Jul 16, 2007

Broken Dreams


The lead story in the Morning Call sunday dealt with a growing number of foreclosures, especially in the sub-prime category. The article and those quoted in it concurred the problem rested primarily with unregulated brokers, who paired people with mortgages they would not be able to afford down the road. The reporters briefly mentioned two other factors, whose significance they vastly underplayed. One is the notion by the government and many low-income advocates that becoming a homeowner will make people more responsible members of their community. Here in Allentown the community block grants are given to several agencies which specialize in making the low-income homeowners. These agencies minimize their default rate by having an on-going bail-out fund, although they refer to this as after-market counseling. The second real culprit was the government insurers , Fannie Mae and Freddie Mac, relaxing their standards. Several years ago the activists blamed predator lenders for rash of default, actually jailing a number of people. Now the same activists are blaming greedy mortgage brokers. The government and the low-income advocates must stop promoting home-ownership as a constitutional right. Houses are expensive, things break, murphy's law is truly in effect. Twenty-five years ago nobody considered buying a home with less than 10% down. Nobody considered spending more than 25% of their income on a fixed mortgage. Now we encourage people to buy a lottery ticket and hope their adjustable rate mortgage doesn't go up.

7 comments:

Mr. Damien Brown said...

MM:

This is one area I have always thought you had a a good amount of expertise and a unique perspective. You may be onto something.

In my opinion, if you don't mind me offering one, I think you could be pretty successful toward implementing positive change in Allentown if you would focus your energy on this specific issue. Your thesis is very intriguing but I think many people may need a bit more convincing.

For better or worse, most people don't want to take a position that makes them feel like, or look like, they are attacking people who cannot defend themselves.

How can others be sure that if these local agencies were not helping people buy homes we wouldn't be living in a city filled with abandonment and vacancies. Is anyone keeping track of how many locals are helped vs. people from out of state. What are the default rates among local low-income buyers who received assistance?

michael molovinsky said...

this is certainly one of my "politically incorrect" themes. I had a press conference at 4?? liberty, which the morning call suppressed. it was taken off the tax rolls about 12 years ago. one agency placed a family who defaulted. it was then given to a new agency, remodeled again, and given again. so the city received no taxes for 12 years, and the property was remodeled twice. the city itself stopped placing family's through its programs, such as homesteading, because they had no success collecting taxes or water bills. the agencies, such as the alliance, are now big business. in addition to community block grants, big corps. such as air products, etc. contribute. these agencies claim their default rate is less than national average, i believe them, because of the back up programs. nyc stopped supporting most of these programs and the end result was expanding gentrification. real estate people know there's more margin in upscale. i don't think we would have abandoned houses, there's a couple dozen private rehabbers in town. i don't think any points are given for being a long term resident. allentown could be inadvertently holding itself back through good intentions.

Mr. Damien Brown said...

MM:

Is the history of homeownership assistance documented anywhere or is it just common knowledge.

I would love to read up on the issue and how their current perspective evolved.

michael molovinsky said...

i read articles on the different agencies and they promote themselves as nothing less than wonderful, especially at grant time. they are sacred cows, especially in this town. butz wanted to build from 9th to the alley, but the alliance wouldn't give up their property. can you imagine a low-income housing agency on what was the former premier retailing block in the lehigh valley(valley of allentown) allentown is not that big of a city that we should have multiple such agencies. unfortunately, a consequence of the upcoming foreclosure parade is that these agencies will probably become fortified in mission and assets.

Mr. Damien Brown said...

If so now is the time for you to get together your research and start making friends.

The difficulty with your thesis is that it is a bit of a chicken or egg debate. Regardless, I think your perspective needs to be heard and considered.

Under what authority does most of these non-profits operate. Which ones are government subsidized and are there properties tax exempt or tax deferred?

michael molovinsky said...

they are all non profit, they are all subsidized by the community block grants and separate hud grants they apply for. I believe in the last couple of years they have been paying RE taxes on their inventory. there is a project on the 400 block of north st. that is quite interesting. brand new townhouses, but you can only access to them through very narrow alleys.( which is how the block burned down in the first place) here's a rumor, fred buennules(sp) current head of the alliance for building communities, will become the new community and economic director of allentown(replacing betsy levin), then the two top spots in allentown will he controlled by advocates for low-income housing(pawlowski was former director) i would love to see the new townhouses by Nic Z owner occupied with conventional mortgages. if that happens i will credit the mayor, but i don't accept the press releases as gospel, i'll wait and check out the occupants.

Mr. Damien Brown said...

The Morning Call did a story featuring some of the new owners of the Nic Z homes. I also heard one of the new managers at the Brew Works is buying one so we may be ok there.

Mayor P has a background in urban planning so I am sure he understands the dynamics of a healthily balanced mixed income city/community. How deep his personal relationships run and his personal sentiment around the issue I do not know. Personally, I think he realizes that the last thing Allentown needs is low-income housing.

If I were you MM I would suggest taking a look at the proposed riverfront project. People are starting to demand that a certain percentage of those new homes/condos be reserved for low-income residents. I really wonder who is behind that push. The last thing that section of town needs is even one more low-income unit. An influx of moderate/high income units would bring the neighborhood closer to a healthier balance.