see how well this type of thing has worked in the past...
http://www.crainsdetroit.com/apps/pbcs.dll/article?AID=/20070604/SUB/706010372/-1/toc
Subprime mortgage lending still bad for city
Subprime mortgage lending decimated many of Detroit's older neighborhoods 40 years ago as an ill-conceived federal response to the 1967 riot. Today, private lenders are promoting the same potentially damaging practice threatening the city's remaining stable neighborhoods, as well as older ones in the region. An investigation by the state is needed.
The practice of subprime lending appears to be as American as apple pie. Buyers excluded from home purchases with lower credit ratings or incomes, traditionally tenants, can experience the American dream of home ownership. The dream, however, can become a nightmare as interest rates rise, property values fall or jobs are lost, leaving many subprime borrowers unable to make payments or sell their homes.
Detroit's riot capped the urban rebellions of the 1960s. Slumlords and the lack of home ownership were seen as root causes by nearly every blue-ribbon commission.
Shortly thereafter, a simple, but naive solution was instigated by HUD: Provide subprime loans to lower-income tenants with weak credit histories to buy houses in older neighborhoods, particularly in cities where disturbances occurred.
Banks participated because loans were 100 percent insured by the FHA, and much of their profits were obtained in up-front fees and charges. Buyers paid only $200 down, which left no equity in the home.
Detroit was picked as the principal target. HUD directed tens of thousands of subprime loans into the city's changing neighborhoods to individuals who could not afford the cost of maintenance or resale, resulting in massive foreclosures, abandonments and wide- spread destruction of stable blocks of housing. These neighborhoods have never recovered.
Today, history is repeating itself. Detroit leads the nation in foreclosures, and subprime lending is seen as the principal cause. With property values down, many subprime borrowers cannot resell their homes without a loss. Nor can they pay the broker's fees, repair costs or closing expenses involved in a resale.
Homes are repossessed by lenders, offered at distressed prices or sit vacant, driving down values of other property on their blocks. The spiral of neighborhood decline takes hold once again.
Michigan cannot afford a repeat of the HUD subprime lending debacle of the 1970s now being orchestrated by private lenders. The governor and Legislature must conduct a full and fair investigation of the mortgage industry, its recent heavy involvement in subprime lending and the impact on borrowers and their communities.
John Mogk is a professor at the Wayne State University Law School.
