Waters: 'Low-value' homes for high-value borrowers

Mr. Potter, you wouldn't like what's about to happen in South Memphis.

Some working people who can afford to pay a house note but can't get a conventional loan are going to get a legitimate chance to be homeowners.

It's a new, low-income home loan program from one of those high-ideal, building-and-loan type organizations that put people over profits.

No, it's not the Bailey Building and Loan you tried to undermine in "It's a Wonderful Life." Greedy guys like you drove those old building-and-loans out of business years ago.

This new loan program, which includes credit and homeowner counseling, is being run by Roshun Austin, one of those starry-eyed dreamers you look down on.

She's president and CEO of The Works Inc., a community development corporation started nearly two decades ago by St. Andrew AME Church in South Memphis.

Austin is the George Bailey of the neighborhood, which was abandoned decades ago by private investors like you. She serves as its primary employer, developer, banker and Realtor.

The Works already has helped 25 low-income working families buy new or rehabbed homes in the neighborhood. Now she wants to reach out and help even lower-income workers.

She's teaming up with Pinnacle Financial Partners -- a bank, mind you, the second biggest in the state.

They've put together a $500,000 loan fund to help a dozen or so low-income, first-time homebuyers purchase homes under $50,000.

"Pinnacle is servicing the loans, but The Works is originating the loans and assuming the risk," Austin said. "We hope to prove it's worth the risk, so the market will come in and take over."

A half-million dollars doesn't sound like much in a market that sucked up nearly $2 billion worth of mortgages last year.

But it's a start, and the fund will grow, if it all goes well.

Besides, $500,000 is a lot more than zero, which is what the working poor have gotten from most mortgage lenders in recent years.

These are working people -- "riffraff" you call them -- who barely make enough to stay above the poverty line.

Many are paying $700 or more a month in rent, often for "Potter's Field"-quality housing.

They could afford to pay a $500-a-month (or less) note for one of those $50,000 (or less) "Bailey's Park"-quality houses.

Ironically, the subprime disaster that targeted the working poor left a glut of these "low-value" homes all over low-income neighborhoods in South Memphis, Frayser and Hickory Hill.

The median price for a house in The Works's 38106 ZIP code is $23,000. Median prices are less than $30,000 in seven other Memphis Zip codes.

These are homes the working poor could afford to buy, if they could get conventional loans for them.

They can't. Even if their credit scores are high enough to qualify, many banks won't make loans on houses that cost less than $50,000. (The average loan amount last year for local Habitat for Humanity homes was $78,200.)

Since the economy crashed in 2008, the conventional mortgage market has gotten tighter than Potter's fist around a dollar.

New rules inadvertently turned conventional loans under $50,000 into "high-cost" loans that look predatory. Banks don't need the extra paperwork or scrutiny, especially for loans that would make them less money.

In recent years, investors, often from out of state, have filled the void by rushing into these neighborhoods with cash. They've bought hundreds of "low-value" houses and turned them into higher-cost rentals.

"The working poor can't get home loans, so they're paying more in rent, and often for substandard housing that makes their lives even more difficult," Austin said.

"The rentals often fall into disrepair, become vacant or blighted, which adds to crime and causes people to move out and schools to close and neighborhoods -- and housing values -- to continue to decline."

It's a vicious cycle, Potter. One guys like you are only happy to take advantage of.

The latest predatory schemes are being called "rent-to-own" or "contract-for-deed."

So-called shadow banks buy up "low-value" homes and rent them to low-income folks, with the promise they'll get the deed in 15 or 20 or 30 years, if they stay current.

If rent-to-owners miss a payment or violate some other part of their contract, they can lose all the money they've "invested" and get evicted with no recourse.

Housing do-gooders like Austin hope this new loan program will attract conventional mortgage lenders to low-cost neighborhoods.

"Low-cost neighborhoods like Frayser have been in need of loan products to help us rebuild ownership levels," said Steve Lockwood, executive director of the Frayser CDC.

During the 2016 fiscal year, 83 percent of home sales in Frayser were to investors who paid cash; only 17 percent were to owner-occupants. Lockwood is working to double that figure.

Next month, he's launching a new ad campaign for Frayser homes. It will include a Home Ownership Hotline: 901-354-2668.

"Some landlords do a good job with rentals, some don't," he said. "But every neighborhood benefits from having a certain number of homeowners."

Potter, these potential homeowners are the people who do most of the working and paying and living and dying in these neighborhoods. Is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?

George Bailey didn't think so. Neither does Roshun Austin.