- [Narrator] Production and distribution of City Club forums and Ideastream Public Media are made possible by PNC and the United Black Fund of Greater Cleveland Incorporated.

(upbeat music) (bell rings) - Good afternoon.

Good afternoon, and welcome to the City Club of Cleveland, where we are devoted to conversations of consequence that help democracy thrive.

I'm Cynthia Connelly, Director of Programming here, and a proud member.

It's great to be here introducing today's Health Equity Series forum, Believing In Home.

When a family moves into an affordable home it has the potential to transform lives.

The stability of a permanent address means improvements to children's health, increased job opportunities, and the power to revitalize struggling neighborhoods.

Yet home ownership is inaccessible for many families.

Historic policies like redlining are at the root of the wealth gap found in communities of color.

This had led to common barriers to home ownership that many families face today.

Barriers like expensive down payments, and difficulty securing low interest loans.

Now with the recent surge in housing prices, home ownership is further out of reach for many.

Home ownership is often called the cornerstone of economic mobility.

So, how can we overcome these challenges families face to ensure it is more attainable to all?

To answer this question we are joined here today by Kevin J. Nowak, Executive Director of CHN Housing Partners, a nonprofit that both develops affordable housing and is a housing service provider.

CHN Housing Network works with it's partners to solve major housing challenges for low income people and underserved communities.

Also with us today is D.J.

Valentine, vice-president and state CRA mortgage sales manager at Huntington National Bank.

D.J.

Valentine works with communities including low and moderate income neighborhoods to meet the needs of borrowers in all segments, he has been with Huntington bank for more than 20 years.

Moderating the conversation today is Michelle Jarboe, enterprise reporter at Crain's Cleveland business.

Michelle writes about real estate, economic development among many other topics.

Before joining Crain's in May, she covered real estate for the plain dealer for more than a decade.

Esteemed guests, members and friends of the City Club of Cleveland, please join me in welcoming our guests today.

(audience applauding) - Hi, everybody.

It's good, though surreal to be here.

I'm going to jump right in and actually, my first question is not about home ownership.

Based on the news late yesterday, the Supreme Court overturned the eviction moratorium saying that the CDC overstepped its authority.

I'm curious about what you expect the impact of that to be in Northeast Ohio and across Ohio and what conversations the housing community is already having about the impact on housing stability.

- Sure.

Good to see everyone.

Oh my gosh.

(everyone chucking) That was really serious, but I gotta just say, holy crap.

It's so nice to see everyone here.

So many friends, people have been quite impactful in my own life along the way, it's just really good to see all of you in person, so I wanted to say that.

We look at the crisis that we've had since March of 2020, it's been one where people are not able to get off the dime, right?

People lost their jobs, people still aren't all the way back to work.

And whenever we've seen something like eviction moratorium be threatened, this time now overruled or are struck down, we've seen significant increases in the amount of people who are applying for rental assistance.

Some of you may know CHN runs, in partnership with the city and the county, the local rental assistance program.

It's at neorenthelp.org for anybody who would be interested in checking it out.

Every time we've seen it threatened, we've seen a spike.

We're now at over 9,700 families who have needed this assistance.

And that's 39 million plus that we've deployed in partnership with the city and the county here locally.

I see councilman Brancatelli back there.

Yes, to the city and kind of just been really forward-thinking in this.

It's not time to end, right?

We are still in an emergency.

We still have dollars that we need to deploy and more dollars that have come down from Washington that we'll be able to deploy, but we would expect there to be a pretty significant increase in applications.

When we look at what happened in August, there was a threat to the moratorium expiring, the moratorium expiring, a threat to a moratorium expiring and now the moratorium is not coming back.

In August we saw an increase.

We had 100+ applications come in on August 2nd.

On average, we were having 60 and that's a day.

So, it's not gonna end, we don't have the job done.

We need to continue working.

- What I would add to that.

So, the moratoriums could go on.

I mean, it's up to Congress if they want to pass that.

So, that's point number one, and Kevin gave all the details around what's out there and what's available.

I think the big picture that really concerns not only myself, but others, is that what we learned from COVID, being able to shelter in place or quarantine was huge to help sort of control it and slow down that spread.

If we had this mass amount of evictions where folks don't have any place to go, I think from just from the pandemic standpoint, the impact that that could have.

So, hopefully we'll be able to work something out.

We still have time and for those who aren't aware of why the Supreme Court did it.

It's just they felt that the CDC did not have that authority to do the moratorium.

So, that's why I mentioned it.

It would probably take an act of Congress to get it done.

- So, then big picture back to the overarching topic we're talking about today.

I'm curious about your thoughts on why home ownership matters so much, why you believe it should be broadly encouraged.

The national home ownership rate right now is about 65%, and there are a lot of people who are renting by choice.

Why is home ownership so important?

- Sure.

I go immediately to three points that are the big picture points.

The first of it being the American dream, right?

We've identified home ownership, that ability to create that nest egg, to be able to transfer generational wealth from generation to generation as the American dream.

The American dream today and we'll go, I'm sure, into more detail later is out of reach for so many.

Even though you see home ownership at a decent rate today.

So, we, as a society, need to continue to believe in ourselves and to strive for that American dream and to make it accessible for everyone.

The second is stability.

When we think about housing stability, housing stability has a number of different impacts.

So, we mentioned a little bit in the intro, the health impacts tying into the health equity.

We see families healthier.

We see them achieving more.

You see better outcomes for families when they have housing stability.

When you see constant churn in, and I know that the city club has talked about eviction and the issues around eviction and that churn in evictions.

What we see when you have that continual string and that lack of housing stability is children having less educational achievement.

You see more people engaged in criminal activity.

Home ownership really creates anchors for that family and for that neighborhood.

Neighborhoods that have a higher degree of home ownership typically see less crime, see higher values for that neighborhood.

So, that's a second piece when we're thinking about it.

A third piece that we think about is wealth creation.

So, when you look as a homeowner, a homeowner typically has 40 times more wealth than a renter.

I mean, let's just think about that.

All right, 40 times.

And for a low-income family, it's 68 times.

So, some of you work in the Key Tower and all of you are familiar with it.

Go down to the base of the Key Tower.

I used to work there and at Thompson Hine, Rob and Allen and everyone, good to see you.

And look up.

That's the difference.

If you can see all the way to the top, that's the difference in the wealth for someone that is otherwise a renter versus a home owner on average.

So, we really need to think about as a society, what we're doing to help to create that wealth.

And when we then began looking at kind of disparities that we'll talk about later, we see equitable issues rise as well.

- D.J, did you want to weigh in on that from a lending perspective?

- From a lending perspective, I think the biggest thing that people really don't understand is a lot of times home ownership cost you less than rent.

I mean, everybody sees what the rental prices are doing today.

And we'll talk about inventory later on, but being able to have, to Kevin's point, not only just that generational wealth, but building that savings, what that means to a family, what does that mean for a college education, especially in our black and brown communities?

So, if you take a look at, on average, 30 year mortgage, not in every case, but in so many cases that that rent payment actually is gonna be higher than what you would actually pay for a mortgage.

So, again back to building wealth, it's just another avenue, another opportunity.

- Yeah, if you look at housing costs for the average renter versus the average home owner, the average home owner's housing cost is 16% of their income.

The average renters is 26.

So, just kind of start right there.

And as we've done The Believe Mortgage with Huntington, some of our very first applicants and people who close their deals, were people who were renters who saved significantly by becoming a home owner.

One family, was a single mom with two kids who had been a renter in a house and they bought the house from the investor, from out of town.

Their rent payment was 750, that went down to like $300.

I mean, just think about the difference.

It creates a savings opportunity there.

It also saves that ability to be able to invest in the next generation.

For me, when I look at our family, blue-collar family growing up in Detroit, we needed that equity within our home to be able to send me and my sister to college.

That would have never happened if we didn't have available equity.

And I would assume that for most people in this room and listening, that's the same case.

- For people who aren't familiar with The Believe Mortgage, can you give a brief overview of that?

- Sure.

Believe Mortgage is a First Mortgage product that we created really to be an answer to gaps within the mortgage market.

So, when you look at mortgage lending, there are significant gaps, particularly for lower income people, for people of color.

And CHN in partnership with Huntington, really worked to try to develop a loan product and we'll get into detail about some of the issues with why it's difficult to deploy loan products later that tries to solve for that gap.

- So, with those loans, you're particularly looking at people who might need to borrow $70,000 or less, who may be buying very inexpensive homes, but they can't get credit for one reason or another.

At least they can't get a conventional loan.

- That's correct.

- I want to step back to talk about education because you both alluded to it a little bit.

How important is home owner education, both in terms of educating people about the wealth creation opportunities through home ownership as well as educating them about how to maintain and stay in a home.

I know that there are people who buy homes who don't think about things like the repair costs, who don't think about, "Okay, I need to have a little bit of money set aside in case an emergency comes up."

Or who don't understand the mechanics of a mortgage.

So, how important is education and how do we better educate people?

- So, for anybody, understanding your investment that you're making in your home is critically important.

A number of us here in the audience, and I'm sure listening provide home buyer education, financial capabilities counseling for people to really understand what that investment means for you.

One of the things when we look at the market today is it's different even from five years ago.

Is people are not believing that they can even become a home owner or that they should become a home owner.

So, there's the tangible and intangible of home buyer education, financial capabilities.

Part of it is how do you budget, how do you plan for?

When we talked earlier about the family that became a borrower, their net cost even with assuming maintenance costs is cheaper than it is to be a renter.

So, you just kind of roll back and think about home buyer ed.

It's something that no matter who you are, whether you're low income or you're high income, you need to know your investment.

And then as you think about ongoing costs and improvements, in our community, we do have homes on average were developed before 1940.

And so, we want to make sure that as you are making those investments, you're aware of what you're getting into and how to maintain those homes and provide the support for people who may need some help.

- So, how can we expand home owner education here, whether it's first-time buyer education, or if it's existing home owner education?

What do we need to do financially, what do we need to do structurally?

- Structurally, I think it's from a lending standpoint, I think the opportunity that we have is something I call giving a no with hope or a, "No, just not right now."

I think as lenders, if we have folks who are coming to us to want to buy a home, but at that time may not be ready.

Are we taking that extra step to educate them about the home buying education processes that organizations like CHN and those offer.

So, I'll use a lot of sports analogies today.

I promise I will.

But my college coach would always tell me, "You play how you practice."

And I look at home buyer education as that's the practice, that's the ease of mind to give folks peace.

'Cause it's scary.

There's different barriers and we'll talk about barriers.

One of them actually is just someone being scared of what's next.

"Now I got this key, what do I do next?"

And I think being able to have that education upfront makes that transition easier.

But then also to Kevin's point around the maintenance piece of we're used to having landlords and the water heater goes out and someone just picks up the phone and call somebody and it's done.

Well, now that falls in your lap.

So, how do you prepare for those instances?

So, whether you're perfect credit, 20% down, you can have the same issues going into a house that someone else that's not as fortunate does.

So, I would recommend home buyer education for all.

- So, the national narrative around the housing market is really focused on escalating prices, lack of affordability, bidding wars, cash offers.

We certainly have some of that going on in Northeast Ohio but we also have a lot of very inexpensive homes.

I wrote a story about The Believe Mortgage recently, and the buyers I interviewed paid around $60,000 a piece for their houses.

What makes it so tough to get owner-occupants into those houses?

- So, from a barrier standpoint, or just from the... - A barrier standpoint.

- So, barrier standpoint, I think there's a ton of...

There's external but individual issues.

And if you take the external issue, a lot of that is quality, quality is a key word, affordable housing in the communities that they prefer to live in.

So, to the point of the narrative around we've got these houses that folks could get at that price range, they may not be habitable.

So, they can get them, but they may not be habitable.

So, having that quality affordable housing and I touch on the communities that they want to live in because that could factor into another external barrier to where if folks are wanting to buy homes, they're not available where they prefer, they have to go farther out, that becomes a transportation issue.

So, I think transportation is not talked enough in conjunction with housing.

Individual, you know what you know.

So, for me, for example, I was fortunate, I grew up, I proudly say I grew up in a low to moderate income household, but when I was young, my parents were able to buy their own home.

So, growing up, the only thing I knew is you get older, you get a job and you buy a house.

That's what you're supposed to do.

And what my point about the, "You only know what you know", I think there's some environmental bias, if you will, that if you see grandma and grandpa renting, mom and dad renting, that's what I'm supposed to do.

So, how do we break that barrier?

And that's through knowledge.

And then the big things, the big elephants in the room is credit.

Not everybody's credit is created equal.

So, people have to understand how to obtain but also maintain their credit standards.

and the last two that I'll bring up, I'm hogging all the time from Kevin is these two, I think, tie together.

And we touched upon it earlier around debt to income.

So, if you look at today, a lot of folks are paying 50, 60, 70% of their monthly income on two categories, rent and childcare, those two big things.

So, if you're looking at rent and childcare, you're basically living paycheck to paycheck sometimes going above your means, but what do you need to buy a house?

A down payment.

So, if you're living at that range where you're spending all that high percentage on those two categories, you're behind the eight ball when it comes to that down payment piece as well.

- What about lending system barriers and how do we overcome some of those?

I know we've talked a little bit about the challenge of actually making these small dollar mortgages to get people into that more affordable home ownership space.

- Sure.

So, one of the things that D.J.

said earlier was the concept of "Not yet".

And we went from before the great recession, a scenario where we said everyone should be a home owner to a scenario where we have people oftentimes first saying when someone says, "Hey, we should make home ownership a priority."

You hear someone say, "Not everyone should be a home owner."

How do we get there?

There's a lot of scars from the great recession, but there is something to having that belief as a society and that we can improve our place in life.

We can own a home, we can meet that American dream.

So, there's part of that that translated into federal legislation.

We think about Dodd-Frank and the safety and soundness that has been helpful, and those concepts, it also has put an extreme drag on the ability to have flexible lending standards.

If you look at home ownership.

If you look from 2004 to the present, you see this extreme decline, 42% in mortgage lending in Cuyahoga County.

And particularly when you look at those lower income communities, inner ring burbs overall.

There's a reason for that.

And it isn't about whether lenders are doing the right thing or not, there's a big part about what that federal legislation and the impact it has had.

When we look at the credit standards, CHN as an organization began lending in 2010 as an answer because mortgage was no longer available.

A lot of you who are listening or are here know about our lease purchase program in the city of Cleveland, right?

And in order for us to be able to help people to still be able to buy their homes, we needed to become the lender.

And so many people then and still now have a hard time attaining credit score that is otherwise required.

Oftentimes because of the square box that the several agencies who back our system or CPFB is put in place.

But when we look at CHN's portfolio of loans, we used something in our first loan products called the equivalency principle.

And that was if you have had a track record of paying your rent on time in full, and you've done it 12 24, 36 months, you're gonna be able to pay that in mortgage, principal interest taxes, and insurance.

And our original loan product, we came out to support those families have supported that.

And the losses that we've had in defaults in that will match against any of the best products otherwise or agency products that banks have on portfolio.

So, as a lending community, we need to really be thinking about what's the best way to underwrite.

And are we using those correct standards?

Even recently, one of the agencies opened up some more of its kind of lending criteria to consider that payment of rent as being applicable to helping to underwrite a borrower.

- Loan officer compensation structures also have come up though, as one of the issues with small dollar lending, whether it's for a first mortgage, or if it's for home repair.

Are there ways within the banking system to address that so that loan officers are not disincentivized from making small loans?

- Definitely.

Well, we do it at Huntington, I can't speak for all, but I want to take a step back and just touch a one more lender barrier that we could probably have another City Club lunch over, and that's market values.

Specifically in our low to moderate income neighborhoods, issues, excuse me, around market values of... Yeah, we may say there's homes there, but the cost of acquisition rehab generally outweighs what that market value is gonna support.

So, that is truly a barrier that we have to really figure out in what we do, but from a lender compensation standpoint, you're right.

A lot of folks may be commission driven, 100% commission.

They go where their bread is buttered.

So, they're chasing those higher deals.

What we did at Huntington was formed community mortgage loan officers.

So, their set up is different that instead of 100% commission, you get basis points paid off of what dollar amount it is.

We pay them a base salary, and then they have a flat commission on each home that they close upon.

So, whether it's a $10,000 home or a million dollar home, they're paid the same.

And I think that concept, if we could adapt that concept across the lending institutions, that would help debunk some myths around that, people chasing the money.

I think we're seeing more of the nonprofits getting into the realtor space of where they're controlling their product from development all the way through sale and they can keep the cost down.

I think other opportunities like we do at Huntington is that if someone's purchasing a home in a low to moderate income track, the last thing they need is additional closing costs put on top of there.

So, if they're buying a home in a low to moderate income track, what we've decided to do is we're lender-paying those closing costs all except $500.

That allows them to have that down payment that's needed.

That may not be what they had or capable of doing prior to that.

- If I could add too.

If we look at from a non-bank perspective, it's not a bank issue, it could also be a non-bank issue is the return on capital for the organization itself.

It is not profitable for a bank to make a $70,000 loan.

It is not profitable for a non-bank lender to make a loan at that $70,000 or under.

We are, siege and housing capital or lending affiliate is a non-bank lender.

And the difference between what we do and want to bank does is that we can have kind of generous grants from philanthropic organizations to help to fill our operations for that loan product.

And so, part of the reason why we have that center is because we want to make sure people weren't being charged too much.

But there's unintended consequences of legislation and when we say you can only charge so much for a loan, it creates a barrier for people to be able to actually make those loans, whether it be compensation, whether it be the return on capital.

The other thing I guess I would add too, Michelle when we're thinking about barriers is for whom are there barriers?

So, when we look at what we're doing at CHN, we're always asking the why we're doing it, and then who are we serving, where are we serving?

Really trying to understand what is our intervention, what is the purpose of it, what are we trying to accomplish, are people being just disparately impacted, disproportionately impacted in certain ways?

As a nonprofit, I think one of our key criteria is that we're filling gaps that otherwise aren't being filled and we want to work ourselves out of a job in that gap.

We want to hope that either the market will take care of it or that there'll be regulation that would be changed that would otherwise allow for it to be filled.

So, that's part of why we went into the lending piece.

And when we're thinking about who is seeing barriers, We can talk geographically, and we could talk demographically.

We see two times the decline rate for black families compared to white families.

So, that's one thing that we look at.

When we look geographically, 15% of home sales on the east side of Cleveland are financed by mortgages.

80% are financed in the outer ring burbs.

And when you look at who demographically lives in the east side, it's again, black families who are being disproportionately impacted here and not gaining access to capital.

Some of this goes all the way back to red lining and if you look at the maps, I don't think that there's red lining happening today by any of the banks that we work with at CHN.

But what you look at is you see still these trends within these geographies that are continuing and we need to figure out the way to solve for them and that's why we started housing capital.

- So, on the solutions front, I'm curious about your thoughts on the Neighborhood Homes Investment Act, because I know a lot of people in Northeast Ohio are watching that and that's pending federal legislation that would essentially create a tax credit program to spur investment in new and rehabbed homes in struggling neighborhoods.

How important is that to Ohio and how likely do you think it is to become law?

- Likely I hope, but how important, I would use two words and say game changer.

That act will solve a lot of things for a lot of people.

It's gonna provide some private investment incentives, if you will, to work in the neighborhoods that we've been discussing this afternoon and really being able to help, not only from new construction, but current owner occupants who are in those markets.

And if you look at our issue now, the demand is there, the supply is not.

And that's what this neighborhood homes investment act could help bridge that gap between that.

So, what it's also gonna allow to do, as we referenced earlier around market values and the issues with the cost of construction versus what the home's going to appraise at, that's what these funds will cover.

It'll cover that appraisal gap.

So, that allows us to go in and revitalize these neighborhoods.

And it's not by accident that you see the yard signs in our low to moderate income communities saying we'll pay cash for your home.

There's tons of private equity funds that are out there, investors to Kevin's point on his example, aren't local that are coming in and taking a lot of inventory and that's decreasing our supply.

Not all landlords are created equal.

There's some great landlords out there, for example, better local and and other communities.

- [Kevin] Thanks D.J.

(everyone chuckling) - But if you take a look at the old problem of supply and demand, so now we have a lack of inventory.

So, that's driving up your rent costs and they're not worried about evicting somebody because somebody else is waiting.

So, until we flood the markets with more supply, that's gonna drive down those rents.

It's gonna do a couple of things.

It's gonna drive down the rents, those investors aren't getting that return on investment.

They are gonna start dumping some of these properties, which I think is a good thing because that adds more inventory to the market.

But with this neighborhood investment act, we can increase that supply to where they're gonna have that direct competition.

Again, end result is gonna be driving down that rent.

So, I think again, game changer would be the words that I would use.

- I would echo those words and when we look at our two senators, Senator Brown and Senator Portman, both of them are co-sponsors, they actually worked with CGN, the city, CMP, to try to expand the census tracks, to which the tax credit would apply.

And they did, we'll call it the Cleveland Role, the Cleveland Expansion.

That was a direct result of those advocacy efforts, and when you are able to reduce that cost for making those improvements to the homes and when it costs more to improve the home than what it's worth, that's a problem.

And so, the Neighborhood Homes Investment Act would allow organizations like CHN, see (indistinct) here.

It would allow for us to be able to redevelop these homes in a way that would otherwise provide affordable home ownership opportunities for housing stock that otherwise would not be that.

The other thing on the markets that I know you talked a little bit about the mark, D.J.

is there's a chicken and the egg thing that we have go on in the real estate market.

So, in order for real estate market value to increase, you need to have people interested in the market.

And you need to see homes move.

And when you look at the outer ring burbs, 80% of home purchases are funded by mortgages.

But if you look at the east side of Cleveland, 15% are.

People need mortgages in order to buy homes, that's how we finance home ownership in our country.

So, if we don't have that available in the markets, those mortgages available in the markets, we aren't gonna see those markets increase.

'Cause we aren't gonna see people buying homes in those markets.

Then you don't have values to the homes that you can otherwise leverage with a mortgage, to be able to buy that home and have that home ownership opportunity.

So, I feel like there are a million questions I want to ask you, but I know we're at the midpoint break, so I'm gonna hand it off to Cynthia.

- Thank you, Michelle.

Today at the City Club, we're listening to a forum about home ownership and the ways we can build and achieve equity in our neighborhoods.

On stage is Kevin J. Nowak, executive director of CHN Housing Partners and D.J.

Valentine, vice-president state CRA mortgage sales manager at Huntington National Bank.

We are about to begin the audience Q&A.

We welcome questions from everyone, City Club members, guests, students, or those of you joining us via our live stream or the radio broadcast on 90.3 WCPN or Ideastream Public Media, rather.

Now, if you have a question here in the audience, we ask that you first raise your hand to be acknowledged.

Please wait in your seat until the City Club staffer motions you over to one of the two designated mic stands to ask your question.

If you are unable to walk to the microphone, a city club staffer will come to you.

As usual, if you'd like to tweet a question, please tweet it @thecityclub, that's @thecityclub, and you can also text them to 330-541-5794.

That's 330-541-5794.

And our staff will try to work it into the program.

Supervising the microphones today are Alyssa Raybuck, communications and program innovation manager, and Tiffany France, member and outreach manager.

May we have the first question please?

- Good afternoon.

The city of Cleveland, Cleveland school district has a program called Say Yes, in which students are able to get scholarships to go to college and they can graduate without having those horrible loans that so many people have.

And because of that, I was wondering if there's any opportunity for you to talk to high school students about how important home ownership is since when you talk about breaking the barrier of generational renting, it seems like that would be a good place to start where they can actually see themselves as home owners in the future and possibly begin saving for it.

- So, we partner with a lot of organizations now that do that.

We have a program that we call Reality Days where we actually go out to the schools, elementary, went up through, I'm sure you're familiar with Junior Achievement, but this is more tailored toward what's reality and it's a budget program where we talk about the home ownership, utilities, what they can expect and sort of how do you budget for and do that.

If you have schools in mind, we'd love to partner and do more.

I mean, we'll do them all day.

So, there is things and I think from the knowledge perspective that we were talking about earlier, a lot of banks do that, not just Huntington.

And I don't think that the community knows what all resources are out there, so we could do a better job.

That's something that we could do a better job, but we do have those programs.

We do a lot with faith-based communities as well, and do some financial literacy programs.

So, we're more than willing to do it.

- Absolutely, same thing with CHN.

I mean, when we approach our work, we really try and take a two generational approach and working closely with the school district in some ways already.

And for us to be able to reach the youth, to be able to understand that value of home ownership, I've had close friends who's families have been generational renters, became more familiar with CHN, saw the value in home ownership and took that step.

- All right, a couple quick questions, Councilman Tony Brancatelli and certainly thank you, one of our partners in our neighborhood, Huntington.

Looking at ARPA dollars that are coming in, there's been a number of wonderful programs already set up in the city, of former community development director, Tanya something, created this gap financing that was out there.

And I know Sean Posner, third federal helped bridge the gap in trail side and as you mentioned about the gap between marketing and value, how do you see ARPA dollars fitting into the equation of providing more affordable housing?

When we look at, we have thousands of vacant lots, and maybe doing some infill product, do you see that as a tool that could be used?

- We should probably jump in here and just say that the ARPA money for those listening, who might not know, is the federal economic stimulus money that's flowing to Cleveland, Cuyahoga County, variety of communities in two traunches this year and next year.

So, whoever wants to jump in.

- Councilman, great to see you, how much time do you have for the answer here?

We'll follow up.

Yeah, so, when we're thinking about the use of ARPA dollars, we have a once in a generation opportunity, and it seems like we've said that a lot over the last decade or so, but it really truly is.

How many times do you have dollars that are as flexible as what these are, that can be used in creative ways?

One of the things that I would say is there's often times the look for ARPA of trying to find the new and shiny thing, when there's basic blocking and tackling that we have to address.

Part of that is home ownership, we're talking about today.

Utilizing a portion of this money.

I know there's been conversations at city, there's been conversations at other cities that we work in about how can we utilize this?

How can we create a loan loss reserve, which is a way to help lenders to be able to bring capital, if they're unsure about the credit worthiness of a borrower.

How can we actually have lending capital available that could be used?

How can we bring it for down payment assistance?

One of the things that D.J.

mentioned earlier, down payment assistance.

Down payment assistance is a pool of money that otherwise can allow for someone who can't bring the down payments that they need to the table to close on a mortgage, to be able to close on that mortgage, because it helps to fill that gap.

When we look in our community and think about just the city of Cleveland and our population.

If you look at the black population, there's 10 times less wealth in the black population than in the white population.

An average of 171,000 versus 17,000, And so, it's even harder for our communities of color, particularly black community, to be able to bring dollars to the table for closing.

ARPA allows for that.

Home repair.

Home repair, we talked about earlier, the need for home repair.

You can use ARPA dollars for day-to-day blocking and tackling of home repair.

To help those seniors that otherwise can't fix the home.

They've been on a fixed income.

Ms. Smith who's been down the street from you, who's lived in that house for 30 years and on a fixed income.

Our lending product may not be suitable and likely won't be suitable for her.

But for us to be able to use ARPA dollars to fund part of that, or be able to use ARPA dollars to be able to fund a pool that would otherwise allow for someone to be granted loans.

Again, there's an opportunity for us to be creative and flexible, but not look for the new shiny thing and forget about all the other blocking and tackling that's right in front of us.

- So, for the record, Kevin, obviously has been looking at my notes.

I hope this meeting is being recorded.

But yeah, he nailed it.

And I think if you take a look at housing, especially.

Think of it like an ecosystem where there's things that happen in this ecosystem.

If one is off or one doesn't happen, it could throw the whole system off and I think that's where ARPA can come in to Kevin's point.

Number one, not just the eviction moratorium, the foreclosure moratoriums are ending too.

So, what is that landscape going to look like going forward?

And we could talk about affordable housing and building housing which is definitely needed, but we got to maintain folks who are already in those homes.

And I think ARPA funds can help with that.

So, what's that landscape look like?

So, that's part of the ecosystem, but if you look at our CDFIs and CDCs, and I'm saying this as a banker, their biggest challenge...

So, we have these homes, this inventory that's in these neighborhoods that people say is vacant or blighted, there's organizations who are willing and capable of going out and doing this acquisition rehab.

Their problem is access to capital, to Kevin's point.

That could help assist with that.

Whether it's subsidies, either developer subsidies, or the backend subsidies of getting the right folks into these homes with the down payment assistance.

So, again, it's just a big ecosystem that I don't think you can address one thing in that system, you have to touch three or four different buckets to really make that neighborhood thrive and vibe.

And at the end of the day, what it does is it raises those market values, so those gap subsidies get smaller and smaller and smaller as the value of those neighborhoods come up.

- If I could, too, just one more followup that I think is really important with ARPA dollars.

Let me see, what'd you put there?

I was just looking at D.J's notes again.

So yeah, federal money is critically important and is part of the traunch of dollars that we use as community development community to try to address housing issues.

And this is a huge inflow of that.

One thing that we need to not do with ARPA is to treat it the same as all that other money, home and CDBG.

Home investment partnership and community development block grants are great sources but at the same time are incredibly difficult to use.

Hopefully we'll be able to change that here over the next couple of years at the federal level.

But they're incredibly hard to use, so, let's not... Say this CDBG program's great, let's use the same rules we did for CDBG for ARPA.

And then secondly, again, as a lot of you know, we've been developing a lot of new programs before the pandemic and we didn't stop during the pandemic.

But one of the things we also need to not forget is that we need local solutions and for all this work to be sustainable.

So, this federal money provides us an opportunity to build, to build scale, to bridge, and then make sure that our priorities are where they need to be to support a healthy housing ecosystem and home ownership locally.

- [Woman] We've got someone patiently waiting at the mic over here.

- Yes, I just want to ask you really quick, tailcoat on what Dan was saying earlier.

We're gonna be seeing a lot of refugees come in this way.

Do you think their need for housing might throw the spotlight on these problems and get them addressed sooner?

- I'll take the first stab at it.

So, I think the need for housing is great now, and I think that's gonna just exasperate the problem to Kevin's point around federal policy.

And so, our state and local governments get this pot of money, if you will.

For example, I think that there needs to be more conditions on the money that comes in to Kevin's point around the CDBG to be able to tackle events that happen such as if the refugees come.

So, with those policy changes, I think we could tailor it more to be more specific of what the use of those funds are for.

So, have a section in there around affordable housing or affordable rental units, but also incentivize somehow from a state and local level coming in from the federal level, what are we doing if this what if scenario pops up or whoever has a creative repurposing land use, for example, what are you doing with your vacant blighted areas?

If you're creative, we like the idea and it's getting us where to be, then incentivize them by giving housing grants and those type of things, again, I think it's not just all local.

I think that from a global perspective, Kevin's an expert on the local, but from a federal standpoint as well, policy has to change.

- Yeah, and when we think about, there's two things I would sort of comment on.

One, is there's no slack in the system.

Here locally, our affordable housing supply is zero.

There is supply, but there is no excess supply.

- It's probably negative.

- It's probably negative, it is negative.

Actually, we have a shortfall, probably about 40% of what we need.

So, when we look at it, we say, "Okay, when we have an event happen, like what's happening in Afghanistan.

When we have something like someone being poisoned with lead and needing to find a new place to live."

We have limited to no dedicated housing stock for that.

And so, that's something that we as a community should be thinking about ways to invest in.

ARPA may be one way to do it.

Yeah.

- [Woman] Go ahead.

- Hi, I wanted to say, first of all, Mr. Valentine, that credit is not the big elephant.

Red lining, structural racism, all of that, is the big elephant.

Many times when I come to meetings like this, I feel like you're talking to not the people I serve.

I live in the central area.

I work with Susan Cray as a central ambassador.

Before we can get to home ownership, most of the people in my area need to believe in the American dream.

We no longer believe in it.

That is for us.

When you are articulating and making these programs, please look at that, my work, my real work, it's about reinventing our community.

It's also about helping people reinvent themselves.

I, myself have come to a point in my life where I want to try home ownership.

Nobody answered your phones at CHN.

Okay, nobody at the county land bank.

That gets frustrating.

You have to do your day-to-day stuff to keep living while you waiting on the phone to be answered.

Keep all of this in mind while you're reconstructing your programs.

Thank you.

- If I could just follow up real quick.

I think just a couple of things, let's follow up after the call, I would like to get your contact info so we can follow up on the issue that you have.

The second thing is as we were thinking about housing capital, and we think about how we do our business, one of the things that CHN has really tried to look at is what are those barriers for people and a part of our goals as an organization and part of our thought philosophy is thinking about racial equity, diversity, and inclusion.

And so, we actually created housing capital as a way to try to address one issue, which is that lack of mortgage lending in African American communities.

It's within our very purpose statement.

And so, I think as we organize around it, and as we try to deliver our services, we absolutely need to be engaging with the community to make sure that we are doing it the best way we can.

- Yeah, and real quick for me, number one, I apologize if my comment came off wrong about the elephant in the room, I meant that that's one of the big issues that a lot of folks are facing, I will say, I think, can you hear me?

If you're looking at...

So, number one, we acknowledge red lining.

I think everybody in here would definitely do.

And it's been detrimental, the impact it's had, especially on communities of color.

I will say to your point about the belief system and actually understanding that it can be done.

So, we're currently partnering with the MBA.

So, the Mortgage Bankers Association out of DC and talking about a program that they're calling Convergence and Convergence is solely dedicated to African-American home ownership.

So, how do we create, is it changing policies, is it defining new products, new structure, but also the education piece is a component of that.

And I personally am on a national committee that we're working with the OCC, it's called Project Reach, and it's bringing all the large financial institutions together, as well as tons of nonprofits.

Again, specific, so the category I'm on is expanding affordable inventory for African-American home buyers.

And that's the process and the feedback you gave us is excellent.

I mean, that's the stuff that we're discussing and we can go out and do things, onesies and twosies.

Community's not gonna see that impact.

Then did it really help, or is it two vast, is it scattered?

We're talking about how do we scale this, make this nationally scalable.

And that's when you get the private investment as well as the public cooperation to fund a lot of these programs to address the issues that you were just talking about.

So, I appreciate you bringing that up very much.

Thank you.

- Hello, I'm Sherry from Cleveland Neighborhood Progress.

Kudos to CHN and its work, and again, its equitable underwriting process that captures positive rent payment.

A few years ago, you piloted an effort to report rents to the credit bureaus, where have those efforts gone since then?

And then also I wanted to just highlight CMHA and its family self-sufficiency program to which a portion of their rent are put in Escrow for them to save for asset building.

Have you had any conversation with CMHA about replicating such a program?

If so, where have those conversations gone?

- Sure.

So, I guess a couple of things.

One, when you look at reports to a credit agency, there are certain things that you would report to them, as a lender, for example.

And rent hasn't been something that's always been something that is a factor that has been reported to credit agencies.

But there are ways to be able to report positive rent history.

It's something that we're continuing to do, because what that allows for someone to do is to begin to build up credit.

And there's even now some agencies like Fannie that are considering that positively as part of the underwrite.

Sherry, thanks for calling that out, because that is something that's really important and a real way to be able to tell whether a potential borrower is gonna pay.

If they've paid their rent and they've paid it consistently, they will continue to in a mortgage.

That previously has not particularly been paid attention to.

And in traditional mortgage lending as a determining factor.

A second thing, when we're thinking about rent credits, it's something, yes.

Could rent be credited in a family self-sufficiency model?

Absolutely.

Most of our housing that's developed with low income housing tax credit would not allow for that sort of Escrowing because from tax perspective, but in a housing development where you're thinking about is this gonna be an opportunity for someone to either save and then move elsewhere and buy a home, or you are gonna have a rent to own model that is kind of a private market rental own model.

Allowing for someone to be able to save that money in Escrow, almost kind of like a fore-savings, and then use that as down payment is a great best practice.

The work that CMHA has done in that space is actually nation-leading.

- If I could add to that.

I think it's September 18th that Fannie's actually making those changes.

So, whether rent is gonna, and that's gonna be huge.

So, if some of the stats that I've seen, and if you look at how many thousands of loans Fannie has on a daily basis, they estimate just that change in the rental piece would have approven 17 more percent of their loans that they had applied through them.

That's a big number, big, big number.

But I think it's a start, there still needs...

So, Fannie and Freddie all have these duty to serve, these new concepts, initiatives that they're talking about, and they are doing a wonderful job in exploring how do they enhance their products.

So, something that we do that I would love to see, the GSEs, as well as... GSEs, I'm sorry, I meant Freddie and Fannie, as other institution does is how do we approach alternative credit?

So, if we have folks who have not established those three trade lines that are needed, it almost feels like they get penalized for not going out and running up credit cards.

So, how do we take the alternative credit routes?

And again, we have programs that we do use that and use that to compensate for that lack of credit that they have.

So, we're getting ready to get yelled at.

- No, so, as D.J.

noticed, unfortunately we've run out of time.

I'm sure there's a lot more that we could talk about, but I'm gonna hand it off to Cynthia to close it out.

- Thanks, Michelle.

Today at the City Club, we have been listening to a Health Equity Series forum about home ownership and the ways we can build and achieve equity in our neighborhoods.

Onstage is Kevin J. Nowak, executive director of CHN Housing Partners, and D.J.

Valentine, vice-president, State CRA mortgage sales manager at Huntington National Bank.

Moderating the conversation today was Michelle Jarboe.

Enterprise reporter at Crain's Cleveland Business.

Thank you so much for joining us today.

We also welcome guests at tables hosted by Burton Bell Car Development Inc, CHN Housing Partners, Cleveland Neighborhood Progress, councilman Tony Brancatelli, Famicos Foundation, Huntington Bank, Legal Aid Society of Cleveland, Sisters of Charity Foundation of Cleveland and Thompson Hine.

We're very happy to have you here.

Be sure to join us next Friday, September 3rd, as we welcome Jamal Green, professor of law at Columbia Law School.

He is the author of the book, "How Rights Went Wrong".

Why our obsession with rights is tearing America apart.

He will talk about how our country's fixation on individual rights is dividing America and how we can build a better system of justice.

Tickets are still available for this forum.

And you can purchase them and learn more about our other forums by visiting cityclub.org.

And that brings us to the end of today's forum.

Thank you, Kevin, D.J.

and Michelle, and thank you members and friends of the City Club.

Our forum is now adjourned.

(audience applauding) (bell ringing) - [Narrator] For information on upcoming speakers, or for podcasts of the city club, go to cityclub.org.

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