeownership

Control Variables
Neighborhood Characteristics

• HH Demographic
• Characteristics

• HH Financial
• Characteristics

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Homeownership and Social Capital
Social CapitalResources accessed through an
individuals social network MeasuresHelp
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 plt0.001 level and
control for age, race, employment status,
education, income, family structure, marital
status, and length of time living in the
neighborhood
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Homeownership and Neighborhood Satisfaction
Recommend to OthersWould you recommend your
neighborhood to someone thinking about moving?
Safe Place for ChildrenHow would you rate your
neighborhood as a place to raise children?
Models showing differences between owners and
renters are significant at the plt0.001 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
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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 plt0.001 level and
control for age, race, employment status,
education, relative income, family structure,
marital status and neighborhood variables
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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 plt0.001 level and
control for age, race, employment status,
education, relative income, family structure,
marital status and neighborhood variables
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Homeownership and Political Participation
Local Election VotingDid you vote in the last
local election? National Election VotingDid you
vote in the 2000 election?
Models showing differences between owners and
renters are significant at the plt0.001 level and
control for age, race, employment status,
education, income, family structure, and marital
status
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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 plt0.001 level and
control for age, race, employment status,
education, relative income, family structure,
marital status and neighborhood clustering
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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

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Financial Considerations
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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.

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For similar Borrowers Subprime Loans Do
Worse Predicted Serious Delinquency 24 Months
after Origination
3.5x
CAP
Subprime
3.99x
2006 Originations
2004 Originations
Note Estimation is based on a borrower with a
FICO score between 580-620 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.
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CAP Borrowers have realized Substantial Wealth
Gains
Median Equity Increase
Before 4Q05
Since 4Q05
Overall
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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

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Well-timed, situation appropriate
delinquencyintervention 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.

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Implications
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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.

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• Please visit http//www.ccc.unc.edu