Down Payment Gifts

I read on Knowledgeplex recently that HUD is taking another stab at banning the down payment assistance “gifts” that Sacramento-based Nehemiah Corp. pioneered.

It’s an interesting practice that I had never known about before.  Someone wants to buy a particular house but doesn’t have enough money for a down payment.  She goes to a lender who works with Nehemiah (or one of the other nonprofits that offers this sort of down payment assistance).  The lender applies to Nehemiah for the down payment grant, and the money for the down payment grant (plus a handling fee) is supplied by the seller, who factors those costs into the final price of the house.  So effectively this homebuyer pays more for her house, and carries a higher mortgage payment, than she would if she had other resources for a down payment. 

Seems like the buyer ends up in a risky position by essentially having paid above market price (significantly more than the seller would have accepted from a buyer with her own down payment), which may be no big deal in a fast-rising market, but could make things much worse in a declining market; some folks argue that such buyers are indeed defaulting at higher rates. 

Should the practice be banned, even though perhaps some buyers find such gifts to be their only route to home ownership?  I don’t know enough about the practice to pass definitive judgment, but my gut reaction is that it’s sketchy, just as it’s sketchy to allow predatory mortgage loans for sub-prime borrowers who don’t qualify for market-rate terms. Sure, there will be plenty of success stories for people who just needed a chance, but at what cost to those who get in over their heads?

Fortunately, there are some forms of down payment assistance that don’t come out of the seller’s pocket and drive up the home price.  Like matched savings accounts (IDAs), as I’ve often mentioned in this blog. Also, in New England, the Federal Home Loan Bank in Boston funds an Equity Builder Program offering generous down payment assistance grants through some of its member banks.  In the latest round, three Berkshire County banks — Williamstown Savings Bank, Legacy Banks, and Greylock Federal Credit Union – were approved for the program.  Now each of those banks is eligible for up to $100,000 to be distributed in down payment assistance if they can line up enough income-eligible homebuyers for those gifts before the funds get all used up by other banks around New England.  This is a terrific opportunity for families that are ready for home ownership but don’t have sufficient down payment resources.

Our asset development partnership has started doing outreach to help make sure that plenty of interested low- to moderate-income families in Berkshire County become aware of this resource.

Farm Bill: Matched Savings Accounts for Beginning Farmers

Readers of my wife’s food blog will know that she’s passionate about agricultural policy. She and I have imagined ways that some wasteful farm bill spending could be better invested in small farms which would create new entrepreneurial farming jobs and produce healthful food that might actually get consumed locally (as opposed to paying agri-business farmers to raise more surplus export crops, so much of which literally gets left to rot every year).

So I was pleased to get an email today from the terrific folks at the Center for Enterprise Development suggesting that there is at least one innovative new idea in farm policy that’s being seriously discussed in congress this year, and I suspect this is not the only one.

A new Individual Development Account (IDA) pilot program for beginning farmers and ranchers could become law as part of the Farm Bill reauthorization. 

The Beginning Farmer and Rancher Opportunity Act of 2007 (S. 1412) would provide $5 million for financial education provided to savers by nonprofits and matching funds for individual savings.  Savers would receive a 3:1 match, up to $9,000, towards the purchase of farming or ranching equipment, supplies, training, livestock, land, building, or other necessary items.  The U.S. Department of Agriculture would be required to fund programs in at least 15 states.   The maximum grant size would be $300,000 and requires a 25% local match.  Program functions, including account management and financial education could be supported by 20% of the federal grant award, interest on the matching funds, or the entire local match.

The Beginning Farmer and Rancher Opportunity Act of 2007 was introduced by Senators Tom Harkin (D-IA), Charles Grassley (R-IA), Sherrod Brown (D-OH), and Max Baucus (D-MT) and includes public policies like IDAs that will enable future farmers and ranchers to successfully enter into farming and ranching.

Not that $5 million represents a huge re-direction of overall agricultural policy, but it’s a promising start. The emphasis on beginning farmers and ranchers is encouraging, as that population is more likely to produce for the growing local food market and help diversify our agricultural base. And the linking of IDAs (a favorite approach of mine ) with agricultural policy is an interesting way to bring asset-building policy into other settings.

It’s an experiment worth trying, and I hope it gets passed.

Lots Happening

Sorry for the long silence. Last week was chaotic, with full days of regular work and several late nights focused on activities related to our local asset development program. We held a good fundraising committee meeting one evening, and divvied up the list of solicitations. I also sat in on a meeting of housing services providers in Berkshire County to explore how best to collaborate on the delivery of IDA accounts and home ownership assistance in general. And we held another focus group, this one composed of struggling artists, freelancers and other self-employed people, who make up a growing segment of the local economy. As a group, they were pretty receptive to asset development concepts, and I was a bit surprised that they were at least as interested in strategies targeting small business development and career education as they were in strategies targeting home ownership assistance. One reason was that four of the twelve were already home owners; interestingly, they all owned two-family homes, saying it was their only option because they couldn’t afford the mortgage payments without some rental income, and they weren’t averse to running a tiny landlord business in addition to their self-employment business. Over time, their input may be helpful in tailoring some asset development services to residents who are struggling as artists and self-employed business people.

The past week was extra busy because I was getting ready for a conference in Chicago, where I am until Wednesday night. My own presentation is now out of the way, so the pressure is off and I can enjoy hearing about other people’s good ideas for the next two days.

Techno-Poverty Watch: Voices of Poverty

My Technorati “poverty” tag subscription has brought me a string of posts in recent days from a project called “Voices of Poverty,” a podcast series put together by the Leadership Charlottesville group of mid-career business-people in Charlottesville, Virginia. From what I can gather, it appears that this Chamber of Commerce program engages future business leaders in an examination of key civic issues that Charlottesville will be grappling with for years to come. Sounds like a terrific program. We have something similar in our community — the Berkshire Leadership Program, coordinated by our Berkshire Chamber of Commerce.

The Voices of Poverty project, so far consisting of four podcast interviews lasting about 8 minutes each, strikes me as a quite powerful way to actually expose an influential group of people to lives lived in poverty. Even business leaders who are engaged in human service work — volunteering for the United Way, serving on boards of directors, etc. — often have few opportunities to hear directly, and at length, from the poor. That experience is ultimately more important than analyses of poverty statistics and discussions with nonprofit CEOs. I particularly appreciated this interview about the experience of a woman who emigrated from Mexico and has been struggling to gain a better financial foothold in Charlottesville. The interviews are thoughtfully conducted and well edited; the parts I’ve listened to haven’t seemed amateurish at all.

This makes me think I should contact the people who run the Berkshire Leadership Program and get those folks engaged in our asset development initiative.

Advisory Council

We had an important meeting today with about 20 people from local human service agencies, community banks, both local United Way offices, housing experts, and a couple of difficult-to-classify types (like me) to bring everyone up to speed on our efforts to launch some collaborative asset-building programs for low-income families in Berkshire County.

The turnout was encouraging, and people seemed to be engaged by the topic.  Some had been participants in prior conversations to develop this asset-building initiative in our community, and some were new to the topic (or at least to our particular efforts). 

As facilitator of the meeting, I tried to steer the conversation into enough detail to make it substantive without preventing opportunities for more general discussion about the various directions this initiative might take us.

To make a long story short, I think we’ve got pretty good buy-in on the value of testing these strategies in our community, and I think we’ve found a number of people who will be willing to give and find resources, volunteer time, and participate in an ongoing Advisory Council.

We’ll have more meetings next week, with smaller groups, to hash out the fundraising strategy in greater detail, firm up the eligibility criteria for our initial set of individual development account (IDA) participants, and develop a plan to offer financial education opportunities to a wider cross-section of people than the small number who will actually be enrolled in the IDA program.