Elizabeth A Duke: Keys to successful neighborhood stabilization
Speech by Ms Elizabeth A Duke, Member of the Board of Governors of the US Federal
Reserve System, at the Community Stabilization Symposium, NeighborWorks Training
Institute, National Harbor, Maryland, 9 December 2009.
The original speech, which contains various links to the documents mentioned, can be found on the US Federal
Reserve System's website.
* * *
Good morning. I am very pleased to be here to welcome you to the NeighborWorks' Training
Institute Symposium on Community Stabilization. The Federal Reserve is co-sponsoring this
event as part of a partnership we have with NeighborWorks America (NeighborWorks) to
reduce the impact of foreclosures in low- and moderate-income communities. Clearly, much
remains to be done to stabilize communities hard-hit by the foreclosure crisis, but we are
encouraged by the work of this partnership, now in its second year. We are leveraging the
resources of the Federal Reserve, particularly our data resources and our network of
regional Reserve Banks across the country, to assist NeighborWorks' activities with respect
to training, foreclosure counseling resources, and building the capacity of local community
organizations.
Federal Reserve Board Chairman Bernanke asked me to chair the Board's Committee on
Consumer and Community Affairs and to represent the Federal Reserve on the
NeighborWorks Board. As a former community banker, I came to my new assignments with
an understanding of the role that financial institutions, in partnership with local stakeholders,
play in creating healthy sustainable communities. But I wanted to see first-hand how the
economic crisis was impacting communities, how NeighborWorks was responding, and how
the Reserve Banks were assisting communities under stress and the organizations that
serve them. So, Community Affairs staff in the twelve Reserve Bank Districts and the
community organizations they work with - including many NeighborWorks Organizations -
arranged for me to tour several stressed communities across the country. And I must say,
these visits have enriched my understanding of the vital work being done in local
communities, and its importance for the nation's economic future.
So I thought the best way I could kick off this conference would be to tell you a little bit about
what I learned on my visits, particularly as these lessons relate to community stabilization
efforts. I know that most of what I say will come as no surprise to those of you who work with
these issues every day. But I want to recognize the significant work you do and express my
profound appreciation, especially to those who shared their experiences with me as we
toured your cities and learned about your work.
Regional economic conditions matter
The first lesson I learned during my travels is that there is no one-size-fits-all strategy for
community stabilization. The downturn in housing has affected communities in a variety of
ways, depending on the underlying economics of each. Because of these variations, a
stabilization strategy that is effective in an industrial city facing high unemployment is unlikely
to suit a suburban community where employment has remained relatively stable.
Communities with weak underlying economies are characterized by a long trend of
population loss, gradual impoverishment, and strained municipal resources. For cities like
Cleveland, Detroit, and Indianapolis the increase in foreclosures over the last few years has
exacerbated a pre-existing vacancy problem.1 The increased rates of foreclosures and the
related economic downturn have hastened a cycle of decreasing property values. Declines in
state and local property and sales tax revenues result in even more vacant homes and
deteriorating neighborhoods.
Many community organizations and homeowners have been frustrated by the difficulties of
working with mortgage lenders and servicers, and these problems are even more
exaggerated in weaker market cities. In the most devastated neighborhoods, some lenders
do not even complete the foreclosure process or record the outcome of foreclosure sales
because the cost of foreclosing exceeds the value of the property. Anecdotal evidence
suggests that these "toxic titles" have placed significant numbers of properties in a difficult
state of legal limbo.2
As a result of the high rates of abandonment, many cities such as Flint, Michigan, Cleveland,
Ohio, and Youngstown, Ohio have pursued plans to "right size" by demolishing vacant
properties and creating land banks. These strategies effectively align housing supply with
demand and create open spaces and parkland that promote community health and
sustainability. Several community organizations in Detroit, for instance, have joined together
to promote an urban farming initiative that not only reclaims abandoned properties but
capitalizes on the growing popularity of locally grown food. Detroit's Garden Resource
Program provides hundreds of home, school, and community gardens access to resources
and information that empower residents to grow, harvest, prepare, and preserve food in their
backyards and neighborhoods. In 2008, the program supplied over 169 community gardens,
40 schools, and 359 families with seeds, plants, and training that produced thousands of
pounds of food inside the City of Detroit.3
Even communities with strong underlying economies have not been immune to the
destabilizing effects of high foreclosure rates. I visited California's Inland Empire and Los
Angeles, as well as areas in Atlanta, that until recently were economically vibrant. Many
coastal cities - even those with jobs and growing populations - now are in distress because
of high rates of foreclosure. For instance, the Florida cities of Cape Coral, Miami, Orlando,
Tampa, and Sarasota are among those with the highest rates of foreclosure - between 3.8
and 10 percent. These areas, and others in the West, such as Las Vegas and Phoenix,
experienced very high rates of new home construction and speculative investments that
resulted in unsustainable price escalation throughout the early part of this decade.4
Vacant properties are creating a different kind of problem in some California markets.
Indeed, as investors sense that home prices have bottomed out, they are approaching
servicers with cash offers for the bulk purchase of properties. In fact, community
organizations in areas of California complain that investor interest has heated up to the point
that qualified first-time homebuyers and local community organizations are being crowded
out of the market.
Foreclosure rescue scams that have taken up residence in nearly every community appear
to be even more prevalent in stronger market areas where retaining title to a home is more
economically feasible. One counselor in Los Angeles told me that as many as 80 percent of
the homeowners she counseled had been victims of rescue scams.
In addition to the economic dynamics of any particular city, it is clear that, even within
metropolitan areas, community stabilization issues can vary from neighborhood to
neighborhood. For example, Cleveland's highest vacancy rates are primarily in its urban
core, while in Atlanta, the problem of high foreclosure rates is found not only in the urban
core, but also in outer suburban communities that experienced significant growth recently.
For cities like Atlanta, strategies addressing high foreclosure rates must take into account
wide variations in local capacity across and within metropolitan areas. Newer suburbs have
not, for the most part, had time to develop the community resources and technical expertise
that exist in urban centers.
Another lesson I learned in my travels is about the need to understand community dynamics.
In the end, the success of any community stabilization plan depends on the dedication and
expertise of local leaders like those of you here today. Cleveland's Detroit Shoreway
neighborhood, for example, clearly demonstrates that with the right vision, leadership, and
planning even a highly distressed community can regain its position as a dynamic and
attractive neighborhood by maximizing its natural and cultural assets.
Holistic approach is key
Foreclosure mitigation activities, by necessity, focus on individual houses and mortgages in
an attempt to resolve legal and economic issues between borrowers, servicers, and
investors. Nonetheless, after visiting with community organizations and seeing their work
first-hand, it is clear to me that the most effective community stabilization approaches look
beyond homes and mortgages. Successful community stabilization requires a broader vision
of community, one that factors in the many elements that make a neighborhood a desirable
place to live.
The bottom line is that housing alone is not sufficient to create sustainable and economically
resilient communities.
I have seen several compelling examples of this kind of multi-faceted approach to community
development. Atlanta's development efforts, for example, included the creation of the Center
for Working Families. The Center serves people who are seeking employment and are eager
to learn new skills that will help them support their families, build wealth, or start a business.
The Center also offers its clients individual coaching to help them hurdle the barriers that
keep them from securing and maintaining employment by providing transportation
assistance, childcare subsidies, and computer literacy training. And, unlike a traditional job
training and placement program, the Center's relationship with its clients continues long after
they secure employment.
Nearby, in the Centennial Place neighborhood, a mixed-income, mixed-use community
developed by the Atlanta Housing Authority on the site of one of the nation's first public
housing complexes, I found Centennial Place Elementary School. Centennial Place is a
math, science, and technology-oriented school that is breaking records as one of the top
performing schools in the Atlanta school system. They have steadily improved test scores in
reading and math. Students and parents alike are fully engaged in the learning process in
this state-of-the-art school.
In Dallas, I was introduced to Lone Star Investment Advisors, an organization that invests in
low- to moderate- income areas throughout Texas. Lone Star created a private equity fund
that invests in Texas companies that are located in, or willing to move to, low-income census
tracts. The fund's managers have focused on manufacturing and distribution companies that
are valued at $20 million and up and can create jobs in the state's lower-income
communities. Its double bottom-line approach to investments - making a profit while
benefitting the community - makes it attractive to bankers with Community Reinvestment Act
(CRA) obligations as well as other socially-minded investors. PrimeSource Food Service
Equipment is one such business that Lone Star moved from an affluent northern Dallas
suburb to South Dallas, where the poverty rate is 43.6%. PrimeSource relocated over 100
employees and hired new employees from South Dallas.
In Philadelphia, I toured a supermarket that provides for one of the most basic needs in many
low-income neighborhoods: fresh food. The Pennsylvania Fresh Food Financing Initiative is
an innovative program that works to increase the number of supermarkets and groceries in
underserved communities across Pennsylvania. The initiative is supported by a partnership
among The Reinvestment Fund, a non-profit developer, and two community organizations,
The Food Trust and the Greater Philadelphia Urban Affairs Coalition.5 This partnership has
stepped in to fill a financing need where infrastructure costs were not met by conventional
financial institutions. In addition to improving the neighborhood's access to nutritious food,
the supermarket initiative meets several other community needs, including job creation and
lower food costs for those with limited incomes. It also provides a focal point for other vital
retail needs in the community.
Other organizations are dedicated to meeting the healthcare needs of their community.
Chicago's Lawndale Christian Health Center is one such organization.6 The center serves
the Lawndale and Garfield communities on the West Side of Chicago by providing quality
primary care services without regard to a patient's ability to pay, and in so doing, it works to
eliminate the impact of healthcare disparities among the city's residents. The Lawndale
Center is known for its holistic approach to healthcare: it offers not only primary medical care,
including internal medicine, pediatrics, cardiology, optometry, and dentistry, but also services
that support patients' psychological, spiritual, and social health. In 2006 alone, the Center
accommodated more than 110,000 outpatient medical visits, 4,200 hospital visits, 840
deliveries, 8,000 dental visits, and 3,100 optometry visits.
The Center also offers programs in leadership development and organizational capacity
building for the community, and it employs more than 300 people, many of whom live in the
community or were attracted to the community because of the Center.
But even more impressive to me is the Center's connection to the community it serves. The
Center was founded in 1984 when a group of Lawndale residents saw a need in their
community and worked to fill it. Ownership of the Center is retained by community members,
ensuring that it will continue to meet the needs in its neighborhood.
As these examples illustrate, a vibrant community is made up of more than houses.
Neighborhoods need the right blend of housing, retail, and community services in order to
remain desirable and resilient to economic cycles. Of course, the solution is not that simple.
Even a neighborhood with that perfect mix of housing, retail, and services can find itself
struggling. In my travels I realized that there is one characteristic shared by the communities
that have coped most successfully in the economic downturn: organizational capacity.
Organizational capacity
As I am sure you are aware, the relationship between organizational capacity and the
success of community stabilization efforts cannot be underestimated. I have had the good
fortune to observe many communities whose response to the foreclosure crisis was
immediate and, ultimately, has been more effective because of the deep roots of
organizations in the community and the experience they have developed over many years.
Neighborhood Housing Services of Chicago, where Bruce Gotschall has served as Executive
Director since its founding in 1975, is probably one of the finest examples of this kind of
organizational capacity. In the mid-1990s, NHS of Chicago identified predatory lending as a
threat to the neighborhoods it served. In collaboration with the City of Chicago, the Federal
Reserve Bank of Chicago, and many others, NHS formed the first Home Ownership
Preservation Initiative (HOPI). This initiative became the model for foreclosure prevention
and has been replicated across the country. Because of this experience, NHS was
wellprepared to assist Chicagoans in the recent housing market downturn.
By contrast, many communities are facing the issues of vacancy, abandonment, and decay
for the first time, and these communities need help to grow the human and financial capital
required to address neighborhood decline. These capacities do not appear overnight, but
they can be developed. As your attendance at this Training Institute demonstrates, there is a
strong appetite among community organizations for information, training, and leadership
development. And I am encouraged by your dedication.
As a NeighborWorks Board member, I am aware that the demand for training has grown
dramatically in the last few years and I am very impressed by the breadth, depth, and quality
of the Training Institute's offerings. In fact, a significant part of the Federal Reserve's
partnership with NeighborWorks involves funding the development of courses designed to
help community leaders address stabilization challenges, particularly with respect to the
acquisition and disposition of real estate. In the first year of the partnership alone, 640
training certificates were awarded in the new community stabilization coursework, with even
more community development practitioners attending workshops and events designed to
highlight best practices and new programs available to stabilize communities. In addition to
training sessions, practitioners can access this information on StableCommunities.org, a
website developed by NeighborWorks with the Federal Reserve's support.
The role of the Federal Reserve
The partnership between the Federal Reserve and NeighborWorks America is just one
aspect of the Federal Reserve's effort to stabilize neighborhoods. Community Affairs staff
across the Federal Reserve System are providing data analysis and technical assistance to
state and local governments trying to address foreclosures in their communities. For
example, the Federal Reserve Banks of Cleveland, Richmond, and Atlanta are collaborating
on a series of capacity-building sessions for several communities in Appalachia to improve
their ability to leverage federal Neighborhood Stabilization Funds. In addition, we are
studying the Neighborhood Stabilization Program and interviewing some 50 program
grantees nationwide to learn about the early successes and challenges to this effort to
restore health to communities with high foreclosure rates.
We continue to engage in a good deal of outreach to stay informed about the challenges
facing communities as this crisis evolves. Federal Reserve staff recently attended a series of
meetings organized by National People's Action (NPA). These meetings, held in nine cities
chosen by NPA, were designed to gather first-hand information about the impact of
foreclosures in low-income communities. In each city, Fed staff met with local leaders, toured
communities hit by foreclosures, and attended public meetings. In addition to giving us
information about foreclosure's impact on various communities, the public meetings have
been effective in drawing local press coverage, which hopefully has heightened local
attention to the issues faced by residents.
The Federal Reserve is committed to continuing to identify ways in which our strengths as a
research institution, combined with our network of Community Affairs outreach staff, can be
leveraged to help communities recover from high numbers of foreclosures and related
economic impacts.
Conclusion
In conclusion, I want to thank you all for your commitment to your communities and for your
attendance here today. This symposium is designed to provoke and inspire our best thinking
- and action - related to neighborhood stabilization. I hope that each of you finds something
in today's discussion that applies to the underlying economic conditions of your
neighborhood, that encourages holistic solutions to the problems your community faces, and
that improves your ability to meet the demands placed on you as a leader in your community.