Shared Equity and Low Income Housing

There has been a great deal of criticism of community organizers for encouraging low income families to take out subprime loans to buy houses in an overvalued market.

I commend the efforts to help low income families secure housing.

The problem is not with the intention of community organizers but that the community organizers used financing tools that exposed low income families to financials risks that they were not able to handle.

With shared equity financing, the community organization could work out financing where the low income family received a loan for a set portion of a house. The community organization would own a lien against the property for a set portion of its final sale price.

With shared equity financing, the low income family would end up with clear ownership of their portion of the house.

The community organization would own a lien against the house. This lien is a valuable thing that could be bundled with other liens and traded on the open market.

Unlike subprime loans, which investors treat as toxic, shares in community housing would actually be an attractive investment as they would be relatively secure (tracking the local real estate market) and they would carry a positive press of being an investment in the community.

NOTE, the reason for this post is to emphasize shared equity financing as the solution to low income housing. When a person has a big mortgage against the value of their property, they never have a clear idea what their actual equity is. Equity is the sale price of the property minus the mortgage. In shared equity financing the homeowner's equity is a set portion of the home value.

In the scheme of things, I had been thinking about this as a solution to low income housing. My previous posts talking about how it is the solution to the mortgage mess was an attempt to raise interest in the idea.

I've emailed this proposal to a number of groups. So far, interest is zero.