In South Florida, Mortgages to Build American Dreams

In 2009, one in every six U.S. homes in foreclosure had a Florida address. In Miami-Dade County, with some of the highest foreclosure rates in the state, 49 percent of all mortgage loans at the time of the housing crash were subprime loans.¹

Within the city of Miami, African Americans are 22 percent of the population, with many families concentrated in low-income neighborhoods like the West Grove section of Coconut Grove. Of the 3,000 residents in the West Grove, 87 percent are African American.

A fifth of the foreclosures in Miami-Dade are in Coconut Grove, despite its small population compared to other parts of the city.

Within Coconut Grove are two of the key ingredients that made subprime lending such a combustible mix—poverty and racism.

In the early 1940s, the Miami City Planning Board established “a permanent dividing wall between white and colored occupancy in the north of Grand Avenue.” For the next two decades, well after the Supreme Court ruling that struck down “separate but equal” laws, the wall continued to separate the majority black West Grove from the rest of Coconut Grove. In the 1960s, residents of West Grove successfully petitioned the city to tear down this “monument to racism.”

Parts of the wall remain in place today as an indelible marker of what West Grove once stood for. In the 1990s, blatant racism reared its head again in the guise of subprime lending. By now, the racist elements of the subprime debacle have been widely chronicled. What we hear less about is that alternatives existed—as they’ve always existed. Poor minority communities didn’t have to endure the nightmare of subprime lending to share in the American Dream of homeownership.

In West Grove, for example, the city of Miami and the for-profit home developer Wind and Rain partnered in a program to offer low-income families “soft-second” mortgages. Wind and Rain built modest-sized new homes designed to fit a small family. The homes were sold at an affordable price and were guaranteed a 30-year, fixed-rate mortgage. A local bank provided the first mortgage, earning Wind and Rain a small profit on each home it built, and the city of Miami then stepped in to provide the “soft-second” mortgage, up to $40,000 of the home’s financing at zero to 3 percent interest. Families participating in the program were required to come up with $3,000 for a down payment, and only those who appeared able to meet their mortgage payments were selected. The average income of the families who received the loans was $20,000 per year.

“The blended rate of the first and soft-second mortgages brings the monthly payment down to about the same level a family is paying in rent and which is all that Miami’s cash-strapped working poor can afford,” says Andy Parrish, president of Wind and Rain. “But compare that to the $800 to $1,300 per month in Section 8 rental-voucher subsidies routinely paid out by the county to absentee landlords. That much money—$800 to $1,300 per month—is enough to pay the mortgage interest on both the first and soft-second mortgage, pay for insurance and cover taxes, and still give the taxpayers a refund of up to $500 per month.”

Of the 15 families occupying homes that used the soft-second mortgage program, none has defaulted on the loan, unlike some neighboring homebuyers who purchased their houses with subprime loans. The soft-second program generated close to $1 million in equity for the families involved. Unfortunately, the city of Miami has scaled back funding for “soft-second” mortgages, meaning Wind and Rain is no longer building affordable homes for people in West Grove. It is one more casualty of the housing crash.

“Any family headed by a husband and wife, each of whom works 40 hours per week, is ready to own their own home,” says Parrish. “They’ve shown the discipline and initiative to be helped to buy the one thing that will give their family a chance at financial stability—the single-family home.”

Vivian Secaida was an intern with Bread for the World Institute during summer 2009. She is a student at Wellesley College who grew up in Miami.

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