While I know the purpose of this site is to elect better Democrats, I often am impressed by diaries that offer some serious policy content. I want to offer one of these in the housing arena.It's really quite simple, not too expensive, and has the potential to benefit individual families,create substantial employment and economic activity- all goals of economic recovery.
It is simply this - bring back an old staple of the federal housing arsenal - the Section 312 Rehabilitation Loan Program. 312 loans were loans made with funds provided by the federal government at low interest rates(3%)and processed by local municipalities.These loans were for the rehabilitation of homes and small apartment buildings. They were actual loans- not grants- that citizens took out and paid back. Like all loans there were approved subject to certain underwriting criteria and since they were loans to improve properties requirements on code compliance.
The Section 312 Loan Program was enacted by Congress as part of the Housing Act of 1964 to eliminate slum and blight conditions and to upgrade and preserve neighborhoods. It was designed as a partnership between the federal government which furnished the loan funds and local governments which processed loans. Loans were at 3% for 20 years and had a maximum loan limit of $27,000 per unit.
Yes, that's right - you could get a loan from the feds for a fairly significant amount-in those days-to rehab your house. This was in the days before privatization was the modus operandi of government and before the devolution into local housing block grant programs. It was a successful tool in revitalizing many neighborhoods. In Chicago, for example, it was a major component in the revitalization of the Near West Side and Lincoln Park as part of the city's urban renewal efforts - providing a vehicle for existing residents and for new buyers to make repairs on existing buildings.Currently the progam exists but does not appear to be funded.
So why is this important now? Here's a summary of the situation we are in currently:
- Money from banks to consumers is hard to come by. Borrowers who are basically creditworthy but have less than stellar credit scores will have difficulty getting a loan.
- Local housing markets are weak, values are slipping - providing a logic for disinvestment - a logic that can be disasrous for older neighborhoods and serves to create a self-fulfilling prophecy of decline.
- There are tons of foreclosed houses. while there will not be demand for all of them, there needs to be a finacing mechanism to stimulate rehab when and where it is feasible.
- People need jobs. The construction industry has been extremely hard hit by the recession - particularly smaller contractors that rely on home remodeling.
- We want buildings to be energy efficient. A low interest rate loan could stimulate demand for energy saving building retrofits.
- Citizens need to see and benefit from the investment in economic recovery.
There is still another reason - a practical reason for doing this. That is that the delivery system still exists for the most part in local governments. It doesn't have to be built from scratch. There exists some institutional memory about how to do this kind of program. Home improvement loan programs are slow to get started by usually pick up steam after a while. The delivery of a program like the 312 loan program could benefit from new technology to make delivery smoother and less painful.
Who benefits from a large scale effort ot fix up houses? People who need and want to make improvements; cities desiring to maintain their own employee base, preserve investment in neighborhoods and address foreclosure issues; contractors of all sorts; building material suppliers and all sorts of manufacturing related to building suppliers; neighbors who don't borrow but get to see houses getting fixed and begin to feel a little more confident things are getting better.
Let's talk about numbers. First of all the per unit limits should be higher,especially to incentivize items like solar heating systems.There should be no income limits for borrowers so people at all incomes could invest in rehab. Remember a $70,000 loan at 3% for a 20 year term costs a borrower $388.50 per month...not a bad deal for a significant amount of rehab money. 100,000 loans at an average of $70,000 per loan would require a commitment of $7.0 billion. this would easily create and maintain over one million jobs To put this in context HUD received a TARP allocation of $13.6 billion but as of January 2010 has committed only over $2.0 billion.
There are all kinds of ways the 312 loan program could be modified to make it a better tool for current times but listing these would only appeal to housing geeks like me. I'm just saying here's an existing platform that can be modified and funded, that could be of substantial benefit to a broad range of constituencies, and could be a real stimulus to an important economic sector.
Why won't this happen? Too often in government innovation means new things with very complicated moving parts...that never really get implemented. They look good but are hard to implement. Innovation unfortunately does not involve taking something that once worked and retooling it for current situations. All too often history begins with a new administration and things that might have worked earlier are discarded or just ignored.
As HUD Secretary Donvan said in the HUD 2010 Budget Statement:
"HUD must engage in continuous Policy Innovation, to move beyond legacy programs and shape new markets and methods in the production and preservation of affordable housing, the greening of residential housing, the regeneration of high poverty neighborhoods, and the promotion of sustainable growth in metropolitan America."
A program tool like the 312 loan program can do all that...but it needs to be retooled and funded.
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