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