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Community Investing vs. Absentee Lenders

By March 9, 2009

There's a well-written, if somewhat depressing, feature in the New York Times Magazine about the rapidly growing problem of home foreclosures and abandoned neighborhoods in the U.S. "All Boarded Up" tells the nation's story by focusing on Cleveland where there have been 10,000 foreclosures during the past two years and it's estimated that one in every 13 houses is vacant.

But what's particularly good about the article is that just by focusing on Slavic Village, a section of Cleveland, we read about many of the causes of the mortgage banking crisis and the disturbing trend that's developing.

As far back as 1999, a local city councilor was noticing the buying of dilapidated homes and flipping them at three or four times what they paid, often after making only minimal upgrades. The rapid growth in mortgage companies, often based out of state, provided buyers with the capital to purchase the inflated homes. Then as values continued to escalate, cold-calling mortgage brokers sold refinancing packages to homeowners looking to pull money from their house to pay for other bills or settle other debt. One woman used her house as "an ATM" machine, according to a local official.

In the end, the debt became too great. When values crashed and people found themselves owing more than their house was worth, they lost it to the bank or just walked away.

But the problem doesn't end there. In fact, Slavic Village's city councilor says the "next tsunami" is what's happening now - companies and individuals with no ties to the community are buying foreclosed properties in bulk and selling them for a profit. Again, like the flippers before the market collapsed, they're selling without making any repairs.

I mention all of this because a basic strategy within socially responsible investing - community investing - provides an alternative to "absentee mortgage companies." Investment from local credit unions and community development institutions means local lenders who are familiar with the neighborhoods and know their borrowers make loans for low-income housing, first-time buyers and senior citizens. At the same time they help develop the communities in which they're located by investing in small businesses, which are so important to helping low-income areas improve.

The irony is that while many of the failing banks in the country are teetering because they issued high-risk mortgages, smaller community development institutions do that every day. They just know how to do it the right way.

Comments
March 20, 2009 at 10:26 pm
(1) ram says:

good site

March 21, 2009 at 3:51 pm
(2) socialinvesting says:

Thanks. Tell all your friends!

BD

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