How to tackle it isn’t clear. "Every big funder is out there trying to figure out how to participate in systemic responses," says George McCarthy, a senior program officer with the Ford Foundation. The problem, he says, is that "no one can figure out where the opportunity lies" and how philanthropic dollars can be spent most effectively.
The Ford Foundation, which has about $12.8 billion in assets, is looking to fund programs aimed at reducing the number of homes that wind up in foreclosure, perhaps by making it easier for homeowners to get mortgages modified.
Meanwhile, Living Cities, a consortium of major foundations and financial institutions working to revive inner cities, is considering funding programs to keep borrowers in their homes and get abandoned properties back into use. Many of the group’s members have worked over the last decade on ways to create affordable housing and reduce urban blight. "Unfortunately, a lot of that progress is being wiped away or has the potential to be wiped away," says Ben Hecht, the group’s chief executive.
Mr. Hecht hopes to raise at least $5 million from the group’s members and others that can be used for grants, as well as at least $10 million in flexible longer-term loans for local programs that, if successful, could be quickly replicated nationally perhaps influencing policy makers figuring out how to use public dollars.
The amount of money charities are setting aside to assist is relatively small when compared with the scope of the mortgage crisis. As of the end of January, some 2.3 million mortgage loans were delinquent and another 505,000 were in default, according to Moody’s Economy.com economic research firm.
Nevertheless, moves by foundations could provide quick funding for programs operated by local governments and nonprofit groups at a time when federal solutions have been slow to materialize. This week Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, floated a plan that would allocate as much as $10 billion in loans to states to buy foreclosed or abandoned properties, along with $10 billion in Federal Housing Administration guarantees to allow people delinquent in payments to refinance into more-affordable mortgages. But it isn’t clear whether such proposals will reach fruition. Meanwhile, city and state officials say the situation is growing bleaker and that they need to act now.
The Living Cities consortium, which met this week to weigh about a dozen proposals from local governments and community groups, includes the Ford Foundation, the Rockefeller Foundation and the Bill and Melinda Gates Foundation and companies such as Bank of America Corp., J.P. Morgan Chase & Co., and Deutsche Bank AG. Other supporters include the Kresge Foundation, the John D. and Catherine T. MacArthur Foundation and the Annie E. Casey Foundation.
In the 1970s and 1980s, many cities were hurt when the loss of manufacturing jobs and an economic downturn drove residents to move away. Investor-owners abandoned properties in the face of rising inflation and higher fuel costs, and many ended up in the hands of local governments. Foundations, community groups and others eventually helped return many of these properties to productive use.
This time around, assisting troubled homeowners is turning out to be particularly difficult and costly because many are in such bad financial shape. The large volume of problem loans has stretched the resources of housing counselors and mortgage-servicing companies. Arranging for broad-based loan workouts or purchases of foreclosed properties has also proved difficult, in part because so many mortgages were packaged into securities, sliced and diced and sold to investors.
The Ford Foundation is considering an investment in a program being developed by Consumer Credit Counseling Service of Greater Atlanta that would give its counselors access to mortgage-pooling and servicing agreements, and the authority to fashion loan modifications for certain borrowers who’ve fallen behind on their payments. Mortgage servicing companies that participate in the program would agree in principal to execute the group’s recommendations.
The Ford Foundation allocates as much as $5 million in grants and up to $10 million in loans annually to housing-related initiatives, but may make additional money available this year.
The impact of foreclosures on other people who live in the neighborhoods is "the part of the story that gets lost in the whole mortgage discussion," says Mr. Hecht of Living Cities. "When I go to some of these communities, it breaks your heart. Not only are the buildings boarded and abandoned, but you have people who have these homes in blue-collar neighborhoods … They are hard-working people. They did nothing wrong. We would like to be able to help them."
Among projects the consortium is considering funding is one proposed by nonprofits and local governments in Cleveland. It would aim to acquire 450 foreclosed properties in the area at a cost of roughly $21 million, and either rehabilitate them as homes or rental units, or demolish them to make way for parks and other uses. Cuyahoga County, Ohio, which includes Cleveland and its suburbs, had nearly 15,000 foreclosures in 2007, according to Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention Program.
"Over the last 20 years, we have worked with local community-development organizations to really stabilize these neighborhoods," says Doris Koo, president and chief executive of Enterprise Community Partners, which has helped bring in about $240 million for affordable housing in Cleveland. "We’ve produced some stable communities, but because they are so fragile, any large-scale abandonment can bring them down."
Another program Living Cities is looking at was proposed by the Center for New York City Neighborhoods, a nonprofit recently created to address the subprime mortgage crisis. The program wants to quickly reach borrowers at risk of foreclosure and get them into loans that they can afford. Already the Open Society Institute, funded by George Soros, is spending $1 million in each 2008 and 2009 on efforts including counseling, legal assistance and borrower education. The Open Society Institute has committed to spending a total of $10 million on mortgage-related programs over the next two years.
The Chicago-based John D. and Catherine T. MacArthur Foundation, with assets of $6.8 billion, is stepping up its support for organizations it already funds, such as Neighborhood Housing Services of Chicago, a nonprofit organization that works with financially distressed homeowners, and the Woodstock Institute, which is analyzing foreclosure data. It is also helping the City of Chicago look at ways to put foreclosed homes back into use as quickly as possible.
The foundation is also considering using program-related investments low-cost loans for charitable purposes to help develop financial instruments to make it easier for people to stay in their homes, or rent or buy foreclosed properties. The investments could also fund organizations that would make bulk purchases of foreclosed properties. Over the past 30 years, the foundation has invested more than $500 million in affordable housing and community development.
In Detroit, the Kresge Foundation recently provided a $500,000 grant to Southwest Housing Solutions for housing counseling and the negotiation of loan workouts. The Kresge Foundation expects to spend $2 million to $3 million on foreclosure-prevention programs this year. It is looking at ways to support the purchase and maintenance of vacant properties and to help people hurt by foreclosures find other housing.
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