It is 56 years since Franklin Roosevelt said, "I see one-third of a nation ill-housed, ill-clad, and ill-fed." The problem still exists, and in some respects it is getting worse.

It is in everyone's best interest to look for solutions. Keeping communities from becoming wastelands while helping poor families find quality shelter could develop customers and profitable relationships for community banks.

In many neighborhoods community banks can take the lead with practical private-sector proactivism. Whatever is accomplished would decrease public expenditures for redevelopment, welfare, and crime. It is also the right thing to do.

In the "glory days" of the 1980s, real estate prices were high and going higher. Inflation and interest rates soared. During that period, there was almost no hope for low-income families seeking affordable quality housing.

Low Rates, Deflated Prices

Now the situation has changed radically. Interest rates are at 25-year lows, and we have experienced enormous deflation in home values. Nevertheless, we are still unable to satisfy the home ownership needs of people whose earnings are below 50% of median family income.

Today there are a variety of programs serving families whose earnings are from 50% to 120% of median. These entail conventional approaches that make mortgages more affordable by raising the bridge and lowering the river, so to speak.

The bridge is raised by increasing the loan-to-value ratios while backing part of the loan with mortgage guarantee insurance.

The river is lowered, making payments more affordable, by subsidizing interest rates directly or with indirect, off-budget expenditures employing municipal bond financing. There are also several plans for down-payment assistance.

Low-income Programs Lacking

But these loan programs do not help would-be homebuyers with family income of less than $20,000. Lower-income families cannot qualify because they do not have enough verifiable income and because many do not have a credit history.

Even though banks, regulatory agencies, and individuals are selling real estate at bargain prices, huge inventories remain. Many bank holdings obtained by foreclosure are failed condominiums and inner-city one-to-four-family homes, and cities are accumulating tax foreclosures by the thousands.

Salvageable Neighborhoods

Meanwhile, indifference, neglect, crime, and vandalism are turning whole communities into wastelands.

Paradoxically, this is happening while low-income families are in desperate need of decent, clean, safe shelter. Several of these semi-blighted areas have not gone all the way down. They can still be salvaged with programs designed to fulfill existing demand.

Part of the answer lies in designing home ownership programs for families earning under $20,000. By paying slightly higher certificate-of-deposit rates, small urban community banks can acquire long-term funds specifically, earmarked for urban lending. That way, the banks can avoid interest rate risk by repricing loans when CDs expire.

Special arrangements might be set up for socially responsible investors interested in tying their bank CDs to urban lending. From these funds, banks could lend for portfolios. They could establish programs that avoid the red tape in packaging loans for Fannie Mae and Freddie Mac.

Free to Experiment

By acquiring loans they intend to keep, small lenders can be flexible. They can experiment with modest mortgages and simplified application procedures.

The Federal Home Loan Bank System, through the Affordable Housing Program, has subsidized mortgage interest rates with the innovative effort of California-based World Savings and Loan.

Smaller bank members of the Home Loan system, should start similar programs with AHP assistance. States and municipalities might also set up buy-down reservoirs using funds from the Department of Housing and Urban Development's HOME program.

The same Affordable Housing Program and multibank Housing Developement Funds could provide equity with small second mortgages. Demonstration projects could be arranged through foundation grants. Public utilities, like Brooklyn Union Gas Co., that are interested in community improvement for their own long-term benefit have organized community development funds which can help small banks provide down-payment assistance.

Risks Can Be Spread

Diversification into smaller loans helps to alleviate credit risk. Small banks might experiment with loans under $70,000 to families purchasing two-family homes without a credit history - but with a record of paying rent on time and otherwise acting responsibly. Other experiments could be tried. Who knows, we might find that the mighty credit report is not as valid as we once thought.

Also, some low-income families need "basic training" in money management. Many lenders insist that borrowers participate in programs designed to teach families how to build credit ratings.

There is another whole area of housing need to be satisfied: renter households who, for the foreseeable future will not become homeowners. Strategies should be developed to serve those who cannot afford home ownership in the near future. Two strategies are available:

* Housing can be removed from the roller coaster by nonprofit organizations. Credible nonprofit developer/managers should be strengthened so,that they have the wherewithal to obtain site control. Today nonprofits have a problem acquiring and rehabilitating foreclosed properties.

They need to do studies, appraise, evaluate. design. Grant money and predevelopment loans do exist, but vastly more funding and accessibility are essential, and community bankers can organize to do much more. Rents might be subsidized through section 8.

Where section 8 is unavailable, assistance might be obtained through HUD's HOME program. Under current legislation these rent subsidies must go to tenants. The law should be amended so that some HOME financing might be project based. Nonprofit developers could then use it.

* Efforts that combine real estate development with community organizing like Neighborhood Reinvestment Corp.'s Mutual Housing Associations can help reweave the interpersonal fabric of distressed communities. Other approaches to community organizing have been land trusts and limited equity cooperatives.

It is in everyone's best interest to look for solutions.

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