Commentary: Philanthropy and the Foreclosure Crisis

Jeffrey Lowe

Local nonprofit organizations working in community development face major challenges when it comes to funding. Resources from government, corporations and foundations typically become critical to their success. Failure to leverage the appropriate level of support can result in an inability to follow through on any sustainable plan for community development, let alone new initiatives needed to eliminate the threat foreclosures present to neighborhood revitalization.

Community philanthropy could play a greater role in expanding capacity, activities and successes toward understanding and resolving the foreclosure crisis. It could do so, and by extension even advance social justice, through contributions to nonprofit organizations that work to increase opportunities for those who are less well off. Indeed, as Americans, we seek to increase opportunities for achieving wealth. We view home ownership as the primary approach to wealth building and, in turn, closing the wealth gap. Today, foreclosures threaten our ability to gain wealth and create high-quality communities where all people live, work and play.

Given the current housing market and economic climate, a rather nuanced question looming among partnership ranks and beyond is: What is community philanthropy to do? The answer might be found in how community philanthropy typically engages or conveys the attributes of leadership, convening and innovation in its locale. Staying the course, reacting or developing proactive and even progressive strategies offer viable and concrete options that should be seriously considered.

Staying the Course

A traditional practice of community philanthropy is to support social service programs. As households in foreclosure have little to fall back on, the demand for social services has increased. Community philanthropy should enhance its support for social service activities. Specific attention should be given to ensuring funding continuity to local nonprofits that offer loan modification and loan-loss mitigation programs. (Loan modification is a permanent change in one or more terms of a borrower's loan that results in a payment the borrower can afford. Loss mitigation is recovery of monies owed on the mortgage in excess of the property value from other assets a borrower holds.)

Reactive Strategies

Community philanthropy should support networks of community-based organizations, lenders and secondary market entities that offer financial education and counseling. In places where nonprofit capacity may be limited, such activities could be managed by a single community partner. Region 2020, a nonprofit based in Birmingham, Ala., (www.Region2020.org) is a good example of an organization providing financial education and counseling service for an alliance.

Ensuring the likelihood of success would necessitate a commitment to support marketing. Marketing might include radio and television ads that target delinquent homeowners and foreclosure intervention information that is distributed in welfare and disability offices. Community philanthropy could also support partnerships in which nonprofit counseling organizations and lenders write weekly newspaper columns where people could ask questions about mortgage financing and get honest answers, should they experience financial difficulty in advance of foreclosure. This approach was suggested by focus group participants in a study conducted by Housing Environments Research Group at the City University of New York and NeighborWorks America. The goal in each of these approaches is to reach those most in need where they are and where they are most likely to turn for assistance.

Proactive Strategies

Community philanthropy could fund research that identifies patterns of predatory lenders and areas concentrated with high-interest-rate mortgage loan originations. This type of research would identify the potential of foreclosures before they occur, saving households financial and emotional hardship as well as stymieing community decline in the process. Similar action is already under way in Cleveland, where the Cleveland and Gund Foundations are funding an initiative coordinated by Neighborhood Progress Inc.

Community philanthropy could also support grassroots and consumer advocacy for policy change, requiring strong regulation on lenders to provide borrowers with financial products that are appropriate for them, given their economic status. Fannie Mae and Freddie Mac stopped purchasing loans containing single-premium credit life insurance, considered one of the most egregious of predatory practices, as a result of grassroots advocacy. According to a study by Gruenstein-Bocian, Ernst, and Li, approximately 40 percent of subprime mortgage holders would have qualified for a mortgage at prime. It is clear, then, that the need for advocacy remains strong.

Progressive Strategies

Community philanthropy should support advocacy beyond mortgage lending, with the intention of eliminating the dual financial system that contributes to uneven wealth distribution. It is important to note that wealth building consists of two dimensions: credit and savings. Homeownership is an element of credit. Moreover, a heavy emphasis on mortgage credit has contributed to a relative neglect about the role of savings in building wealth.

To further illustrate this point, the top 1 percent of homeowners control 13 percent of home equity, while the bottom half of homeowners control 12.7 percent of home equity. This suggests some balance between the two cohorts regarding the level of wealth that resides in homeownership. Alternatively, the top 1 percent of stockholders control 33.5 percent of stock wealth, while the bottom half of stockholders control 2.5 percent of stock wealth. Lacking this attribute of savings contributes to the difficulty of building wealth.

Community philanthropy should help turn the tide by supporting coalition building among community-based organizations advocating for credit unions and banks to establish direct deposit accounts. Given that more than two-thirds of tax expenditures for pensions went to households in the top 20 percent of the income distribution, while the bottom 40 percent received only 2 percent, community philanthropy needs to increase its support. Community philanthropy should also support research and advocacy around the possibilities for automatic deduction into IRAs and 401(k) plans for many low-income individuals who do not have such access at work.

In closing, community philanthropy has much to offer community development. Its involvement could and should occur by building upon some great models (see "Models of Partnerships" article) that exemplify an ability and legacy of convening, by innovation and by leadership in resolving the foreclosure crisis and building wealth while advancing social justice. Hopefully, moving forward, community philanthropy will maintain vision and courage for pursuing the best strategies that improve the quality of life for households, revitalizing communities beyond the short term and well into the future.

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2015 Federal Reserve System
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