McClatchy Washington Bureau
By: Tony Pugh
September 8, 2010
WASHINGTON -- As tighter lending requirements make homeownership more difficult, so-called "shared equity" or "long-term affordability" programs are getting more attention from local governments, nonprofits and private foundations.
Shared-equity programs -- public and private -- provide generous subsidies to help low- and moderate-income families buy homes. In exchange, when the buyers sell those units, they share most of the added equity in their homes with the program. That money then goes toward helping other limited-income families buy houses.
After decades on the fringes of the affordable-housing movement, these programs are getting a fresh look not only because they help stabilize neighborhoods and preserve affordable housing for future generations but also because they help owners avoid foreclosure by providing counseling, financial education and even cash assistance.
"This is a sector that has been experimental, and what's happening right now is it's growing to scale," said Rick Jacobus, the program director for NCB Capital Impact, a national nonprofit community-development organization. "We're seeing federal programs looking at how they can support this. National foundations are saying, 'This is a promising approach.' "
So are local development groups. In hurricane-ravaged New Orleans, the Lower 9th Ward Neighborhood Empowerment Network Association is establishing the Lower 9th Ward Community Land Trust to rebuild homes lost to flooding from Hurricane Katrina in 2005.
The estimated 5,000 nonprofit community land trusts across the country buy land, then build and sell homes on the property while retaining ownership of the land. This cuts the home price for buyers, who -- for a nominal fee -- lease the land that their units are on.
The leases require that the homes be sold to other moderate-income buyers. They also restrict profits from the sales so the homes remain affordable for the next buyers.
"The land trust is a tool that we just didn't use before, and now we're really seeing interest and energy around it," said Liza Cowan, a program officer for the Greater New Orleans Foundation. "There's just growing excitement for this model in the Lower 9th Ward."
In Albuquerque, N.M., the Sawmill Community Land Trust has built 81 homes in the Arbolera de Vida community since 1999. All but five are occupied. Another 12 are under construction. Federal, state, local and private funds financed the development.
The trust recently demolished a crime-ridden apartment building in another section of town. It'll build either four individual homes or eight townhomes on the property. Eligible buyers may earn no more than $48,250 annually for a family of four, said Connie Chavez, the executive director of the trust.
Keeping the homes affordable improves owners' chances of success. So do post-purchase counseling, assistance and support services, which are a staple offering of land trusts nationwide. A recent survey found that nearly 60 percent of trusts provided financial counseling and 72 percent were assisting borrowers with loan modifications.
"We have a relationship with our homeowners. We're a backstop for them. We're the developer that doesn't go away," said Chavez, who's also the president of the National Community Land Trust Network.
A recent survey on behalf of the network found that land trust mortgage holders were eight times less likely to be in foreclosure than conventional homeowners were in late 2009. The survey also found that trusts helped prevent foreclosures for 51 percent of the mortgages that were at least 90 days late.
Jacobus of NCB Capital Impact credited shared-equity programs' intense "stewardship," or support services, for the results.
In January, NCB Capital Impact received a $1.2 million grant from the Ford Foundation to develop industry standards and best practices for shared-equity programs. It'll also develop training for program staff and explore financing for more shared-equity home purchases.
Because of the sale and purchase restrictions, some say that shared-equity homebuyers aren't true "owners" and can't build the long-term wealth that conventional mortgages traditionally have supplied.
Shared-equity programs encompass a "third sector" of housing, Jacobus said, with benefits and risks that fall somewhere between traditional renting and conventional homeownership.
"This kind of housing isn't for everybody," he said, "but for many it's an appropriate way to get into homeownership safely and responsibly."
In the nation's capital, City First Homes, a local nonprofit housing agency, plans to help 11,000 moderate-income residents purchase homes through its shared-equity model over the next five years. It'll target households that earn $60,000 to $120,000 annually, which otherwise might be priced out of the costly Washington housing market.
"We're talking about teachers, police officers, firefighters, nurses, first responders," City First Homes CEO Kevin Anderson said.
Meghan Raftery, a federal government analyst and first-time homebuyer, is typical of program participants.
Raftery, who's 26, had decided that $250,000 was the most she could pay for a new home. With loan-shy banks requiring a 20 percent down payment, however, her dream remained out of reach.
"I've been saving for many years and I'm not anywhere near being able to put down $50,000," she said.
City First Homes made it happen by providing Raftery with a 30-year, $75,000 down-payment loan at a below-market interest rate of 3.8 percent. The money came from public and private sources.
Raftery has to pay interest on the loan only for the first seven years. The savings allowed her to borrow a much smaller amount for her first mortgage.
With that hefty down payment, Raftery could afford a two-bedroom condo for about $300,000. Further, because her down-payment loan paid more than 20 percent of that, she didn't have to buy private mortgage insurance, which saves her about $200 a month.
All in all, it's a pretty sweet deal for Raftery, whose new condo features gleaming hardwood floors, plenty of recessed lighting and easy access to the rapid transit system.
"This is way more than I expected, and the fact that I can afford this is awesome. I definitely didn't expect it to be this nice," she said.
There's a catch. When she sells the home, she won't reap all the presumed profits. She'll get back the principal she paid on the mortgage and down payment loans, and she'll keep the value of any home improvements she made.
If the unit sells for more than her purchase price, however, Raftery keeps only 25 percent of the profit, or appreciation. The other 75 percent stays with City First Homes. It'll use it to help other homebuyers of modest means.
The 25-75 split was "kind of annoying," Raftery said, but "still better than putting 20 percent down."