What does it mean to stabilize neighborhoods at scale? Barring the appearance of a community development fairy godmother, it means having resources. The past several years have seen an outpouring of innovation, dedication, and collaboration, but despite all that, you still need money to keep up with the tide.
Who has money these days? More or less the same folks who always have: large Wall Street investors. And many of them are using it to buy delinquent mortgages and foreclosed homes.
Now, you may think you know where I’m going here, but in this issue we head a little bit out of our usual comfort zone. In our last issue we looked at community organizing campaigns aimed specifically at trying to get lenders and servicers to step up and take responsibility for cleaning up the mess they made, the one we have to live in.
In this issue we do check in on the evolving interaction between the Occupy movement and community organizers in our Shelter Shorts and Organize! columns (pages 4 and 44), but for most of this issue, we put on a different hat, or perhaps more like a different set of glasses. We look at the community development field as players in a marketplace who might have some points of commonality, or even partnership, with private equity firms, hedge funds investing in real estate, or for-profit developers scooping up foreclosed homes to turn into rentals.
As this capital enters our neighborhoods, it is time to not only organize, but to also step up and participate in the market, bringing our field’s strengths, connections, and know-how to make sure new investment doesn’t just wash further equity away from the places that have suffered the most. Though we come to the table as strangers (how often do you make deals with hedge funds?), we should do it not as supplicants, but as peers, and potential partners.
In the following pages, we talk about a range of neighborhood stabilization strategies where there might be a chance to inject some private capital, some of private capital’s specific areas of expertise, or even just some of private capital’s mindset, to go big, break the mold, and start to turn the tide for suffering neighborhoods.
Along with private players, this involves the federal government. The REO and delinquent notes held by the GSEs, along with Hardest Hit Funds and Making Home Affordable servicer incentives, make the government a major factor in nearly any private or nonprofit project.
At this scale, it makes sense for larger organizations in the field to be taking the lead on new programs and products—but one of the essential strengths those organizations bring is their ground game that builds on their relationships with the community-based organizations who know their neighborhoods and residents intimately.
As usual, the various threads are interconnected. Short sale and bulk note purchase programs (see page 12), though they both keep a homeowner in their home with a new mortgage for the current market value of the house, may take hold in different market conditions and funding environments. Anyone who works with REO knows that there are some properties that are so low value that demolition is the only option. Land banks, as we discuss on page 30, are a key tool to have available to take those properties in and keep them from becoming a drag on other stabilization efforts.
Many of the ideas and programs we discuss here are nascent. Some are doing their first deal or are still raising their funds. Others have some track record at a smaller level and are looking at ways to tap into private capital to go to a larger scale. They are, in many ways, much earlier along than when we would usually choose to write up a project.
With the launch of the federal REO to Rental pilot plans and pressure over principal reduction from the attorneys general settlement, things have been moving much more quickly recently, especially on the REO side, than they were when we began to put together this package of articles. Scattered-site rental management (see page 26) has emerged from the shadows as a crucial challenge, and more large-scale private investors are stepping forward to put together funds to take on REO properties or invest in modified loans.
With things moving so fast, we wanted to showcase less the details of the particular programs, and more the new relationships and new ways of thinking that are emerging around the idea of bringing together capital markets and neighborhood stabilization. We look forward to seeing where they lead, and will keep you up-to-date at Shelterforce online.
Miriam Axel-Lute is editor of Shelterforce and associate director of the National Housing Institute.