In the wake of Obaba’s Homeowner Affordability and Stability Plan, many people are wondering if throwing a lifeline to borrowers will have its intended impact.

The big banks appear to like the plan.  So does Fannie Mae.  The market was mixed.  Bank stocks fell on the day, but overall, the Dow was about even. The Wall Street Journal’s Editorial Page is already coming out against the idea.

The doubt stems from research that shows that a high percentage of modified loans still end up delinquent, in default, and potentially in foreclosure.  John Dugan, Comptroller of the OCC, recently published research that shows that more than half of all loans modified in 2008 ended up in default.  The research only covered first lien loans.  So, that is some pretty (more…)

The North Carolina Division of Community Assistance held a meeting yesterday in Greensboro to help cities, counties, and non-profits with their NSP applications.  The NSP is a federal program, administered through HUD, that enjoins these groups to fight the foreclosure crisis in their communities.  HUD has allocated $3.92 billion.  Approximately $57 million will go to North Carolina, including $12 million for non-profits.

What is emerging is that in North Carolina, the NSP will be designed in such a way that only a narrow set of strategies can qualify.

The criteria are especially daunting for non-profits.  There will be no land banking, for example.  This is one of the ideas supported by one of North Carolina’s largest non-profit housing developers and credit unions, Self-Help.

[polldaddy poll=1062393]  Moreover, all funds must be recaptured.  What does that mean?  Well, if DCA grants a county $200,000 to do infill redevelopment of blighted property, the following scenario would emerge:  The county might partner with a non-profit on redevelopment.  Say the property was made into a multifamily rental and resold for $225,000.  The non-profit would be able to take its costs of management out, but it would have to return what was left of the $225,000 after those costs.

Last, non-profits have to meet more stringent tests for population served.  The HUD regs are written to require that at least half of all residents served by any grant are at incomes at or below 50 percent of area median income.  That is a tough test, all by itself.  It pretty much guarantees that most projects are going to be for rental housing.

Non-profits in North Carolina will have to go one more step.  100 percent of residents in non-profit projects must have incomes at or below 50 percent of AMI.

Last, although anyone is eligible, it looks like only twelve counties are “competitive.”  All twelve are east of Winston-Salem.  Folks from Buncombe County were not happy when they heard about that at yesterday’s meeting.

It seems likely that the NSP in North Carolina is going to be have requirements that make it most amenable for supportive housing.

Guest Editorial by Peter Skillern

In a steady drumbeat from conservative activists like Rush Limbaugh, the Community Reinvestment Act is being blamed for the banking crisis.  According to their line of argument federal laws and regulation passed by liberals forced banks to make bad loans to minorities and low-income people.  These borrowers defaulted, causing the credit crisis on Wall Street.  To assign blame and prevent future problems, they argue that Congress should repeal this law.  This is a false and cynical attack that assigns blame based on race and class and does not help the credit markets.  For these critics, the mortgage crisis is an opportunity to repeal an important fair lending law.

The Community Reinvestment Act (CRA) passed in 1977 is part of other civil rights legislation to address discrimination in lending.  It states in part, “regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.”  Nowhere in the law or regulations are banks instructed or encouraged to make unsafe or unsound loans.  CRA evaluations by regulators are to look for and penalize risky and reckless lending.

CRA Not The Cause
CRA advocates, such as the Community Reinvestment Association of North Carolina, have pushed hard for banks to be inclusive of minority and low-income families for banking services and loans.  We have also loudly opposed unfair, unsafe, subprime and predatory lending practices.  Responsible banks such as BB&T have an outstanding CRA rating, but did not make subprime loans.  BB&T’s stock price is also doing well.  CRA does not encourage banks to make bad loans or cause them to collapse.

To argue that Bears Stearns, Lehman Brothers and AIG Insurance Company failed because of CRA fails to recognize that this law does not cover these firms in any shape, form or fashion.

Likewise Fannie Mae and Freddie Mac are not subject to CRA.  They do have goals established by Congress to serve low and middle income households. But there is no mandate to buy subprime loans which do not have common sense underwriting such as a requirement to document borrower income.

Wachovia Bank and Washington Mutual were covered by CRA.  It was not CRA loans that caused these banks to crash, but adjustable rate mortgages made on over-inflated home prices with out sound underwriting.

CRA is not the common link among these financial institutions failures.  Management that chose profits in the short term rather than safety and soundness in the long term caused this meltdown.  It was not regulation that caused banks to make bad loans, but the lack of regulatory enforcement that allowed irresponsible lending.

Borrowers of All Colors
To blame minorities and poor people for the mortgage crisis feeds a false stereotype that they are undeserving and untrustworthy.  African-American and low-income borrowers disproportionately received high cost, subprime and predatory loans.  Correspondingly, they also are disproportionately represented in foreclosures nationwide.  Poorer neighborhoods will be hardest hit.  Yet they remain a minority.

The majority of subprime loans and foreclosures involve households that are white and middle to upper income.  To blame people of color is to scapegoat based on racial bias rather than the facts that people of all color and income have been hurt by mortgage loans that no one should have made or taken.

Rather than repeal the Community Reinvestment Act, it should be expanded in the regulatory reform expected next year.  If financial institutions of all stripes and types are to benefit from a taxpayer bailout, then all should have an affirmative obligation to responsibly and safely provide quality financial services to Americans regardless of their race and class.

Peter Skillern is Executive Director of the Community Reinvestment Association of North Carolina a nonprofit bank watchdog agency. www.cra-nc.org

Now there is news that last week’s massive housing bill, aimed at staunching the real estate and mortgage industry crisis, will extend support to the foreclosure problem.  The solution is a tax credit of $7500 for people who buy foreclosed properties.

This could be a bonanza for the right investor with a careful business plan.  Already, some banks are ramping up their foreclosed properties portfolios.

My question is, as usual, what will this mean for manufactured housing?  Will there be language that eliminates personal property-designated homes from qualifying for this relief?

Foreclosures have increased by 17 percent, year over year, for the first five months of 2008 in North Carolina.

Data comes from records on commercial and residential foreclosures maintained by the North Carolina Administrative Office of the Courts, covering the period from January to the end of May for each year.

Brunswick County showed the greatest leap of any of the large counties, with foreclosures jumping 129 percent. Mecklenburg County had the greatest absolute increase, relative to spring of last year, with a jump of 445 additional foreclosure filings.

While Brunswick, with its high percentage of expensive vacation homes, or Union County, with its prevalence of exurban tract developments might make sense to appear in the upper end of this list, other counties suggest that there are more than a few reasons for the spread of foreclosures. In places like Davidson County (Lexington), Gaston, or Pitt, it points to strains in places that once relied upon manufacturing. Even Cumberland, where military jobs would suggest that the economy might weather a few downturns, witnessed a 14 percent increase.

The numbers suggest that many in counties that depend upon tourism and the beach economy are really hard hit. Brunswick is not alone. In Currituck, for example, foreclosures were up 110 percent. Onslow increased by 22 percent and Carteret by 74 percent. In Cherokee, where casinos generate a lot of revenue, foreclosures surged 118 percent.

The problem of foreclosure was muted in some places.  While it jumped in large metros including Mecklenburg and Guilford, Wake and Orange increased at a rate below the state average.  Foreclosure filings in Edgecombe (Rocky Mount) and Watauga (Boone) fell by more than 26 percent.