At Slabbed we well remember the rollout of REACH Mississippi to great fanfare last year. Joe Spraggins was all over the airways touting the program but before those commercials ran details of the program were leaked to the press and it is there we begin for some background:
In 2007, the Gulf Coast Business Council created the Renaissance Corporation, a non-profit group charged with creating affordable housing options for south Mississippi hurricane victims. The Renaissance Corporation is about a month away from unveiling what it considers an ambitious affordable housing program.
Specific details about how two thousand south Mississippians could become new homeowners aren’t being released to the public just yet. However, the non-profit group recently did a test case with an Ocean Springs woman. And, Denise Baker’s moving into a new home because of the financial assistance she received from her boss and Reach Mississippi.
Last week, Baker got the keys to a house in Gulf Park Estates. She contacted a few friends, and got them to help her move in.
“It’s been exciting,” the new homeowner said. “Stressful. But exciting.”
Home ownership became possible for the single mother when her bosses at the Andover Company urged Baker to be a test case for a Renaissance Corporation housing initiative.
“It was a win-win situation for both of us, for my employer and for myself,” she thought.
Through a program soon to be called Reach Mississippi, Baker’s employer put money for her down payment. And the Renaissance Corporation used private contributions to make a three for one match. Just like that, Baker had a house in close proximity to her office. And she had a mortgage she could afford.
What the story does not mention is that Mr Spraggins was Ms Baker’s boss at Andover (the Andover website is down as I write this post but the Google Cache from last month is here and the wayback machine snapshot from March 2008 is here), which specialized in residential SIP Construction. The company had made a sizable investment in lots and spec houses in Diamondhead and their inventory of high-priced homes was not moving as the real estate market on the western end of the coast began to die in the fall of 2007. Undaunted by the unique circumstances that made the down payment assistance helpful in Ms Baker’s case the program was finalized and those commercial featuring Spraggins were made. The local media continued promoting the program because there is no better story than free money that gets people into houses after a major Hurricane. Curious about the program, I visited the REACH Mississippi website to look at the program criteria and ended up wondering if economically the numbers made sense. Anita Lee answered that question in Sunday’s Sun Herald as she reports the program was a failure:
The heavily promoted REACH program has fallen far short of helping 700 of the Coast’s lowest wage earners buy houses since Katrina.
Instead, only 130 applicants have closed on houses through the program, which matches employer contributions to give qualified buyers down-payment assistance. REACH also has failed to meet its quota of home buyers earning 80 percent or less of the area median income, said Kimberly LaRosa, executive director of the Gulf Coast Renaissance Corp., the nonprofit group that runs REACH.
Ms LaRosa cites a myriad of reasons for the program’s failure in Anita’s story all of which are valid. What caused me to question the program’s viability was one of the reasons she cited and as we’ll see the key reason in my opinion as we continue:
She said the national credit crunch hit about the time REACH was getting off the ground. Credit scores had to be higher for home loans, which knocked out some applicants. LaRosa said the high cost of homeowner insurance also hampered the program and forced buyers north of Interstate 10, while many jobs and Katrina’s devastation are south of the interstate.
In some cases, she said, insurance payments have been only 20 percent lower than the house payment, causing some applicants to drop out.
“It can drive the monthly payment up to where it isn’t affordable to the family,” LaRosa said.
The idea behind REACH was to provide workforce housing near Coast jobs. REACH offered down-payment assistance to municipal, county and school employees with employer matches.
This program was targeted at families with household incomes from around $50,000 a year down. When I ran the numbers in 2008 on a $140,000 house (typically on grade north of the interstate) and assuming the full $40K in down-payment assistance (with no closing costs) the monthly payment on a 30 year mortgage on the remaining $100,000 is close to $540/month. Without considering property taxes, grossing that up by 80% for insurance costs alone brings the monthly out-of-pocket to around $970. Simply put these numbers begin to stretch the household budgets of the target populace beyond affordability on a go forward basis which was what fueled my skepticism when the program was announced just from an insurance standpoint alone. Thrown in the financial crisis and REACH never had a chance as we continue:
Because of the economy, some employers were unable to participate in REACH. My Home, My Coast was developed to provide home-buyer assistance without employer matches.
For both programs, 51 percent of participants are supposed to be low-income. Instead, 68 percent are above the low-income cutoff in REACH and 60 percent are over in My Home, My Coast.
My Home, My Coast has 950 active applicants, LaRosa said, including those being transferred from REACH.
The Renaissance Corp. received $50 million in federal Community Development Block Grant funds for the programs; $33 million remains.
The federal rules governing both programs have slowed down real estate transactions, brokers say, a burden for buyers and sellers. The income quotas caused a hold on some applications, but environmental reviews also must be completed and recovery benefits checked with numerous federal agencies to avoid duplication.
Anita concludes her report with quotes from a local realtor that likes the program in concept as I attest from speaking with our own Steve who is 100% in favor of anything that might generate a close. The burden the new program must overcome is the continuing problems associated with the costs of ownership driven by out of sight insurance costs. Until that nut is cracked we will continue to witness the economics of “free money” without enough takers.
sop
Hmmm…
Does any of this really surprise you?
After my family lost our home during Katrina (and the insurance company decided that “class action litigation” was preferable to actually settling claims from a “shareholder standpoint”) we started teaching people how to build alternative homes, using Shipping Containers and anything else that they could salvage.
I talk about that entire process, in depth, here:
http://renaissanceronin.wordpress.com
The ONLY way that our families are going to heal, is if we simply do it ourselves. There is no “magic bullet,” and there isn’t any “Cavalry coming to our aid.”
Although REACH was commendable, it was anything BUT possible as a “solution.” And as we predicted, it’s failed to deliver.
We have to become “self-responsible and self-reliant.” And we have to do it somewhere where the “powers that be” actually WANT us to heal. It’s the only way we’re going to make anything that resembles progress, and it’s the only way that we’re going to save our families.
We have to, in spite of those who would watch us fail.
Thanks for your post. It was difficult to read, simply because there’s a lot of passion attached to it sitting on this side of the monitor.
No class actions here but appreciate the link to your interesting blog and understandable passion.
I feel your pain there Mr. Rena. But what we need more than pulling our selfs up by our own bootstraps is a pair of boots. Right now we have just one boot for economic development—Banks. What we need the other boot known as insurance. Without insurance nothing happens. What is really amazing is nobody seems terribly concerned that the insurance industry pulled the rug out from under us post-katrina. You can pour all the federal money into a community you want, but until you get a private insurance market your just be singing the Blues.
Basic economic building blocks are needed to rebuild. What we need is an insurance policy which covers all the risk associated with a hurricane in one unified policy which does not change in price or availablity post disaster. This will save the fed’s untold billions in post disaster recovery aid and work. It will save the people untold misery. It is not fair to ask people without the basic economic tools to rebuild a community to do so without such tools. Nobody can do that.
By way of example. Think of a car company who’s cars are not provided insurance by the private market because the private market is holding an economic gun to their head till congress gives them what they want. How many cars will they sell? None. No rebates or federal incentives will result in a single sale. Same with houses.
PS this is my favorite Blue painting by my main man Vincent—-
http://www.youtube.com/watch?v=eJjNAn84hTM&feature=related
http://www.youtube.com/watch?v=XemweIAvi8Q
The first link is the one I love. It might make a good music choice for slabbed? Would sure make me feel better to see oh Vincent swirling in cyberspace. Thanks for the update on General Goofie. Timing is everything is it not. I have learned patience from you for sure and the advantage of waiting for fools to self implode…
http://www.youtube.com/watch?v=eJjNAn84hTM&feature=related
I imagine they would call this painting from Vincents blue period;).
Glad to see you back, Steve. I’ve missed your comments and love the Van Gogh with music.
It wasn’t supposes to be this way with REACH. The only governmental involvement in the program was the majority of the funding. Patterned after a program in Illinois it was supposed to be the best of what a public/private enterprise could accomplish using free market principles. It is worth noting that as the program was developed by the Coast Business Council it was crafted by knowledgable market participants rather than a bureaucrat in DC. The oversight board included the best and brightest business leaders and housing advocates the coast had to offer. I guess I am the only one stunned by the implications of that fact as we witness the failure of applied classic economic theory.
One reality that was missed is that by time this program kicked off the worsening economy had alleviated the worst of the labor shortages here on the coast. The shame is that it took so long for those knowledgable locals to be included in the recovery process in such a way.
I can’t believe I’m saying this but the remaining funding should be given to the windpool just not to buy more expensive RE, rather to build more reserves. The only way we can help ourselves is to do like Florida and make our official state chartered insurer a competitor in the wind market. Reserves will do just that and getting the cost of wind insurance under control will get more lower-income folks into houses than giveaways that do not foster evergreen ownership.
sop