Redlining is the practice of arbitrarily denying or limiting financial services to specific neighborhoods, generally because its residents are people of color or are poor. While discriminatory practices existed in the banking and insurance industries well before the 1930s, the New Deal Home Owners' Loan Corporation (HOLC) used a redlining policy by developing color-coded maps of American cities that used racial criteria to categorize lending and insurance risks. New, affluent, racially homogeneous housing areas received green lines while black and poor white neighborhoods were often circumscribed by red lines denoting their undesirability. Banks and insurers soon adopted the HOLC's maps and practices to guide lending and underwriting decisions. Further, the Federal Housing Administration, created in 1934, also used the HOLC's methods to assess locations for federally insured new housing construction.
We all know that Mortgage credit lending has been tightened. We also know that with the huge increase in foreclosure filings that property values trend lower since foreclosures often sell at deep discount. Just one or two foreclosures on a block can result in a drop in overall neighborhood value of 20-30 percent or more.
The larger question is does Cincinnati 'blight abatement' policies such as VBML and condemn orders essentially create Governmental 'redlining" of neighborhoods? In simpler terms, is Cincinnati helping or hurting economically disadvantaged neighborhoods by facilitating banks to simply saying no to loans in those neighborhoods. The evidence appears to support that claim.
The city has long claimed that the VBML program will "save' neighborhoods by forcing property owners to come into compliance with "Minimum Building Standards" and effectively 'mothball' properties until it is economically viable to rehabilitate them. The cities argument was a good one and on the surface seemed like a good idea. By essentially requiring 'slumlord/investors' to actually have to pay a licensing fee to keep their property vacant they would eventually sell to someone who would repair the property and return it to occupancy or would do it themselves.
(Potentially historic eligible properties like this one on Waverly will be Bulldozed soon. The city has no public section 106 review process required by Federal law)
What the city did not count on is that with the Housing bubble burst beginning in 2005. Suddenly there was no incentive to spend monies on property that was rapidly declining in value. Property owners simply walked away.
In fact, the City of Cincinnati Vacant property list as of today shows a total of 2429 properties on the vacant buildings list. Those are properties "ordered vacant' by the city for which VBML (Vacant Building Maintenance Licenses) are required. Many neighborhood leaders have questioned if inspectors are not using the VBML to lighten their caseload as only one inspection per year is required unlike the several that typically must be done when repair orders are written.
http://cagisperm.hamilton-co.org/cpop/vacantbuildings.aspx
Yet only a small fraction of those properties have actually applied for VBML or waivers. Often these properties are in the middle of a foreclosure process, the owner has walked away and the bank has not yet initiated foreclosure proceedings. One of the flaws in the VBML order is that the city does not also notify the lender, meaning often times lenders complete the foreclosure process unaware there is VBML order against it. A VBML only shows up on title search if the city has filed a lien for non payment of a VBML (which they rarely, if ever, do). The property is then sold to an unsuspecting buyer who months after they have bought the property finds out the VBML is out there. Since most foreclosures are typically "cash" transactions (banks do not typically make home loans for less than 30K), the new property owner who is likely self financing repairs to get the house ready to move into or resell is now stuck with an additional cost, and for many of these homeowners who are working on tight margins and dealing with high city building permit fees anyway the VBML is the final straw and they walk away.
If the VBML is found out about prior to purchase where mortgage financing is being done, the VBML is a "dealbreaker' for the new mortgage company as few lenders will lend money on a house that has been ordered 'kept vacant'.
Even the VBML waiver process presents difficulties as obtaining liability or homeowners insurance on a vacant property can run thousands. Often more than what was paid for a foreclosure over a two year period.
Given the failure to get a VBML the property then moves into "blight abatement". The city issues a Condemn order for failure to pay the VBML fee and the property is ordered condemned and an order is issued to the property owner to demolish the property or bring it into compliance. By this stage compliance rarely happens, because the property owner has thrown up his hands in disgust and decided to cut their losses.
(Another potential Historic contributing structure this property went from a broken window complaint to condemn orders in less than 4 months, while the foreclosure process is ongoing, yet has no serious structural issues. This house just need a new owner who will repair it.)
The property winds up before "Nuisance Board" and is ordered demolished by the city with with taxpayer funds. These demolitions reduce the county and city tax base since vacant lots pay considerably less than a lot with a house on it causing a general rise in taxes for the remaining property owners and causing additional pressures among economically strapped homeowners in a bad economy. More and more homeowners lose their homes to tax delinquencies every year.
The city's argument for blight abatement is that it is "improving property values" by bulldozing 'nuisance properties. However current studies indicate that the demolition actually further reduce property values and have little if any effect on crime.
The problem is one of appraisals for lending. Appraisers look at recent sales in an area for determining value. In areas where the City Vacant Building Task Force concentrates, there are already high numbers of foreclosures, which reduce "average completed sales prices' this can depress the appraisal to the point it falls below the 30K mark which is usually the lowest level banks will make home loans at. The only alternative for home buyers is to go for a higher interest rate personal loans which are hard to get for most people today or, if they have the credit to put the purchase on a credit card. With ever tightening credit that is often impossible.
The other factors in appraisals are vacancy rates and 'neighborhood trends' . "Trending' looks at sales to determine if values are going up or down in an area and appraisals are adjusted based on those trends. Vacant lots area negative to an appraiser UNLESS there is significant new infill housing which is likely to raise property values on existing homes in the long term. Since the city has no strategy for redevelopment of these lots, they may remain vacant for decades.
The city is very good at the bulldozing part, they demoed 179 properties last year. However the city is very bad at the Redevelopment part.
One need only look at Over the Rhine to see the devastating effects of long term demolition on a neighborhoods. Combine that with the fact the city has 319 properties on its VBML/Keepvacant condemn list just in OTR and its easy to see why that neighborhood is at a tipping point... as are several other urban neighborhoods in this city.
So what are the solutions? We need to first and foremost scrap VBML (Vacant Building Maintenance Licenses). They are no longer an effective tool to bring property into compliance but with the economy the way it is, VBML has become a "dis-incentive" to investment. We need more effective inspection with better trained inspectors whose priority should be to issue repair orders. We need a paintup/fix up program (funded with CDBG, (Community Development Block Grant funds) for low interest loans or outright grants to low income homeowners to make repairs to properties.The city and key stakeholders, City Inspections, Local Banks, Neighborhood groups, and Business interests need to come together to create a community reinvestment program where by local banks buy into community reinvestment by establishing targeted area loan pools to create home mortgages/rehab loans on properties priced below 30K. The city needs to couple that with reduced or elimination of Building Permit Fees and reduction of condemn status to repair orders in targeted areas like OTR, Fairmount, Price Hill, Walnut Hills, Sedamsvile, and Avondale to promote reinvestment, especially for buyers of vacant foreclosed property.
The facts are that the housing market has changed dramatically since the VBML program was initially created. We will not rebuild our Urban neighborhood and attract new people to this city with a policy of dis-incentives and demolition. We will bring people in with greater flexibility, good incentives and strong buy-ins by lenders and the business community.
Does Cincinnati VBML amounts to Governmental redlining?
Reviewed by citra
Published :
Rating : 4.5
Published :
Rating : 4.5
