In Parts of Cleveland, People Want To Pay More Than Houses Are 'Worth'
Chris Keeney and his wife Raisa Keeney found their dream home in Cleveland's Old Brooklyn neighborhood.
It sat on a block full of big, old trees, with a tidy flower garden out front. The living room still had functioning pocket doors.
The Keeneys made an offer, and the seller accepted.
Then they went to a bank for a mortgage. The bank turned them down, saying their appraisal assigned the house a value lower than the Keeneys were willing to pay.
"I was devastated," Chris Keeney said. "It hurt because, quite frankly, I know this house is worth what we offered. It's probably even worth a little bit more than what we offered."
Despite the setback prompted by the bank, they got lucky. The sellers agreed to accept the appraised value instead of the original offer.
"Had they not been retiring and downsizing to a smaller home, I don't think we get this house that we love and adore," Keeney said.
Chris Keeney, right, and his wife Raisa Keeney live in Cleveland's Old Brooklyn neighborhood. [Chris and Raisa Keeney]
Stuck In 'The Middle'
The problem of banks not lending what buyers and sellers believe houses are worth isn’t a new one. In the 1950s and 1960s, the phenomenon was called redlining — racist lending practices that created starkly segregated living patterns that persist in many of the nation's older cities, including Cleveland.
But for the last two years, the City of Cleveland has dedicated a full-time staff person to work on the issue. And instead of looking at the city as a whole, Jason Powers has a strategy of focusing on neighborhoods in the middle.
"The question that I first got when I walked in City Hall was, 'Where are they? What's the middle?'" said Powers, project director of Cleveland's Middle Neighborhoods Initiative and an Old Brooklyn resident himself.
He said he and his colleagues ended up defining middle neighborhoods as neighborhoods that were neither poor enough to qualify for federal aid programs like the Community Development Block Grant, but also weren't “hot markets” such as Ohio City or University Circle, where private banks are eager to lend.
"That's really the biggest problem we're starting with," Powers said. "If I wanted to call the Middle Neighborhoods Initiative something more specific, I'd call it the Gap Initiative. How do we focus on the areas where there's gaps between the real values of these strong communities and the perceived value based on any number of things?"
Some gaps happen, Powers said, because appraisers look at house sales that don’t really apply to the particular block where someone wants to buy. Or they don’t take into account how overtly racist lending practices in the past have led to implicitly racist lending practices today.
In February, Powers presented his work during a City Council budget hearing, showing which neighborhoods qualified as “the middle.” He also made some recommendations for how to offer loans that recognize those neighborhoods’ true value.
While he got a lot of praise for his work, he also got a lot of pushback.
Cleveland City Council discussed the Middle Neighborhoods Initiative during an online meeting in February. [Cleveland City Council]
"What about Glenville? What about Hough?" asked Councilman Basheer Jones, referring to two mostly Black neighborhoods on the city's East Side. "I didn't see the majority of the East Side on there."
Councilwoman Jasmin Santana, who represents neighborhoods with high concentrations of Latinx residents on the southwest side, said she was concerned the program favored new residents over existing ones.
"How do we invest in revitalizing neighborhoods with existing residents? I often hear the only way that you revitalize a neighborhood is to allow gentrification, which I don't agree," Santana said.
Councilman Mike Polensek of Collinwood criticized the lack of funding to back the proposals.
"I appreciate everything [Powers] has done and I'm very impressed by it," Polensek said. "But there's got to be some meat on the bone. Where's the beef?"
Looking To Baltimore
Some funding has since materialized, in the form of a $1 million reserve fund. That fund is intended to serve as a backstop to what Powers and his colleagues hope will be a $10 million loan pool created by private banks.
Powers said he has verbal commitments from several banks to join the initiative. He’s expecting a formal announcement to come soon, with loans available by early 2022.
If that's correct, the loans will look a lot like they do in Baltimore, which has a 17-year-old middle neighborhoods initiative that serves as a model for Cleveland’s.
"One of the solutions we came up with is to make a loan at 110 percent of the value to property," said Chuck Martin, a vice president with M&T Bank, one of the banks involved in Baltimore’s program. "So even if the appraisal comes in low, you can go up to 110 percent of that, which gives you more than enough to purchase the property and do some improvements."
In Baltimore, a middle neighborhoods initiative offers bank loans of up to 110 percent of a property's appraised value. [Baltimore Healthy Neighborhoods]
He said so far, buyers have not ended up over-leveraged because community organizations have helped prepare them for how to make improvements that will increase their home's value.
"And then if there is any situation in which they do get behind, [the organizations] work with them on the back end to work through a solution," Martin said.
The initiative, Martin said, has stabilized population and property values in target neighborhoods.
Including And Excluding
But what about that concern from Councilman Jones, who didn’t see much of the East Side included on the map of target areas in Cleveland?
Martin and Powers cited a study by the Lincoln Institute, a progressive think tank, which found stabilizing middle neighborhoods can stabilize cities as a whole by stopping the “domino effect” of investment and incomes moving ever further outward, isolating low-income residents and making it hard for them to find jobs.
Still, Jones said he’s not convinced.
"It needs to be more inclusive of the entire city," Jones said. "And when you include and exclude, what happens is what you see on the East Side: You see you see an intentional exclusion of an entire community, primarily the Black and brown community, primarily the East Side of Cleveland."
Meanwhile, the problem of communities losing value and people isn’t just contained to the city anymore. A recent analysis by Cuyahoga County found the inner-ring suburbs are now losing population at a faster rate than the city.
Annette Blackwell, mayor of Maple Heights, wants to see new lending programs in the inner-ring suburb she represents. [Annette Blackwell]
Suburbs aren’t a part of the Cleveland program. But Maple Heights mayor Annette Blackwell said while she doesn’t have a "middle neighborhoods initiative" per se, getting banks to re-examine their policies is a big part of her work.
"We keep saying, ‘We need your help, we need your help. We need down payment assistance. We need to look at our credit policy’," she said.
Specifically, Maple Heights — an inner-ring suburb — is working with banks to develop purchase-rehab loans for houses valued at less than $50,000.
As with the program in Cleveland, Blackwell is hoping investments in lower-valued homes could stabilize housing in Maple Heights.