In response to the national subprime mortgage fiasco, the Valley Community Development Corporation is proposing a pilot Foreclosure Rescue Fund loan program (PDF) and is currently applying for $86 thousand in Community Preservation funds to provide grants to lower income property owners so that they don’t lose their homes. According to the application CPA funds would be the sole revenue source of the fund. The proposal does not specifically single out subprime borrowers for assistance though the CDC relies heavily on subprime foreclosure statistics in arguing for its proposal. Nor does it specify how beneficiaries will be chosen, though it mentions the plight of minority populations. In short the proposal lacks quantifiable benchmarks or other specifics and offers no guarantees that minorities or those at the lowest end of the income level will benefit and this is problematic-there is far too much ambiguity in this proposal in my view, although it seems well intended.
Applicants must be at or below 100% of the area wide median income which indicates that persons aided by the program would not necessarily be classified as poor or have subprime mortgages. Of the $86 thousand, 15% or $11,250 is the administrative fee that would be skimmed off of the top. The CDC estimates 10-15 foreclosures can be avoided during an 18-month period and the grants would be in the form of $7.5 thousand no-interest loans that would be forgiven if applicants stay in their homes for five years. In essence $7,500 might be granted to those not of the utmost need and those are not the homeowners that should be targeted. Counseling would be a pivotal part of the program as counselors would work to renegotiate loan terms and educate homeowners among other things. The economist the late Edward Gramlich argued that, “predatory lending and foreclosure problems would not be nearly as serious if borrowers were more literate financially.” Thus some of the responsibility is on the borrowers, but educating them after the fact is cumbersome. Perhaps this speaks to the public education people receive in K-12 schools. Maybe some basic finance should be included in the curriculum?
Something else problematic: the CDC pilot loan application states that, “Northampton had 35 foreclosures and petitions to foreclose during 2007.” This is in direct contrast to public comments made by the Northampton Principal Assessor at a recent city council meeting, where she said that Northampton had zero foreclosures in 2007 and four in 2008 when arguing on behalf of a nondifferential tax rate between commercial and residential properties. Moreover, a recent Gazette article stated in reference to Northampton that, “foreclosures increased from three to seven in the first nine months of this year compared to the same period last year, according to data released by The Warren Group this week.” As an observer of government I find this conflicting information curious.
I further wonder if a basic level of housing should be considered a public good. One might include food and clothing with that. It is somewhat ironic that these necessities are not considered public goods while highways and parks are. I guess that is due to the non-excludable nature of parks and highways. Perhaps it is time to redefine what is meant by a, “public good.”
Moreover, the creation of a fund of this nature would set a precedent and circumvent the authority of the city council, which is supposed to approve all allocations of CPA monies. In this case expending discretion would be transferred to the CDC. The Conservation Commission as chaired by an out of town resident in Paul Wetzel of Williamsburg is requesting a fund of this nature and how long before the Historic Commission, Recreation Commission and Housing Authority each do likewise. Once a fund is established it will need to be replenished and thus we find ourselves at the precipice of a slippery slope in government. CPA funds fall under the jurisdiction of the city council and they should remain there because members of the council are directly answerable to the public through the ballot box. With the exception of two CPC members, the representatives on the commissions and the authority mentioned are appointees. The proposal for the creation of funds of this nature has a sound intent, but another mechanism should be employed that would allow the city council to retain its authority over the allocations of these taxpayer monies so that adequate representation and transparency is assured. The CPC should reject this proposal as written and ask the CDC to try again.
