Forget the House

Popular narratives hold that lower-income families rushing into expanding homeownership with unusually huge mortgages helped cause the financial crisis, but the real cause was the financial products many families bought. It wasn't just low-income families; middle- and upper-middle-class homeowners were lured into less-than-ideal mortgages as well. The problem wasn't one of poverty, but one of financial literacy. The best homeownership programs for lower-income families tackled that problem. Those families are still in their homes, and show that the type of financial homeownership programs can still serve as a way to build assets for low-income families.

That's why, though many advocates for low-income families are looking for other ways to help low-income families build wealth and become more financially stable, homeownership remains an important part of the discussion. But it's not homeownership for its own sake; risky financial products that saddled families with mortgages they neither understood nor had any hope of repaying led to the current recession in which most families are dramatically less stable. Homeownership programs coupled with financial literacy have worked, and advocates are working to make sure everyone knows that and will help them expand.

One of the programs praised by housing advocates is the Massachusetts Affordable Housing Alliance, a program that helped families from a low- to working-class neighborhood of Boston to purchase homes. According to a report from the Center of American Progress, more than 13,000 families bought homes over the past 18 years, and the delinquency rate for the beginning of 2008 was 2.2 percent -- half that of purchasers with prime loans and well below that of families with subprime loans.

The authors of the report, Janneke Ratcliffe and David Abromowitz, point to these and other programs to show that homeownership for low-income families can work when done with financial counseling and downpayment help. Another program in Vermont got low-income families into homes, kept the foreclosure rate extremely low, and allowed the families to build enough wealth to opt into the general housing market eventually, Abromowitz said.

Ratcliffe said she and other researchers have looked at 50,000 families, including those who enrolled in a Tulsa program 10 years ago and saved money in a 2 to 1 matching Individual Development Accounts. Many families were not only able to buy homes, but still accrued wealth over time even after the recent dip in home values. More importantly than providing a way to save money, the program counseled families on finances when they enrolled in the program, and counseled them on home buying before they withdrew money. Counselors also discussed other types of assets, and whether it made sense for individual families to continue to save rather than buy a home right away. This kind of one-on-one attention might do more to explain the low foreclosure rate among families with IDA's than the amount of matching funds.

Homeownership remains a critical component of wealth building, even if the housing crisis taught us it should not be the sole focus. Because homes represent the bulk of the wealth for low-income families who own them, precipitously dropping home values like we've seen over the past couple of years can decimate wealth and jeopardize their financial well being. While many advocates for low-income families are thinking of new ways to diversify wealth-building efforts in low-income families, it's important to remember that these programs are working, and probably will continue to. It wasn't poverty that caused the crisis, it was the financial products that were ready to explode on middle- and upper-class families as well.

The trick going forward will be to remember that. Even with the new homebuyers tax credit and the relatively better position of the banking industry, it is still hard to get a mortgage. It's a great time for lower-income families to get a good deal on a house, but a harder time to get the financing to do so. And it doesn't help that the popular explanation for the current recession still blames poorer families, and the real cause is probably too complicated for the average American to understand.

Homeownership is still an important goal, because almost nothing matches it in terms of return on investment. A family who saves as little as $5,000 in an IDA can obtain a house worth more than $100,000, Ratcliffe says . she says. “It’s hard to see how you’re going to mimic that kind of a level of return,” she says.

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