White House Should Require Nonprofit Participation in Bulk Sales of Foreclosed Properties Says Institute

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September 22, 2011; Source: HousingWire | The Greenlining Institute often says what other nonprofits only think. It sometimes drives some people and organizations to distraction—remember the gnashing of foundation teeth over Greenlining’s advocacy of legislation in California requiring big funders to disclose the racial and ethnic composition of their boards and of the groups they support (see NPQ‘s coverage of Greenlining here and here and here and here and here).

Greenlining’s origins aren’t in philanthropy but rather in community reinvestment and community development, where it has consistently challenged the banking sector to “greenline” lower-income, minority neighborhoods. The larger challenge for the time being is how banks will dispose of their huge and still-increasing inventory of foreclosed properties (known in the field as “REO” for “real-estate-owned”). Half of the REO inventory right now is owned by the government because it was originally financed with mortgages backed by the Federal Housing Administration or other federal agencies.

Nearly everyone agrees that the huge REO inventory is destabilizing the housing market and slowing the economy. The question is how to get these properties into the hands of rehabbers and potential owners. The Obama Administration and the banking sector have been contemplating bulk sales of REO properties.

For the most part, the private-sector real-estate industry favors individual cash sales to the highest bidder. This would move REO properties into the hands of entities that have the capital to improve them and then sell or rent them out. (Though one suspects that in most cases, given the local nature of real estate markets, most developers would favor bulk-REO sales as long as they were limited to certain areas.)

Greenlining, on the other hand, believes that the issue is not just one of stabilizing housing markets, but stabilizing and protecting neighborhoods. It believes that bringing in nonprofits as developers or as partners with private developers would help protect neighborhoods and ensure that REO properties get developed as community assets. The Institute is asking that nonprofit partnerships be required of bulk purchasers unless the for-profit purchasers are local. (The HousingWire article doesn’t define Greenlining’s criteria for an acceptable local private developer.)

Should the Obama Administration insert a nonprofit partnership requirement into REO bulk sales or should the Administration simply push to get the properties out of bank inventories and back onto the market as fast as possible—regardless of nonprofit participation?—Rick Cohen