Transforming Predatory Land Contracts Into Real Mortgages
Blackstar Stability takes on predatory lending practices and seller financing with a specific focus on Contracts for Deeds (CFDs). CFDs prohibit a buyer from owning a home until all monthly payments have been made. Unlike a traditional mortgage, full legal ownership is a difficult and uncertain process due to high interest rates, costly monthly payments, and hidden fees. Additionally, the potential failure to make payments could lead to a homebuyer having to completely lose the property. Meanwhile, residents are completely responsible for maintenance and other costs. These predatory legal contracts create the illusion of ownership by giving occupants the responsibility of homeownership without any of the benefits. These contracts are associated with redlining, as they were created to target Black and Brown homebuyers who were unable to access traditional financing in redlined communities. Today, they still disproportionately impact low-income and Black and Brown homebuyers.
The 2007 Global Financial Crisis set in motion Blackstar’s mission of keeping families in their homes. Since then, there have been even more limited financing options for lower-cost homes, typically homes of $100,000 or less, due to regulations capping the money banks can make from originating these loans. This lack of available financing often hits low-income families the hardest since they do not have other options for homeownership, and may also struggle with low-credit or savings. In this gap, predatory actors purchased a large number of low-cost homes and sold them to low income buyers with predatory terms. Blackstar began to examine strategies to address the predatory homeownership practices by evaluating both private and public dollars in the purchase of CFD-encumbered homes and the use of non-performing mortgages to facilitate homeownership. Their work helps families with CFDs, addressing important equity concerns while also presenting a market-driven, scalable solution.
The Housing Lab helped Blackstar Stability make their product– the conversion of contracts for deeds to traditional mortgages– work at scale. By helping refine the CFD restructuring process, the Housing Lab assisted Blackstar in integrating home repairs and financing into their existing model. Together, the Housing Lab and Blackstar also began to address deficient and expensive property insurance alternatives available to buyers of CFD homes, expanding the model to address other predatory home finance products.
Blackstar goes beyond helping families become true homeowners, they also work to influence CFD policies. They have submitted written and oral testimony to the U.S. Senate Banking Committee and have participated in panel discussions with the Congressional Hispanic Caucus and Federal Reserve Boards of Cleveland and Minneapolis. The Housing Lab has helped Blackstar use its data and experience to increasingly advocate for policy reform. The Housing Lab’s support also enhanced Blackstar’s role as a private company and helped build a long-term strategy to work toward restructuring predatory policies.
Today, Blackstar Stability has facilitated homeownership opportunities for 87 families by converting formerly CFD-encumbered homes to traditional mortgages. On average, these families have received a wealth transfer of $42,000 and have reduced monthly housing payments by $122. Blackstar also created its deferred maintenance program which addresses longstanding maintenance issues in the homes of clients. The program has provided repairs, maintenance, and replacements needed for clients to obtain new mortgages and address health and safety issues. Through this program, Blackstar Stability has provided 23 home repairs, at an average cost of $11,200 in repairs per home.
They have increased single-family households' ability to utilize investment strategies and increased true homeownership for families. By converting predatory financing contracts to traditional mortgages at fair market terms, Blackstar recycles the capital through sold loans. Blackstar also helps families stay in their homes at three times the rate of the industry-wide foreclosure avoidance rate. Blackstar Stability’s double-bottom line business model provides compelling risk-adjusted returns while also focusing on generating benefits for low- and moderate-income households through their refinancing and home improvements
