Collaboration in Cuyahoga County Leads to Housing Funding
Cuyahoga County housing stakeholders, spanning a wide spectrum of organizations, worked with county staff for two years before presenting the Cuyahoga County Housing Plan to the Cuyahoga County Council in 2017. The plan recommended six housing priority areas, of which access to capital for both home repair and home purchases was one. In response to the plan and other local lending research, the Cuyahoga County Council passed the Cuyahoga County Housing Program in February 2019, a six-year, $30-million program that supports home renovation, homeowner assistance, and the housing market in low- and moderate-income (LMI) communities.
Securing traditional funding for home repair and home purchases in LMI neighborhoods has posed a challenge in many parts of the country, but some neighborhoods in Cuyahoga County, Ohio, haven’t seen any lending in years. The Federal Reserve Bank of Cleveland’s 2017 Home Lending in Cuyahoga County Neighborhoods report found that prior to the Great Recession, home mortgage application rates were significantly higher in Cuyahoga County’s LMI neighborhoods than in the county’s non-LMI neighborhoods. As the recession took hold, application rates fell sharply in these lower-income areas, dropping below rates in the non-LMI neighborhoods—a reversal of the prerecession trend. Nationally, the trends were similar but the declines were not as large.
Despite the decreased rate of home mortgages, people are still buying homes in LMI neighborhoods. The majority of purchases are occurring through cash sales and sometimes through land contracts, also known as contracts for deeds. Exploring a Decade of Contract for Deed Sales in the Midwest found that neighborhoods with the highest concentration of contracts for deeds per owner-occupied housing units tended to be lower-income neighborhoods with lower rates of mortgage lending. Still, other options for accessing capital for purchases and home repairs are needed to ensure that all neighborhoods are able to recover and stabilize. This issue remains a focus within the Cuyahoga County community.
The homeowner assistance piece of the Cuyahoga County Housing Program allocates $1 million each year specifically to small-dollar (less than $70,000) home purchases and home repairs and was designed to help fill the need for new capital in these areas. Since the legislation passed, the county’s Department of Development has worked closely with the Cuyahoga County Council and the Cuyahoga Land Bank to create rules and parameters for programming that will be introduced in the second quarter of 2020. Funded programs will likely complement or leverage programming for credit counseling, down payment assistance, and home repair lending that already exists within the county.
The Land Bank is also using funding in collaboration with CHN Housing Partners and its new affiliate, CHN Housing Capital (CHN HC), to create a loan loss reserve that allows funds to flow into communities where capital has not been previously available. A loan loss reserve will allow CHN HC to use funds from operations, banks, or philanthropy to lend for home purchase, down payment assistance, and home repair loans. CHN HC expects to make about 30 home purchase loans in 2020 with a loan-to-value of as much as 95%, in hopes of allowing for more mortgages to be originated below $70,000. Often, these loans do not happen in LMI areas and prevent neighborhoods from recovering as a result. Additionally, the Land Bank is building new homes in neighborhoods that have not seen new-home construction in decades and increasing the number of its own home renovations to keep housing affordable. These efforts are important because they are also helping to increase values of homes in LMI neighborhoods.
While many of the contracts to implement the Cuyahoga County Housing Program are not yet final, the collective work of county staff and local housing stakeholders to create the plan and receive resources to address lending challenges within the county should be viewed as a success. The programming will be vital because it will allow much-needed capital to flow into neighborhoods that have been neglected for so many years. The Cleveland Fed will continue to monitor lending to LMI neighborhoods and look to share leading practices like this with other parts of the Fourth District.