Trust Housing for the Financially Disadvantaged

The Financially Disadvantaged as Owners

One of the great barriers to overcoming poverty is the difficulty of accumulating assets. The income of the financially disadvantaged, by definition, inadequate to provide for the essentials of middle class living either through current income and cash flow on through credit purchase is not sufficient to provide for accumulation. The financially disadvantaged can't get the down payment together even if they have the cash flow to make the monthly payments on housing.

Housing for the financially disadvantaged is particularly disgraceful at the present time as so many people are homeless—destitute and abandoned in their own home towns and cities, living on the streets or under bridges. Our American, cities are beginning to take on some of the aspects of Calcutta, India.

For the financially disadvantaged who have housing, someone is paying the bill either the working financially disadvantaged are paying for their own housing, or in the case of welfare recipients, the city, State, or Federal Government is paying the bill. The financially disadvantaged get housing but the landlord is the only party that is accumulating wealth. In government-owned housing, the government pays the bills and the financially disadvantaged get housed, but the problem is never solved. The financially disadvantaged never get far enough ahead of the game to strike out on their own—not even in several generations.

Trust housing for the financially disadvantaged will not solve all the problems of poverty, but it has the potential to solve the housing problem.

I have to admit to a special interest in my proposal for trust housing as I own a tax shelter that provides housing for the financially disadvantaged. Under the terms of the tax shelter, the housing has to be dedicated to the financially disadvantaged for twenty years, even if the government-sponsored mortgage is paid up before then. The twenty year proviso was added after it became the practice for investors to pay up the mortgage, which satisfied the Federal requirement for the money, then evict the financially disadvantaged and rent the housing to the middle class at higher rents. This is and was an abhorrent practice which deserved to be stopped.

Trust housing for the financially disadvantaged, as proposed here, would keep the financially disadvantaged in the housing for as long as it is required and at reasonable payments that the financially disadvantaged or their sponsors can afford to pay. The government, in the form of the Department of Housing and Urban Development (HUD), would play a key role as would the real estate industry and the lending institutions.

The centerpiece of trust housing for the financially disadvantaged would be a trust corporation (either for profit or not for profit) that would purchase and operate housing for them. The corporation would be the trustee of the trust housing and the tenants residing in that housing would be the beneficiaries of the trust.

The Federal Government, in the form of HUD, would guarantee bank loans that would be available to the trust corporations to purchase tax sheltered housing for the financially disadvantaged and convert it to trust housing for them. The management of the title to the housing would pass to the trust corporation; which would in turn establish accounts for each of the tenants, crediting them with the housing unit they occupied. The financially disadvantaged tenants would be granted title to the unit in which they lived, which title would then beheld in trust for them by the trust corporation. The trust corporation would be the trustee and the financially disadvantaged occupants would be the beneficial owners. The very presence of these occupants in the trust housing will be sufficient to qualify them to be the beneficial owners of the trust.

The present administration of HUD wants the financially disadvantaged to own their own homes, but what they propose is to have them buy the housing with what amounts to normal business practice. The financially disadvantaged can't get a down payment together; that's why they are considered financially disadvantaged. In addition, many of the financially disadvantaged are not able to manage the physical conditions of housing. They don't know what to do when the roof leaks or the plumbing goes bad. The trust corporation for the financially disadvantaged would take care of both these problems by qualifying occupants of trust housing to be eligible to obtain the proper financing and title to their unit, (which would be held in trust for them), by the very fact of their presence in the housing. Then, the trust corporation would be run like a condominium, where the management of the housing would remain with the trust corporation.

The purchase price of the housing, the cost of money, insurance, and the cost of maintenance would all figure in the sale price of a housing unit. However, in addition, the trust corporation would require a condo fee to include the costs of management. When all the costs were known, the payment schedule would then depend upon the financially disadvantaged's ability to pay. By adjusting the interest that these folks would pay on their mortgage and the repayment schedule, the monthly amount could be adjusted to accommodate the financially disadvantaged.

Such financing might require term lengths not ordinarily assigned to regular household mortgages, but this problem is not an ordinary problem. The terms of the loan might require repayment times in excess of 30 years.

No matter from what source the money comes to pay the mortgage, it should be credited to buying not renting the property. The money may be a rent supplement or an out right housing grant. No matter, it should apply to the purchase price of the housing unit. If the money comes from a job, so much the better. The money may come from several sources and the financially disadvantaged should be encouraged to supplement their payments from time-to-time if they can.

In this arrangement, the trust corporation is the trustee—manager of the property which is held in trust for the financially disadvantaged, and the financially disadvantaged are the beneficial owners. The trust corporation keeps the books and credits each beneficial owner with payments as they occur, separating payment on principal from interest and condo fees. The beneficial owners should begin to accumulate an equity in the housing, no matter how, slight an amount. That equity is the beginning of their asset accumulation and has to be safeguarded to continue to provide housing. The equity should not be pledged for home equity loans, nor should it be available for anything except the purchase of housing.

If the owners choose to move to other housing, they should get a credit for their equity to be applied to their new housing. If their new housing is in trust housing for the financially disadvantaged, their financial arrangement would continue as it had been. If those moving venture into non-trust housing, their equity should still only be available to finance housing. When such a switch to conventional housing with conventional loans occurs, the title to the new property should be in the financially disadvantaged's name, and he/she should have a normal relationship with the financial institution assisting in the new purchase. Trust corporations could begin their ventures by purchasing, for the financially disadvantaged, tax sheltered housing which then should be made available at discounted rates. These rates could be discounted as they would be liberating capital that otherwise would be sequestered for the next twenty years. Trust corporations could also purchase public housing that is now unoccupied and in need of rehabilitation. The rehabilitation costs, of course, would be included in the overall financing. Trust corporations could purchase viable public housing and, thereby, relieve municipalities of the burden of running such housing. In time, trust corporations could own all public housing for the financially disadvantaged. This would assure a ready supply of housing stock for this purpose, and assure that everyone living in such housing is buying it and not merely renting it.

This trust corporate structure would lend itself to the bundling of properties, which could be an attraction to investors who wish to invest larger sums. When trust corporations are chartered for this purpose, their charters should specify that this is the only business in which they can engage. Without the express consent of Congress, this property, in no wise, should be dedicated to anything but housing for the financially disadvantaged, HUD should examine every trust corporation charter vis-a-vis such housing to see that it complies with this principle.

The one thing trust corporations must do is operate this housing in such a way as to benefit the financially disadvantaged and help them break out of their poverty. The trust corporation is not to be a permanent solution for housing for the financially disadvantaged, but is to be a very long term solution—generational in its impact.

Such a national housing program would be a first important step in providing all citizens-sovereign with their unalienable right to humane habitation.

...Ted Sudia...

© Copyright 1992
Institute for domestic Tranquility