1 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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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
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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 (4/2004 - 9/2008)
Subprime ARM
Subprime FRM
FHAFHA
Prime FRMPrime FRM
CAPCAP
0%
10%
20%
30%
Mar
-04
Sep-0
4
Mar
-05
Sep-0
5
Mar
-06
Sep-0
6
Mar
-07
Sep-0
7
Mar
-08
Sep-0
8
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Research Funded by the Ford Foundation
A Unique Resource
• Research ComponentsLoan database (origination, payment, property
values, credit scores)Panels (owners and renters, longitudinal
surveys)
• AttributesLarge, focused sampleLoan, 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 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
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Research Funded by the Ford Foundation
Social Impacts of Homeownership
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Research Funded by the Ford Foundation
The Social Impacts of Home Ownership: Evidence from CAP
Individual
Families
Communities
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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.
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Research Funded by the Ford Foundation
Neighborhood Characteristics
OutcomesOutcomes
Control VariablesControl Variables
HH DemographicCharacteristics
HH Financial Characteristics
Independent Independent VariableVariable
•Homeownership •Social Capital•Neighborhood Satisfaction
•Parenting •Political Participation
•Volunteering
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Research Funded by the Ford Foundation
Homeownership and Social Capital
Social CapitalResources accessed through an individual’s social network
Measures:Help finding a jobLocal media contactsHelp moving Bring you food when sickLocal political connectionsGood with computersLend moneyAdvice on handling stress
0
1
2
3
4
5
6
7
Overall In-neighborhoodSoci
al C
apita
l Res
ourc
es
Owners
Renters
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
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Research Funded by the Ford Foundation
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?
0%
20%
40%
60%
80%
Recommend to Others Safe Place for Children
Owners
Renters
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
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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
0%
20%
40%
60%
Parental school involvement (age 5-18)
Child organized activities (age 6-18)
OwnersRenters
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
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Research Funded by the Ford Foundation
Homeownership and Parenting
Read to childAbout how often do you or your spouse read to your child?
Child screen timeTotal hours per day child spends watching television, videos, or playing video games
0%
20%
40%
60%
Read to Child (age 3-9)
Owners Renters
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
0.0
0.4
0.8
1.2
1.6
Screen time (age 3-18)
Mea
n h
ou
rs p
er d
ay
Owners Renters
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Research Funded by the Ford Foundation
Homeownership and Political Participation
Local Election VotingDid you vote in the last local election?
National Election VotingDid you vote in the 2000 election?0%
20%
40%
60%
Local election voting National election voting
OwnersRenters
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
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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?
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Hours Volunteering
Me
an
Ho
urs
Pe
r M
on
th
OwnersRenters
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
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Research Funded by the Ford Foundation
Implications 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.• It’s early in study, more research to come
Child outcomesCivic and community involvement Sense of communityChanges over time
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Research Funded by the Ford Foundation
Financial Considerations
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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.
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Research Funded by the Ford Foundation
2004 Originations 2006 Originations
CAP
Subprime
For similar Borrowers – Subprime Loans Do WorsePredicted Serious Delinquency 24 Months after Origination
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.
3.99x
3.5x
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Research Funded by the Ford Foundation
CAP Borrowers have realized Substantial Wealth Gains
$28,276
$21,969
$2,241
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Overall Before 4Q’05
Since4Q’05
Median Equity Increase
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Research Funded by the Ford Foundation
Most CAP Borrowers who Refinance do not use
Higher-Cost Subprime ProductsRate Refinance: The majority (66%) refinanced solely to secure a lower-cost product
When rates are low When credit score is highMore 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 scoresLikely to be broker originated
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Research Funded by the Ford Foundation
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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Research Funded by the Ford Foundation
Implications
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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.
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Research Funded by the Ford Foundation
Please visit http://www.ccc.unc.edu