Solution to Crisis Goes Beyond Compliance

California faces a major shortage of affordable housing, which individuals, institutions, and organizations are trying to solve.

It's ironic that all the thought and talk rarely result in action.

If the individuals working alone pooled resources and energy, California's affordable-housing problem could easily become the affordable-housing solution.

According to the California Association of Realtors, as of April 1991, 51% of Americans could afford the nation's median-price home of $94,200. However, only 20% of California residents could afford the state's median-price home of $205,682.

That number gets even worse in Orange County, for example, where only 19% of residents could afford the county's median-price home of $236,760.

Defining |Low' and |Moderate'

There is no typical individual or family of low to moderate income. They may or may not be disadvantaged, ethnic minorities, or single-parent families. They can be multiple families sharing an apartment or a rented house. They work and pay their bills, but rarely have savings or a credit history.

But limited income means that a down payment of 5% to 10% of a home's purchase price is often unattainable.

Three general elements determine affordability:

* Interest rates.

* Income levels.

* Home prices.

Some of these factors can be influenced and changed, but only when realtors, banks and thrifts, developers, and city, state, and federal officials work together.

Developers, for example, should consider how an office tower or mixed-use project will impact housing needs and home prices in the surrounding area.

City planning commissions and design review boards must understand that all members of the community - both residents and businesses - benefit from the neighborhood stability that pride of ownership can foster.

A Lender's Obligation

The Community Reinvestment Act requires lenders to make loans and services available in all communities in which they operate. But, compliance with the law is not enough.

Lenders need to realize that it's simply good business to lend in all of the state's communities. Most lower-income individuals, for example, pay their bills on time and can often be less of a credit risk than those earning much higher incomes.

These loans are frequently the only chance for low- to moderate-income individuals to realize the American dream of homeownership. Lenders must look beyond existing policies and find creative ways to assist this group of homebuyers.

Interest rates, for example, can be every bit as restrictive as high down payments when buying a home. Although lenders can't add to a buyer's down payment, they can offer more competitive interest rates and extend a buyer's reach.

Lenders can also participate in special bond and mortgage credit certificate programs that help borrowers obtain lower loan rates.

Thrifts can turn to the Federal Home Loan Bank's affordable housing program for subsidies on housing finance. The benefits to the first-time home buyer include lower interest rates, greater ability to qualify for financing, and lower closing costs than are available with standard, conventional mortgages.

Lenders have a responsibility to provide reasonable mortgage terms - and to communicate those terms clearly. For ethnic communities, for example, that means providing bilingual credit counselors and loan agents - and advertisements and collateral materials in languages other than English.

Working with real estate professionals, lenders must encourage home ownership by demystifying the home buying process and increasing the comfort level of potential homebuyers when applying for a loan - regardless of income level.

Although many banks and thrifts are making strides in providing affordable mortgages, there are still substantial barriers that only Congress can alleviate. For example, federal regulators require financial institutions to reserve an inordinate amount of capital for multifamily housing. This undermines the incentive to extend loans to affordable housing projects.

Congress should introduce legislation to reduce these capital requirements, so that returns are equivalent to other types of lending.

Existing government affordable-housing subsidies need to be re-evaluated and redirected. Although these subsidies can help minimize down payments for certain homebuyers, interest rates are the real obstacle to homeownership.

Mr. Nunn is first vice president and director of community outreach and urban development for American Savings Bank, Stockton, Calif.

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