Affordable Housing Institute : US

[Previous months in review available here: Nov 07, Oct 07, Sep 07, Aug 07, Jul 07, Jun 07, May 07,  Apr 07, Mar 07, Feb 07, Jan 07.]
 

Early in December, the mortgage industry banded together to offer a broad plan for rate reset amnesty options, available to a particular subclass of borrowers that I described in Discovering a subprime solution: Part 1, gathering the clans, and Discovering a subprime solution: Part 2, who shall be saved:

 

Let’s go back to the proposed three groups:

 

Treasury officials say financial institutions are likely to set criteria that divide subprime borrowers into three groups:

 

Triage sorts patients into those who will live regardless of what the doctor does, those who are doomed regardless, and those where intervention means the difference between life and death.

 

It’s touch and go what intervention will work

 

The same triage is being applied here:

 

Group 1 borrowers have equity, and their lenders are fully secured.  Relief is not necessary; just sell the home.

Group 2 borrowers are in trouble already, and even relieving the projected increase will make no difference.

Group 3 are those borrowers who are in good standing now, and can stay there, if they don’t get hit with a rate reset.

 

In short, this is just like AHI drew it up.

 

 

That the Treasury proposal converges on AHI’s ideas isn’t surprising.  All the mathematics is there, waiting to be discovered, as the mathematicians say.  The problem was clear, the timing pressing.

 

Give the Treasury secretary credit for recognizing the problem and committing to act upon it.  Once the action commitment is made, everything else follows.

 

The criteria should be finalized by the end of year.

 

Happy New Year?

 

When the Times Square ball drops, will borrowers be happy?

 

Since it’s not provocative to write stories of people ecstatic about their relief, the next round of journalist commentary was predictable, as I observed in Subprime: everybody start whinging: Part 1, what’s on offer?, Part 2, what’s your beef?, and Part 3, pity the poor investor?, where I quoted approvingly from the excellent blog published by economist Nouriel Roubini:

 

I’ll let Mr. Roubini sum it up:

 

Thus only folks who are so blinded by their free markets fundamentalism and opposition to any government intervention in market failures would be so obfuscated by their ideological blinders that they would [fail to] realize that this plan – however modest and partially faulty and incomplete – implies a better market-oriented resolution and much lower losses to private investors than a disorderly and “mission impossible” case-by-case workout of millions of actual or threatened mortgage defaults.

 

The plan isn’t perfect, for the simple reason that a perfect plan is impossible.

 

Systemic market failures and crises require systemic response where government resolves the collective action problems of individual creditors rushing to the exits and causing a disorderly workout of severe debt problems.

 

A very nice way of expressing government’s value in convening distrustful competitors into collaborative action.

 

This mortgage disaster is a case where sound public intervention is necessary and desirable.

 

Implies Mr. Roubini — and I agree with him — there is more to come.

 

What group of borrowers will be up next?

 

In this post, I realized that what I had been calling the subprime mess was simply the first patient in a global credit illness, a crunch brought on by sudden awareness of the need to reprice the entire risk curve.  In the future, we’ll have to distinguish the two ends of the value chain:

 

Borrower end: homeownership and housing policy issues — working out your loan

Investor end: capital-markets and macroeconomic issues — unwinding messy positions and making something of them.

 

When the balls bang together, some people get a headache

 

On isolated matters relating to tenure and its implications, I covered a topical variant of workforce housing in Vicarage of the church of football.

 

Four posts focused on macro events and how slums incubate frustration, crime, and violence. 

 

In New New Orleans, we watched a pointless protest against demolishing derelict public housing in NNO: What are you trying to accomplish?

 

In France, we observed the truly frightening urban brushfires:

 

There is no curfew, but few people go out after dark when rows of shielded officers move in to take position around this town.  Buses, a popular target for firebombs in the past, have stopped running in the early evenings, making it hard for people to come home from work.  Many shops lock up hours before their normal closing time, partly for fear of vandalism, partly because few customers dare shop after dark. The Tunisian owner of a local bakery, Habib Friaa, said his staff was baking only half as many baguettes as usual because business had slumped.

 

Baghdad?  Fallujah?  No, the bucolically misnamed Villiers-le-Bel, France, as reported in last week’s New York Times:

 

In 1963, American author James Baldwin wrote his manifesto of outrage, The Fire Next Time. 

 

James Baldwin

 

It was his eloquent plea for change, both from American blacks and from American society:

 

Baldwin advises his nephew on how to deal with the racist world in which he was born. In spite the horrors of America, Baldwin believed the Negro must take the high road and show whites, in their ignorance and innocence, how to live the good life, how to love. 

 

It will be hard, James, but you come from sturdy, peasant stock, men who picked cotton and dammed rivers and built railroads, and, in the teeth of the most terrifying odds, achieved an unassailable and monumental dignity. You come from a long line of great poets, some of the greatest since Homer.

One of them said, The very time I thought I was lost, My dungeon shook and my chains fell off.

 

“My dungeon shook, and my chains fell off.”

 

Watts, 1965: when rioting made the cover

 

Baldwin’s plea was timely, but action did not arrive until after America’s cities went up three years running, in 1965, 1966, and 1967.  I still remember the horror of watching burning cities on black-and-white television from one’s living room.  Only then was there change in American urban housing policy.

 

Mr. Sarkozy has less than two years.  I hope he uses the time well.

 

The clock is ticking

 

In Kenya, we saw an election that offered hope, in Kibera’s moment, Kenya’s moment.  Unfortunatuely, only a few days later, 2008 opened with a highly questionable result (the Economist called it ‘massive fraud’ and a ‘civil coup’) and an explosion of violence in the slums, as I described in Always the poor suffer first.

 

Against that, from India and South Africa I had the great pleasure of reporting on the Gates Foundation’s $10,000,000 grant to Slum Dwellers International (now also an AHI client) in The ‘Thanksgiving miracle’:

 

To be precise, AHI has been engaged by SDI as its financial advisor, to assist SDI in its design and financial structure of what we are currently calling the International Urban Poor Fund.

 

Gates’ Walker acknowledges it was “a little bit scary” to contemplate granting $10 million to “people without a bank account.” But Gates watched SDI operations for some time and then decided to go ahead after meeting several members of its leadership team at a Global Urban Summit organized by the Rockefeller Foundation in Bellagio, Italy, last July.

 

Rose Molokoane of South Africa, at Bellagio, July, 2007

 

This idea was hatched at Bellagio, where several folks from SDI — Rose Molokoane of South Africa, Jane Weru of Kenya, and Joel Bolnick of Cape Town — met Melanie Walker of Gates, and I met all of them.  We were sitting around in one of the breakout sessions, and they were describing their vision for an urban fund.  Hearing their description, I blurted out, “you need an investment banker!”

 

One thing led to another — and here we are.

 

There’s some parallel in the Bill Gates and SDI stories, says Walker — both entrepreneurial, both risk-taking. “We’re basically betting on their track record and integrity,” she notes, adding: “We expect our $10 million to be matched several times over by governments and previously unhelpful municipalities.”

 

Sheela Patel of Mumbai, SDI’s board chair, says that through the grant, the Gates foundation “is also learning how the poor themselves can be serious actors in the development process” — possibly a big breakthrough for global funders.

 

Reviewing floor plans at Oshiwira II, Mumbai, 2007

 

In December, I continued my series on future cities in The ultimate future city, the world inside, and finally managed to make explicit something that’s been percolating for months.

 

This is your brain on housing

 

Housing is the linchpin of cities:

 

Cities are homes plus jobs plus density (which means verticality). 

 

Without housing, there would be no cities – for what is a city without housing?

 

All of these are parts of a city, but without housing, at night they are just so many dark shells.

 

Housing is what makes cities bright at night. 

 

It’s not their jobs that keep those lights on at night

 

Closer to home, and more directly connected to apartments, I looked at square footages in Figures don’t lie, but liars figure:

 

Back we come to the value of information; it lets you distinguish the specialist from the quack.

 

I’ve had a basic medical training

 

And commented on a lengthy Fort worth Star-Telegram article on post-recapture Low Income Housing Tax Credit properties in Do your worst: Part 1, the zombie property and Part 2: buyer of the undead.  With year-end approaching, I took a moment to list My favorite posts: Part 1, 2005, and Part 2, 2006 and 2007, scored myself as a pundit in For sale, one cracked crystal ball, and found an excuse to drag the World Series Champion Boston Red Sox into a discussion of housing finance, in Less is more? Risk and optionality.

 

Celebrate with dignity — that’s the ticket

 

With 2007 having been so eventful, keep on the lookout for our upcoming Year In Review!

 

Everything old is new again!