Florea: Economic crisis isn’t the fault of low-income homebuyers

Bainbridge Housing Resources Board Director Carl Florea cautions that the blame for the nation’s sinking economy isn’t the fault of the would-be home owners who bought in to the schemes of lenders and brokers.

Read Florea’s column below.

The financial crisis has brought along with it the blame game. This is understandable. However, too often I have heard the blame for the housing crisis laid at the feet of people with low and moderate incomes.

There have been articles and editorials in major newspapers and magazines, and more than a few conversations overheard on Bainbridge Island, expressing the sentiment that the real gist of the problem was the efforts by Fannie Mae, Freddie Mac, and others to get low income households to purchase homes.

Some are even calling for the repeal of the Community Reinvestment Act. This is the act that, among other things, requires that banks invest in community needs such as affordable housing. If only there weren’t these efforts to bring home ownership to low income families, the thinking goes, we as a nation wouldn’t be experiencing all this grief and pain!

Let’s be clear. The easy credit mania that gripped our nation was fueled by mortgage brokers and lenders who encouraged borrowing beyond what was reasonable and affordable for the borrower. This promise of easy money was no respecter of class. Households from nearly every economic level were caught up in this frenzy, fueled by poor underwriting standards and the lure of high profits for unscrupulous lenders.

It is true that a disproportionate number of these enticing deals were aimed at low income households, preying on their desire to realize the American dream. But should they be faulted for wanting a dream many of us take for granted?

Their fault, if any, was in trusting the mortgage professionals who convinced them that home values would always rise, and that the very good temporary deal they were offering would easily be replaced with a permanent great deal before the loan reset to a horrendously unaffordable rate.

The solution is not that households with low and moderate incomes should be denied home ownership. Rather, they should only own something they can truly afford, which is true for all of us. That is why our organization, the Housing Resources Board, acting as a community land trust (CLT), will only sell the homes we develop to people whose housing costs will not burden them. Our goal is not to get people into a home at any cost, but rather to provide an opportunity for successful ownership. Because of this approach, CLTs nationwide, who have sold many thousands of homes to people with low and even very low incomes, are experiencing foreclosure rates under 1 percent, even in this time of mortgage crisis!

We should not assume that a household’s income level is the sole determining factor of whether they should own their own home. Owning is a huge responsibility. Many are not ready for such a responsibility regardless of their income level. But for those who are, and who are locked out of the regular market solely due to their income level, the CLT can provide that opportunity.

With the support of our many donor members on this island, we look forward to helping making this dream real for a number of our island neighbors and coworkers as we build our first CLT development on Ferncliff. We will all benefit when a broader range of our workforce has an ownership stake in our community.

Carl Florea
Executive Director
Housing Resources Board, housingresourcesboard.org
(206) 842-1909

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