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Issue #30 | November 26, 2019

Recently, from the Cleveland Fed

  • Neighborhood quality matters in ways we hadn’t discerned before

    Neighborhood quality matters in ways we hadn’t discerned before

    Reexamination of a decades‐old experiment shows that neighborhoods can significantly influence unemployment, wages, and welfare participation. These new findings from the Moving to Opportunity housing mobility program suggest that it will take more than previous legislation focused on ending racial discrimination to address racial inequality—that people driving policy must also focus on improving the conditions in neighborhoods. Explore the research, including maps and charts.

  • Toledo and Columbus economies show continued improvement

    Toledo and Columbus economies show continued improvement

    Even with more people entering the labor force in the Toledo and Columbus metro areas, the unemployment rate in both regions declined in recent months, suggesting that good job prospects are drawing people into these job markets. Housing prices are another bright spot. Read why in the latest Metro Mix reports on Toledo and Columbus.

  • Biz

    Biz owners, tell us: What’s the state of small business?

    A few weeks remain for owners of small businesses to share how their companies have fared, how they’ve experienced access to credit in the past year, and what they expect in the year to come. The Fed’s annual Small Business Credit Survey closes in mid–December, so don’t delay. Take the 10-minute survey.

  • All eyes on cybersecurity: event highlights threats, defense practices

    All eyes on cybersecurity: event highlights threats, defense practices

    Cybersecurity is one of the greatest risks to the financial sector, and the Cleveland Fed is committed to advancing cybersecurity supervision. The Bank held the Managing Cyber Risks from the C–Suite conference, featuring speakers Theresa Payton, the first female to serve as White House chief information officer, and Michael Chertoff, past Secretary of Homeland Security. Dig deeper into the Fed’s role in this space.

  • First Cleveland Fed Women’s Conference centers on courage

    First Cleveland Fed Women’s Conference centers on courage

    In support of diversity, inclusion, and opportunity, the Cleveland Fed hosted its first Women’s Conference with talent management consultant Ratliff & Taylor, bringing together women from a variety of Northeast Ohio industries. Throughout the day, speakers shared stories of success, failure, resilience, and fortitude. Cleveland Fed president and chief executive officer Loretta J. Mester was one of them and delivered a keynote address to the group. Attendees created an art installation, too. See who else spoke, plus photographs.

Ask the Expert

Question:

How long have contracts for deed existed, and why is the Federal Reserve studying them?

Lisa:

Contracts for deed, through which a homebuyer borrows from and makes payments to the seller of real estate rather than to a lender, were prevalent in the 1960s and 70s in Chicago’s black communities. This was a time when most blacks couldn’t get access to traditional mortgage credit. Redlining, or the labeling by banks of specific areas as “undesirable” for lending, led bankers to withhold credit in those areas, leaving contracts for deed the only option for many buyers of color in neighborhoods where property values were depressed.

Contract for deed buyers have all of the responsibilities of home ownership—for example, they pay property taxes and insurance—but none of the protections. Unlike traditional mortgage holders, contract buyers do not get the deed to their houses until they pay off the contracts, and they don’t build equity in the homes. Missing one payment can result in the seller’s taking back the property, often with no recourse, even if the buyer has been paying on the contract for years. If this happens, any investments the buyer made in the home are lost.

Although contracts for deed have been around for some time, the activity has gained renewed attention since the Great Recession. Researchers and media outlets such as the New York Times began examining the activity of large corporate sellers of contracts for deed. Often these large sellers purchased properties in bulk at very low prices and sold them via contracts for deed, usually at inflated prices and frequently with property liens and delinquent taxes attached.

When my colleagues and I learned about a national database on contracts for deed, we decided to take a broader look at this activity. Our research examines contract for deed activity across six Midwestern states and covers urban and rural places and larger and smaller sellers of contracts for deed. We find that contracts for deed tend to be more concentrated in places with lower incomes, higher shares of blacks, higher rates of housing vacancies, older housing stock, and lower homeownership rates. In addition, the houses people seek to own through contracts for deed tend to be of lower value than other houses, values at which traditional mortgage credit is limited or nonexistent.

There is a need for alternative lending products that can provide safe mortgages for people who are purchasing properties at lower values.

While contracts for deed may be a viable option for those buyers with limited credit history and no down payment and for those seeking to purchase lower-value properties, the near lack of consumer protections for contract buyers is a concern. Consumer law specialists point to the need for laws that protect contract buyers, including ensuring that homes are habitable before being sold, conducting an independent home inspection to confirm habitability, and ensuring the ability of a buyer who’s missed a payment to catch up on their payments.

One example of using contracts for deed effectively

Lisa Nelson

Lisa Nelson

is community development research manager, overseeing the research of the Cleveland Fed’s Community Development Department. The department conducts research on three core topics: workforce and economic development, housing and access to credit, and small business.

Graphic of the Month

Optimism around job availability, survey finds

The Cleveland Fed’s latest semiannual Community Issues Survey elicited on‐the‐ground perspectives on issues affecting low‐ and moderate‐income communities. One bright spot for the direct–service providers who responded to the survey was the availability of jobs. Less bright? Wages and other barriers to employment. Read about respondents’ other concerns in the fall 2019 report.

Optimism around job availability, survey finds

By the Numbers

On the Calendar

From around the Federal Reserve System

Exploring small businesses’ varied and sometimes fraught experiences trying to access capital

Small businesses account for 99.9 percent of all US firms and 47.5 percent of private-sector employment. In order for these diverse businesses to thrive, business owners and entrepreneurs require access to a variety of credit sources—yet less than half of them report that their funding needs are met. Three new articles by Fed researchers look at small businesses’ access to credit when seeking financing online, as a black or minority small business owner, or in a low- and moderate-income neighborhood. Explore the second issue of the Fed's Consumer & Community
Context.

Exploring small businesses’ varied and sometimes fraught experiences trying to access capital

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