UNC School of Social Work faculty search for solutions to help people cope with troubled economy

A promising alternative to subprime loans

For School Assistant Professor Michal Grinstein-Weiss, the current mortgage crisis emphasizes the need for increasing opportunities for homeownership among low-income households, a topic she has been researching for much of her career.

Studies have shown that families who own their own homes are happier, healthier physically and economically and that their children do better socially and academically.

Overall homeownership rates have risen nationwide, but many low-income households are still unable to purchase a home because of limited savings, bad credit scores, a shortage of affordable housing and even discrimination.

In recent years, subprime loans and questionable lending practices enabled many families who normally would not have been able to purchase a home to pursue the American Dream. Since the housing bubble burst, however, many homeowners now owe more on their mortgages than their houses are worth and are struggling to make payments on these high-interest, adjustable rate loans. As a result, some economists predict that the nation should brace for nearly 4 million foreclosures over the next two years. In North Carolina, the bipartisan advocacy group, First Focus, projects at least 53,000 foreclosures, displacing nearly 40,000 children.  

Where others see challenges, Grinstein-Weiss sees potential solutions in helping more low-income families purchase their first homes and affordably remain in them. Individual Development Accounts may offer one answer, she said. The assistant professor is currently leading a team of researchers from UNC, the Center for Social Development and the Brookings Institution in a study that examines the effectiveness of these asset-building programs and whether participants are able to obtain affordable mortgages over the long run.

IDAs are matched savings account programs that enable low-income residents to save for a down payment on a house, college tuition or a start-up business. The programs, which are funded by federal and state grants, encourage savings by doubling and sometimes tripling every dollar a participant sets aside. 

Between 1998 and 2006, nearly $121 million in federal funds helped almost 50,000 individuals nationwide open IDAs. More than half of the 100 counties in North Carolina operate IDA programs that support more than 500 low-income account holders.

Eligibility is based on household income, with a maximum being a percentage of the federal poverty level. The program requires that participants receive credit counseling, enroll in financial literacy classes and work with a homeownership counselor to understand the home-buying process and how to access fair and responsible mortgage loans, instead of the subprime loans that have hurt so many families.

A paper on Grinstein-Weiss latest research is being published this month in Housing Policy Debate, which is produced by the Metropolitan Institute at Virginia Tech University.

Results appear promising. According to the study, low-income families who participated in an IDA program from 1998 to 2003, were more likely than other low-income people to save for a down payment on a house, decrease debt to improve their credit scores and purchase a home within four years. The study is based on data from the American Dream Demonstration project, the first large scale test of IDAs in the country. Grinstein-Weiss and her team are now collecting additional data to examine the effects of homeownership on low-income households and to determine if recent foreclosures were less common among homeowners who were IDA participants.

Long-term, such information could further evidence that IDA programs are capable of helping low-income residents clean up their credit scores and secure more stable financing for a home, Grinstein-Weiss said.

We would hope to be able to say, Look, with fair and responsible mortgages and the appropriate financial education, low-income households will be able to do better, she said.

Grinstein-Weiss expects to have more results from the study by February.


By Susan White

School of Social Work media contact:
Michelle Rogers, (919) 962-1532