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1978 postase stamps

No Time Like the Present
Perha ps you have noticed: the
1970's a re back. We see it w ith new
television shows, fashions, adve rtising, a nd ma nufacturing. And
ye t, everything is completely different now, with new social, politica l, and eco no mi c issu es con fronting us th a t were alm os t
unimaginable twenty years ago. In
this issue, Part11ers takes a retrolook a t w here we were twe nty
yea rs ago, a nd w here we may be
heading now.
Of course, not everything has
changed. For exa mple, the ew
York Ya nkees won the World Series
in 1978, beating the Los Angeles
Dodgers four ga mes to two. They
did it aga in this yea r, bea ting San
Diego in four s traight ga mes. And
America's fa scina tio n w ith automobiles is as s trong as ever as evid enced by the Volksw age n Beetle's
triumpha nt return.
And acco rding to the 1978 World
Book Encyclopedia Year Book, back
then "the sound of money belonged
to the sound of recordings. " Forget
about boxing g reat Muhammad
Ali, w ho mad e $3.5 million in his
February bout w ith Leon Spinks
(he lost), a nd a nother $3.25 million
in September (he won).


Fnll 1998
Federal Reserve Bank of St. Louis

The big bucks were paid to musicia ns like Stevie Wonder, who was
gua ra nteed $13 million in a rtist
roya lti es from Ta mla-Motown
Record s. And he was but one of a
few multi -mi ll ion aire reco rdin g
artis ts. Peter Frampton (Frampton
Co mes Al ive), Fleetwood Mac
(R umors), a nd especially the Bee
Gees (Saturday Nig ht Fever) dominated the music scene with multiplatinum albums. Today, dozens
of bands like 311 , the Backstreet
Boys, and Third Eye Blind have
multi-pla tinum recordings.

percent in 1978), unemployment is
lower (less than 4 percent includ ing the armed services ve rsus 5.8
percent excl uding the a rmed services), a nd interest rates are sig nifica ntl y lower.
In fac t, by yea r-end 1978, the
Discount Ra te reached 9 percent,
the prime rate was 11 percent, a nd
Cn11linucd 01111l'XI pase

Ind eed , a strong economy for
much of the 1990's provided consid era bl e free d om for the country.
From auto mobiles to baseball to
movies and music, the country has
enjoyed consid e rable benefits relative to 1978. Rapid advances in
tec hnology a lo ne, for example,
allow virtually unlimited access to
the Internet, a proliferation of cellul ar telephones, access to d igital
sa tell ite tel evision receivers, a nd
mo re.
And business owners a nd consumers face mu ch better economic
news now ve rsus twenty years
ago. Infla tion is lower (curren tl y
1.5 percent for the yea r versus 8

Federal Reserve Bnnk of A tlnntn


No Time Like the Present
Co11 ti1111ed fro 111 preuio11s 1111ge

the federal funds rate reached 10
pe rcent. Home mortgage rates
bega n a steady climb during the
year a nd were over 10 percent as
1979 ar rived.
In contrast, the current Di scount
Rate is 4.75 percent, the prim e ra te
is 8 percent, a nd th e fed era l fund s
rate is 5.35 percent. Home mortgage ra tes are now close to 6.5 percent or less.
These differences refl ect a n amazing transforma tion. Unlike ·1978,
whe n th e Fed era l Home Loa n
Ba nk Board issued regulations prohibiting savings and loan associati ons from redlining, 1998 ca uses
us to look every bit as ha rd a t the
fin a ncial impediments to lending
as we do for discrimina tory lend in g practi ces. We recogni ze tha t
not o nl y must w e face issues
imped ing access to credit for consumers, entrepreneurs, an d home-

Pnrtners in Community
Federal Reserve Bank of St. Louis

bu yers caused by differe nces in
in come, but a lso by diffe rences in
net worth.
A nd most importa ntl y, we know
tha t asset generati o n is criti ca l to
wea lth ge nera tion a nd poverty all eviatio n .
Looking to th e future, P11r/11ers
presents varied pers pec ti ves of
asset genera tion . Firs t, in Marie
Easley's article we reca p Federal
Reserve Boa rd C hai rm a n Alan
G reenspan's thou g hts o n bringing
the issu e of income in equality in
from th e co ld , ca llin g for m ore
resea rch and foc us on this important issue. We couldn' t ag ree m ore.
This sa me articl e contains perspecti ves of the Ford Found ation a nd
Was hing ton Uni ve rs ity's Mi chael
Sherrad en on asset buildin g.

asse t bu ilding. Ju an Sa nchez di scusses the efforts of Little Ha iti
Housing Co rpora ti o n, a Mi a mi
CDC and its implementation o f
specifi c s trateg ics to crea te net
worth fo r a minority populati on
li vi ng in nort h Mi ami, Florid a.
Fina ll y, we arc p leased to present
excerpts from a concept paper by
ACE net, an econo mic development
o rga ni za tion . Th e pa per offe rs
some new id eas on asse t-ba sed
neig hborhood deve lopm ent stra tegies.
We've com e a lo ng way since
1978, a nd a lthou gh new problems
confro nt us, our progress has been
substa ntial. And looking at the
pho tog rap hs in thi s issue, I suspect
we wo uldn ' t rea ll y wa nt to turn
- Editor

A second article fo cuses on a nonprofi t d edi cated to co mmunit y

Federal Reserve System

Business Access to Capital and Credit
An academic co nference fea turi ng resea rch papers a nd discussions o n:

Credit scoring and securiti za tion


Access to credit for minority-ow ned businesses


Effect of financial consolid ation on lend ing




Other topics

Keyno te Speaker: Alan Greenspan
Cl,ainna11, Federa l R eserve Boa rd of Governo rs
Save the date - March 8-9, 1999
Shera ton Natio na l Hotel, Arlin gto n, Virginia
Reg is tration brochures w ill be mai led Ja nuary 1999.
For information ca ll (214)922-5377 or (202) 452-3378.

1111d Eco11omic Develop111e11t

·A -

------------------------ 3


Bringin g Incom e Inequa lity
in from the Cold
The Irnportan ce of
Building Assets


Marie Easley


As we p ick up our local newspapers and li s ten to th e national
news, we become in creas in g ly
awa re tha t industrialized countri es, including the nitcd ta tes,
a rc experiencing g rowing income
inequ a lity. This widening dis parity was the topi c of Federal Reserve
Board C hairma n Alan Grce nspan's
o pening remarks at a Ja ckson Ho le,
Wyoming sy mposium sponsored
in Aug us t by the Federal Reserve
Bank of Kansas City.
In hi s re marks, C hairman
G reenspa n acknowledged that the
fa mili ar and w id e ly a ccepted
explanation is that ris ing dema nd
for workers who ca n effective ly
harness new techno logies has been
o utpa ci ng suppl y. Co nseq uentl y,
the log ic goc!>, the compe ns,1tion of
those e mployees has bee n increasing at a qui cker pace than for those
with lesser technologica l sk ill s.
However, in discussing the extent
to which large portions of the popu lation arc not reaping the benefits
of econom ic grow th - even within
g roups of workers with similar
measured s kill s - Greenspan ca utioned that we ca nnot stop with an
a na lysis of trend s in earnings - or,
for that matter, even trends in
incom e more broadly d efi ned .

Fn/1 1998
Federal Reserve Bank of St. Louis

"Ultimately, we ,ire interested in
the question of relative standards
of livin g a nd eco nomi c we ll be ing," he sa id . "Thus, we need to
a lso examine trends in the distribution of wealth, which more fun damentally than ea rnings or
income, represents a measure of
the ability of househo ld s to consume. "
The Federa l Rcscrvc's Survey of
Consumer Finances suggests tha t
inequality in
.S. house hol d
wea lth - that is, in net worth - was
somewha t hig her in 1989 tha n at
the time of the initi al 1963 survey.
The 1992 and 1995 surveys
s howed that wealth in equality
remained littl e changed in term s
of the broad measures. "However,
that stability masks a lot of churn ing a mong th e subgroups," the
Cha irman ca utioned .
The Federa l Rcservc's resea rch
us ing the s urvey ~uggcsts that
co nclu sio ns about the d istribution
of wea lth arc sensitive - a lthou g h
to a lesser deg ree than inco me - to
the s tate of the econom y and to
ins titutiona l arra ngements for saving.
For ins tan ce, among the
wea lthi es t o ne-ha lf percent of
hou seholds, bu s iness assets w hich tend to be quite cyclica l arc particul a rl y important. At the
other end of th e d is tri bu tion ,
owned principal residences - the

Reserve Bn11k of Atln11tn

va lues of w hich are not as sensitive
to business cycle conditions - are a
typica l household 's most important
Gree nspan we nt on to say that, if
we expa nd the definition of wealth
to in clude es tim a tes of Social
Security a nd pension weal th, the
di s tribution a m o ng U.S. ho usehold s becomes mu ch more even.
This suggests that, in add iti on to
factors influencing private wea lth
accumulation , the evo lution of
insti tutiona l arra ngeme nts for saving that has take n place over the
la st two decad es ma y have played
a n important role in affec ting
chan ges in the distribution of
wea lth over time.
"W ha t about th e effect of the
recent ri se in stock and bo nd market va lu es", the C hairma n questioned . "The typica l view is that the
g rowth in mutua l funds a nd other
financi,11 investme nt!> ha!> allowed
indi vidu a ls further down in the
wea lth distribution to take advantage of s tron g equity markets. Our
figures certainly show that househo lds lower in the income d istribu tion a rc now more like ly to ow n
stocks tha n a d ecad e ago. "
However, between the 1992 a nd
1995 surveys, the da ta showed that
the sp read of stock ownership a nd
the rise in prices did not lead to a
rise in the ownershi p of s tock a nd
mutua l fund asse ts by the bottom
90 percent of the wea lth di stribu-


Income Inequality

Co11ti1111ed fro111 page 3

ti o n. Although their dollar hold in gs rose rapid ly, the in creases
were not as la rge as those fo r
hou sehold s a t the top of the wea lth
di stributi on .
Mr. Greenspan noted , "If the patterns of equity ownership have
not changed much since 1995, the
steep rise in stock pri ces over the
past several yea rs would suggest
a further increase in the concentration of net worth . This may be
offset, to som e extent, by a continued broad ening in the ownership
of equ ities, particu larly throu g h
tax-deferred savings acco unts.
Some additiona l offset ma y have
occurred through ris ing hou se
prices, a n importa nt asset of mid d le class families. Our 1998 survey, w hich is now in the fi eld , will
yield a cl ea rer reading both on
how wealth con centration ha s
cha nged and o n th e relati ve
importance of d ifferent assets in
that cha nge."
The Fed e ra l Reserve Board
Chairman conclu ded his re marks
by saying that as w e consid er the
ca uses a nd consequences of
ineq uality, "we s hould a lso be
mindfu l tha t over time, the relati o nship o f econo mi c g rowth,
in creases in s ta ndard s of living,
and the d istrib u tion of wea lth ha s
evolved d ifferen tl y in various institutio na l and politica l se ttin gs .
Thus, generaliza tions about th e
past a nd future may be hard to
m ake, pa rticu larly in the curren t
dynamic a nd uncerta in envi ronmen t of economic change."
"Sus tain ing a healthy econom y
and a stable fi na ncial system natu rall y permits us to take the ti m e to
focus efforts o n addressing the distributio nal issues facin g o ur socie ty
a nd on other challenging issues
tha t ma y remain out in the cold."
The Impo rta nce of Asse ts

As Chairman Greenspan suggested in his Wyoming speech, there is
Partners in Community
Federal Reserve Bank of St. Louis

still much we do not know abou t
th e ro le of asse ts in in com e
inequa li ty. What we do kn ow,
however, is tha t hou seholds with
assets clea rl y have had opportuniti es to ben efit fro m economic

"Thus. ,,,e need to
also exa111ine trends
in the distribution of
,vealth. ,vhich 111ore
funda111entall\' than
earnings or inco111e.
represents a n1casure of the abilit\' of
households to co11su111e... - Alan

growth tha t those witho ut assets
have no t. And w hile s tocks have
recently surpassed home equity as
the main form of ho use ho ld
wea lth, ho meownership rema ins
the cornerstone of fin a ncial security for most Americans .
Accord ing to The Stale of the
Na tion 's Ho11 si11g 1998: By the
Harva rd Joi11t Center for /-/011 si11g
St11d ies, nearl y two-third s of a ll
U.S. household s own ho mes. In
contra st, only about 40 percent o f
American households ow n s tocks.
Furthermore, the U.S. Bureau of
the Census record ed tha t the average ho me price in 1978 wa s
$62,500. In 1997, it was $175,500.

Like any investment, homeowners hip is not without risks.
Nonetheless, the almost 200 perce nt increase in a ve ra ge home
prices over two d ecades sugges ts
that ow ning a home d oes provid e a
valuable mechanism fo r creating
wea lth . While the tax advantages
of mortgage interest deductibility
and favorable capital ga ins trea tment may not be of as much value
to low- to mod era te- income
household s, a fa mil y's hom e can
sti ll serve as a ve hicle for building
equity. In additio n, the ability to
take adva ntage of fix ed -rate mortgages a nd lock in to fi xed paym ents on the home a t tod ay's
pri ces creates a hed ge against
esca latin g property va lues a nd
Nationally, mutual funds and
d efi ned contributi o n pen sio n
pla ns are a substa ntial source of
asset-bu ilding, but they a re not as
w id ely ava ilable across th e
income s pectru m. Even homeownersh ip is inaccessible to many
in co me
ind iv id ual s,
beca use of the absence of savings
for a downpay ment and closing
The importa nce of assets needed
to build net worth has spawned a
number of savings s tra tegies
across the country, in loca l com mun iti es a nd in publ ic po licy.
Recently, Cong ress passed legislatio n on Indi vidua l Development
Accounts ODAs) that allows s tates
to crea te com munity-based !DA
p rog rams w ith s ta te block grant
funds. The bill provisions also disrega rd a ll money saved in IDAs
from a ffecting eligibility fo r government assista nce.
Indi v idu a l
D eve lo pm e nt
Accounts As A n
Asse tBuilding Stra tegy

Ind ivid ua I
Developm e nt
Accou nts, or lDAs, are restricted
savi ngs accounts for low- and
I ncom e l nequa l iry Cm1l11111t·d 011 next past'

and Economic Development

Income Ineq uality
Co11ti1111crl fro111 previous page
mod er,1 te-income perso ns, for
which ,1 match is provid ed, usu,1 1l y
throu g h a nonprofi t organ ization
o r govern men t e ntity. Their pu rpose is to help lower income families build ;issets in mu ch the same
w,1y that middle America uses il
401 (k)
Under th e programs, consu m e rs deposit savings from
their sa lary or wages over time,
the match is gua ranteed a nd the
fund s ca n be w ithdra w n for a n
agreed upo n purpose, such as
the down payment on a home,
post second ary education, or to
help ca pita li ze a small business.
A very importa nt by-produc t of
the progr,1ms, however, is the
economic literacy they provide
throu g h the req uiremen t for
comp letion of financial a nd
home ownership educa ti o n prog ra ms. Th is educa tion in fina ncia l
investments is key to future success fo r the heretofore finan ciall y
u nsophistica ted.
The Ford Foundation's Asse t
Building Focus

In a recent press conference to
an nounce a new asse t-building
partners hip (a mong the Ford
Foundation, Self-Help, a North
Ca rolina-based nonprofit commu n ity deve lopme nt orga ni za ti o n,
a nd Fa nni e Mae Corpo ra ti on),
Ford Fou nd ation Presid ent Susa n
V. Berresford reiterated the cru cia l
na ture of fin ancial assets to the
econom ic well -being of fa milies.
Fi nancia l assets provid e " a cushio n agai nst unexpected expenses
o r cri ses, th e reby helpin g to
in crease fa mil y stability.
assets also promote upward mobility, e nabling household members
to in vest in their future in a vari ety
of ways - pursuing an educa ti o n o r
adva nced training, starting a small
business, o r purchasing a home."
Recogni zing the importance of
asse ts has led the Ford Foundation
to develop new s tra teg ies that
assist low-incom e people to build

Fa ll 7998
Federal Reserve Bank of St. Louis

ings acco un ts, such as expanded
401(k)s, IRA s, m ed ica l sav ings,
and a probable s hi ft toward suppl em e nting sav in gs in Soc ia l

assets. One of the fou ndation's earliest efforts, a nnounced in Apri l of
1997, involved support for il major
d emo ns tr;ition
natio nal
Individual Development Accounts.

The U.S. Bureau of the
Census reported that
the average horne
price in 1978 was
$62,500. In 1997, it
was SI 75,500.
Ms. Berresford noted that, w hile
prom o ting in creased leve ls of
ho meowners hip a m o ng lowin come hou sehold s re prese nts
a nother promisin g approac h to
asse t building, the low level of
fin a ncial asse ts among low-income
and minority household s is a significant ba rri e r to expa nding
homeownership . She explained
tha t, while the average U.S. household has a ne t wor th of $43,000,
low- incom e hou sehold s have a
median net worth of $5,000.
"This m ea ns that ma ny w ho are
reliable monthly rent pa yers often
lack the required dow n payment
for a home or have spotty credit
records, stemming from their
inability to pay unexpected expenses in a timely fashio n. This is the
problem our partnershi p aims to
ad dress in a 5 year demo nstration,
she says. The pa yoff is huge if it
ca n open up lending policy across
the nation to enable thousa nd s of
others to own a home."
Scheme of Things

Broad er

In the future, fami ly security for
all America ns will likely be based
more and more on personal sav-

Michael She rraden, Director,
Center fo r Policy Studies at
in St.
Washington Uni versity
notes in his report,
Stakelio/rli11g: A Nm, Direction in
Social Policy, 'beca use the world
puts such a premium o n know ledge a nd brain power, the
w herew ith al to pay for post seco ndary edu ca ti on o r traini ng
may be the s ing le most impo rtant fin a ncial asset a nyo ne ca n
Yet college costs today a re rising faste r tha n inflation, beyond
the reach o f many low- a nd
families .
middl e- income
Accord ing to She rraden, "Si nce
1980, tuition costs have risen by
about 40 percent afte r infla tion,
while median fami ly income has
increased by just 6 percent.
Meanwhi le, fede ral stud ent aid has
grown by 18 percent after inflation."
Sherraden goes on to say in subsequent works that entitlement
spending at current levels is unsustaina bl e, a nd portab le savings
accoun ts will be mo re adaptable in
the 21 st century econo my.
"However, it wi ll be essential to
bring all America ns into this emerging asset-based policy. The danger is
that poor people w ill be left out
w hen this transition occurs. Failing
to do so would be a tragic loss fo r
the country in red uced citizen participation and decl ining economic
produ cti vity."

As you will see discussed in other
portions of this newsletter, asse ts
take on man y forms; but, their culti vation a nd the psychic di vidend
that results - turning a population's focus to the long term - is of
the utmost importa nce.

Federal Reserve Bnnk of Atlnnta


Little Haiti Housing

Juan C. Sanchez

"Tilly the All-Ti111e Te/1,•r" - ·1978

For a community developme nt
corpora tion to be a su ccessfu l
hous in g provid er, it mu s t have
more than just d evelopment experi ence. Many other att ributes a rc
required to succeed including persistence, integrity, tru st, resources,
inge nuity, community invo lvement, pa rtnerships, housing progra ms, quali ty produc ts, a nd an
ongoing dri ve to enha nce th e community it serves. While it is difficult to find half of these qua lities
unde r o ne roof, Little Haiti
Housing Association, Inc. (LH HA)
has clements of them a ll. It is no
wonder th at they consistentl y win
awa rd s, notably the Fa nni e Mac
Fou nd a tion's "Ma xwell Award of
Exce ll ence."
LH HA was formed just over a
decade ago throu gh the sponso rshi p of severa l churches in th e
Littl e Haiti area of Miami, Florida.
They were chall enged to work
with recent Haitian immi g ra nts
whose language and culture diffe r
g rea tl y from the United Sta tes'. In
·1990, LHHA ra n out of fund s and
was left w ithout a staff. Board
m e mbe rs
Me nnonite Centra l Co mmittee,
whic h helped re-es tab li s h and
stre ng then the organi za tio n.
1992, David Harder was in vited to

Pnrtners in Community
Federal Reserve Bank of St. Louis

This nrtic/e presents n11 overview of n s11ccessf11I 11011profit co111m1111ity
developme11t corporntio11 working to revitn!ize n distressed co1111111111ity in
south Floridn. Little J-lniti /-lousing Corpomlio11 strives to i11corpom/e
q11nlity nssels, bot!, i11 the co1111111111ity n11d i11divid11nlly-ow11ed, in their
efforts to serve this low- n11d 1110demte-i11co111c co11rn11111ity.
stay on board as the Executive
Director of LHHA, a position that
he has held since.
LHHA uses ho using as a powerful tool to restore prid e a nd s tability in the Little Ha iti community.
Their missio n is to provide d ecent,
affo rdable housing as a base for a n
improved quality of li fe fo r residents of Little Ha iti . They foc us
their efforts in five key areas : (1)
home ownership edu ca tion services, (2) ho us ing re habilita ti on
and new constru cti on, (3) renta l
project deve lopm ent, (4) tena nt
services, and (5) community building initiatives.
In 1997, throu g h a n 11 unit
Sca ttered Site Ho me Ow ne rship
project, LHHA was a recipient of
the Maxwell Awa rd of Excel lence,
a FannieMae Fou nd ation program.
The award recog ni zes nonp rofit
orga niza tio ns for th eir outstanding work in developing a nd ma inta ining a fford abl e ho using in itiaLI-II-IA w as one of s ix
ti ves.
nationa l awardces that year to
receive a $25,000 g rant for their
exemplary performan ce in providing qua li ty housing to low-income
resid ents of Littl e Ha iti .
LHHA's Sca ttered Site Home

Ownership project built one new
home o n a foreclosed vaca nt lot
and renovated ten aba ndo ned
houses o n differe nt streets to help
ne ig hborh ood.
stab ili ze
H omebuycrs a rc very low-income,
Bla ck Haiti a n immig rant famili es
who have graduated from LHH A's
Coun selin g
Homeowners hip
Prog ram. These fa milies must have
su ffic ie nt savi ngs fo r a down payment of at least 5 percent of the
purchase pri ce of a home, and usu ally have more. Unfo rtun a te ly,
income levels are often inadequ ate
for fa milies to afford a suitable resid ence. Accord ing to Dave Hard er,
ma ny area fa mi lies often have to
spend up to 70 percent of thei r
income o n housing, leaving littl e
cash for anything else.
LH HA's Scattered Site project
uses va rious local, state, and federa l gra nts and subsid y programs to
provide quality-affordable l10using. Fund s from th ese sources are
u sed to create low-cost second
mortgages that have nomina l
m o nthl y payment requ irem ents,
and a rc forg iva bl e over tim e.
These mo rtgages a re subordinated
to parti cipati ng le nd ers tha t provid e the first mortgage financin g.
The a mo unt of subsid y used per
resid ence d epend s on each famiC1111/1111H·d 011 11exl page

n11d Econornic Development


ly's level of income. The prog ram
is intended to reduce first mortgage ba lances, thu s lowering
monthly paymen ts to a max imum
o f 30 pe rce nt of eac h famil y's
Seco nd mortga ge prog rams
inclu de
th e
Dad e
County HOME prog ram offering zerointerest, 20-year loans
for up to ha lf of the purcha se price of the home.
This loa n becomes due
only if the hou se is sold
within th e first fiv e
years; otherwise, it is
forgivable proportionately ove r the remaining 15-yea r term . The
Dad e Count y Surtax
Progra m offers 30-yea r
loans for up to 65 perce nt of th e purcha se
price at 3 percent. The
loan must be repaid onl y if the
home is so ld during the first two
years; o therwise, it is assumable
by ano the r eligible famil y. One or
both of these sources ca n be used ,
d epend ing on the famil y income.
Other pa rtn ers in volved in
LHHA's Scattered Site project
includ e the City of Mi a mi
w hi ch provid ed a $125,000
property acq ui sition gra nt;
Neighborhoods, w hich provided a $450,000 acquisition '
and cons tru ction loan a t
zero-interest; a nd several
area banks th a t pro vi d ed

construction loa ns and perman ent finan cin g.

According to David Hard e r, comprehensive homebuyer ed ucation
is o ne of the most important fa cto rs leading to a successful ho meownership prog ra m. LHH A takes
a ll potentia l homebuye rs throu g h a
three-s tage process, beginnin g
w ith an ind ivid ua l's pre-qua li fica-

New School in Lit/le Hniti - 1998
tion based o n th eir ex isting fin a ncia l conditi o n a nd credit standin g.
This initia l stage of the process
dete rmines th e steps required by
each pote ntia l ho mebu yer to qua li fy for a mor tgage. Credit repa ir,
income ve rifica tion, a nd sources of
down pa yment a re addressed he re.

while others may ta ke well ove r a
year before they can proceed.
The second stage of LHHA's
homebuye r prog ra m is a comprehe nsive six- week course that
begins w ith education in the areas
of ba nkin g a nd insurance. Thi s
portion of the prog ra m is
important as man y resid ents of Little Haiti ha ve
never used banks a nd
are not fami lia r with the
role banks a nd insura nce
co mpani es play. Thi s
tra inin g is des ig ned to
lessen the res id ent's fea r
of us ing ba nks and of
co mmuni ca tin g
wit h
insurance compani es. ln
fact, man y of th e families
th at have g raduated
from LI-IH A's prog ra m
es tab li s hed
acco unts
banks. The course a lso
covers post-closing home ownership issues in an effort to a nticipate a nd minimi ze unpred ictabl e
circums tances, such as a roof lea k.
After fini s hing stage two, a potential homebu yer knows how much
they ca n borrow and ca n begin
looking for a home. If the borrower chooses, they ca n be p laced on
LI-IH A's waiting li st to purchase a freshl y rehabi litated
home once compl eted . Or,
th ey ca n find a suita b le
hom e on
th e ir ow n .
Families typically choose to
wait o n th e li s t beca u se
qu a lity affordable h o u s in g
is very limited a nd rarely

available in th e area. With a
waiting li st that has now
g rown to over 70 pre-qualified families ready for
home-ow ners hip, LHHA
says it can't co mpl e te
homes fast enoug h.

Th e tota l development cost
o f the 11 -unit project was
$801,000, w ith a purchase
pri ce
of ap proxim a te ly
$73,000 per residence. To
cover th ese costs, the ave rRehnb l-/0111c by Little 1-/niti /-/011si11g Associ11tio11 - 1998
Thus far, LHHA has comage
pac ka ge
inclu ded a $32,000 firs t
pleted 52 ho mes a nd ha ve
The length of tim e necessa ry to
mortgage, a $27,000 HOME o r
graduated over one hundred a nd
co mplete thi s s tage will vary.
fifty famili es; onl y two of these
Surtax second mortgage, $10,000
So me app li ca nts a re rea d y fo r
gradua ted fa mili es ha ve bee n
in gra nts a nd contributi ons, and
Stage Two in a coupl e of months,
$4,000 from the borrowe r.
d eni ed access to cred it. According

Fn/11 998
Federal Reserve Bank of St. Louis

Cm 1t11111t'd Oil 11crt p11:,:c


Federa l Reserve Bn nk of A t/1111/n

Little Haiti Housing
Co11ti1111cd fro111 pngc 7
to Jacqu es Sai nt-Loui s, Assistant Director of LHH A, de linquencies are rare. "Since th e inception of Little Haiti Housing
in 1987, there have been no forec losures a nd only two 60-day
la te payments, w hi ch have been reso lved." Gainin g the tru st
of the community a nd stayin g in constan t communica tion
w ith homcbuyers are two key ingred ie nts to LHHA's success.

U. S. Population


Althou g h uniqu e in its ow n way, Littl e Haiti has cha llenges
much like many other low- to moderate- income areas includ ing lac k of credit and in come verifi rn tion, wh ich m akes homeownership difficu lt. However, acco rdin g to Dave Harder,
unlike man y other low-i ncome communities, saving fo r the
d own paym ent is not usua ll y a problem . Families wor k two
or three jobs and redu ce costs by sharing resid ences w ith
other fam ilies, allowing them to save substa ntia ll y. "It is not
rare to sec a fam ily tha t goes throu g h LHHA's progra m with
fiv e or six thousand dollars in sav ings ."
Many pockets of the Little Haiti community consist of substanda rd housing . In vesto rs rent property to area families but
ins ufficie nt maintena nce ha s de pressed property va lu es.
"With this severely depressed housin g ma rket, new construction and substa ntial reha b is a rea l chall enge in Little Haiti,"
says Dave. This is especia ll y tru e today as recent changes in
building codes ha ve increased cons truction costs by 35 percent or m ore. "A new ho me in the area would likely cost 11 5%
of market value or more to build. Without considerable subsidy, new d evelopm ents in the area would not make financia l
sense." LHHA targets "focu s a reas" in which to bu ild. By concentrating in sma ll pockets of the community, they hope to
slowly dri ve up market va lu es to eventually m eet ac tual
develop ment costs. This wi ll in turn d ecrease loan-to-va lue
ra tios to levels acceptable to co nve ntional lend ers.
The Little H ai ti community has one unique financial need wire tran sfer services. "Area residents send extra cash to their
famil ies li ving in Haiti," says Da ve. He also comments on the
need for consumer credit, especia ll y insta llment loans, in
Little Ha iti .
"The community has a fea r of dealing with banks beca use no
persona l tru st has been d evelo ped ." Dave explains tha t, "a
Ha itian resid ent would more likely fin ance a used ve hicle
from a bu y here-pay here lot than from a bank. The interes t
rates cha rged by this type of outfit are typica lly unreasonable,
but a rea residents do no t feel threa tened ." In an attemp t to
provid e low-cost finan cial services, LHHA is encouraging th e
d evelopment of a local cred it union to help foster perso na l
fin ancia l needs in the area.
Overa ll, Dave Harder accepts "no deviation from LHHA's
mission." Within the next fi ve yea rs, he expects to become a
vertica ll y integrated non-profit corpora tion, partiall y self-supported , producing three times the number of housing units as it
is producing today. If successful , the impac t on this community wi ll be substantial. ♦



Consumer Credit Outstanding



$1.27 trillion

$302 billion

Dow Jones Industrial Average





Cost of a First-Class
Postage Stamp



32 cents

13 cents

Budget Deficit/Surplus



$48.8 billion deficit

$71 billion surplus

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• 1998 figures as of October 1998

sA--o nnd Eco110111ic Development

Partners in Community
Federal Reserve Bank of St. Louis




r s k' e c L- i



Asset Building for
A concept paper
Woodrnff Pnrk in A t/1111/11 - 1978

The App11/11c/1i1111 Center for Eco110111ic Networks (ACE11el) is II co1111111 111ity-b11sed eco11omic develop111e11/ org1111imtio11 /ornlcd i11 rum/
soulhenstern Ohio. ACE11et's 111issio11 is to revitnlize the regio1111/ eco110111y by li11ki11g new 1111d existing fir111s with e111ergi11g 11mrkets
nnd com111u11ity support. Partners is plensed to publish 1111 excerpt of this org1111imtio11's pnper 11ddressi11g 11sset-buildi11g concepts. The
views expressed nre those of the 1111thors 1111d do not necessarily reflect those of the Fer/em/ Reserve Bank or the Fedeml Resen1e System.
In this paper, ACEnet presents a
new, comprehensive approac h to
asset development for low-income
communities. In it, we focus primarily on asset bui lding that encourages
the development and expansion of
enterprises. However, since the goal
of asset development is the emergence of a hea lthy community, we
w ill begin by defini ng and describing this key term.
A healthy commm1jty focuses, not
on problems, but on ex isting
resources, positive outcomes, and
creative community processes so
that all residents have access to the
opportunities needed to meet personal and fa nuly needs, develop gifts
and potential, and contribute to the
prosperity and health of the community. In a hea lthy community:
a ll in divid ua ls have m a ny
o ppo rtuniti es to secure qu a lity
jobs, d evelop new skills, or start
indiv idu als contribute to their
community by buying loca ll y a nd
partici pating in civic activities;
m a ny different types of small
enterprises- fro m the sma llest
morn-a nd-pop companies started by
low-income people to sophistica ted
businesses- are workjng collaboratively to reach !ugh-value markets;

workers, buying fro m other local
firms, and mentorin g start-up firms;
the economic development community - Communi ty Development
Corporations (CDCs), business assistance
provid ers,
Development Fi nancial Institutions
(CDFls), banks, educa tional institutions, government agencies, churches,
and others - convenes diverse groups
from wjthin the commmuty to develop new prog rams, institutions, or
resources that support the activities of
the firms and indi viduals.
Asset-based Strategies

O nce w e have a vision of a hea lthy
community, the concept of asse ts is
extremely usefu l in d eveloping the
strategies by which we ca n bui ld
su ch a community. As Jo hn P.
Kretzm a nn a nd Jo hn Mc Kni g ht
po int ou t, e mphas izin g asse ts
ena bl es us to move from seein g a
world of poor people with problems who need serv ices to see ing
a ll citizens pa rticipating in a community full of und erutili zed asse ts.
These und erutili zed assets mi g ht
includ e empty lo ts, peopl e's energy, the wisd o m of gra ndpare nts,
a nd loca l employers, all o f w hich
ca n be d eveloped by commu nity
ac tivists into comm unity resources .

missio n as providing services or
income to low-income people to
in ves ting wi th peop le in the m selves a nd their communiti es to
get long-term re turns.
The concept of assets as resources
that keep o n ge ne ra ting new
resources is importa nt fo r several
reasons. It pushes us to in vest in
acti vities that result in sig nificant
and long- term return . An example
fro m Mi chael Sherrad en's wo rk,
Assets and the Poor, is illustrative. He
points out that people often fa ll into
and then stay in poverty because
they have no assets - either savings,
a home, or skm s - to draw upon in a
By encouraging asse t-building
throug h matched savings progra ms,
su ch as Indiv idua l Development
Accounts (IDAs), people ga ther the
fund s they need to start a business or
obtain new skjlls - both of whjch can
prov ide substantia l long term
sources of income and thus protect
people fro m re-enterin g poverty.
Every d ollar invested in an IDA thus
has the potential of generating a
return equa l to many times that
amount over a lifetime.
These a utho rs have emphasized
th at assets are not limi ted to
"m o ney in the ba nk " kind s of
resources . Both describe how th e
unta pped skills and commitme nt


these firms collaborate with others: contributing to the commuru ty
by ruring and training low-income

Fa/11 998
Federal Reserve Bank of St. Louis

The consequences, when commu nity organi za tions o r gove rnment
move to an asset-based strategy, are
profound , since the change mea ns
a shift from seeing our primary

See , \ ss, ·t llui ld in g Co, w, ·pt s pngc 70

Federnl Reserve Bank of Atlanta

. \ '-,'-,(" ( ll 11 il< li1 1g Cc llll ( 'I" "
n>11l111111'd fm m 1m·uw11 . . J'llS,1'

of indi vidu a ls, w he n mo bili zed
a nd / or ex pa nded th roug h tra ining, ca n ma ke a tre me ndou s diffe rence to the individu a l .is we ll as to
the community.
Although the work of McKn ight
and Sherrnd cn is .in importa nt step
fo rw.i rd , we need to sec their strategics .is p.i rt of a much l.i rgcr picture.
Sherr.idcn focuses prim.i ril y on ind ividu.i l assets, while Krctzmann and
McKni g ht focus prim.i ril y on volunteer-ba sed community initi.i ti ves,
w hich .i re d esig ned to develop
.isscts. We add to the discussion the
cssenti,11 perspecti ve of community
enterprises- firm s .ind the DCs
tha t wo rk with thcm- .i nd will discuss how all of these groups ca n
maximi;,e their va lue .is communi ty
But, beca use we arc .i lso looking for
dram.i tic scalability- .i strategy that
ca n produce sig nifica nt cha nges in
numerous low-income communities
in a rcl.itivcl y short period of tim
we embed indi vidual , enterprise,
and communi ty asscb in the framework of asset-building communities.
TI1is helps us think about how assets
continue to be developed and
expanded over time.
Asset-building Communities

An asset-building community is one
where m.iny people in the community a rc in volved in developing and
using ,1 wide array of hig hl y targeted
assets fo r themselves, their businesses and organizations, a nd th ' community .is a w hole. Asset-building
proccs~cs a re the creati ve community processes that w ill be required to
tra nsform opportunities into benefi ts
for all communi ty resid ents.
For example, a business owner
obtains a loan and technica l assista nce from a loca l IX or business
development orga ni z.ition. Since this
assista nce is quite successful in helping the firm expand , the firm owner
agrees to help design a mentoring
project .i nd then mentor new firms.
In this way, a personal asset- the

owner's kn owled ge of nmning a
business--becomcs pa rt of .i lmgcr
co mmunity .issct that resu lts in the
crea tion of more indi vid ua l .isscts, as
~/ he and other~ mentor more entrepreneurs over the yea rs. At the sa me
lime, the firm owner benefits, .is the
newer firms g niw and become assets
to their for mer mentors- perhaps
-;crvi ng as subcontractors or pa rtnering on jo int ve ntures.
In a no th er e,a mplc, a C DC sets
up a n !DA or ma tched sa vings
fund for low- inco me res id ents. The
o rga ni zati o n e mbed s tha t fund in a
bu siness ass ista nce p rog r,i m , so
tha t those building new IDAs have
access to support to s ta rt a successful bus iness. In p.irti cula r, the C DC
fac ilitates links between ex is ting
firms w ho h.ive o ffe red to subcontrac t w ith the new entreprene urs,
thus ensuring ;i s t;i ble b;isc ma rket
fo r their products. Six mo nths J;i tcr,
the new entre preneurs ;i re .is kcd to
attend a joint desig n sess ion- a lso
,1 tte nd cd by re presenta ti ves of
b;i nks a nd loa n fund s- to red esig n
,rnd improve th e !DA ;i nd bu s iness
d evelopment prog rams so they are
more effecti ve.
Wha t these exa m p les help us
u nde rs ta nd is the im port;i ncc of
s ha ping the processes by which
,1ssets arc crea ted so they m.ix imi ze v.i luc. O ur tende ncy is to
focus o ur energies o n crea ting a
new asse t- a n !DA pool, o r .i loa n
fund- -bul these examples revea l
how the v.i lu c of these .issds is
d ra ma tic.i ll y increased wh en we
sec the m .is p.i rt of a much large r
co mmunit y ~lra tcgy. But wha t
ma kes th a t ha ppen? We ha ve id entified four qu.i litics tha t seem to
a mplify the imp.ict of asset-ge nera ting processes.

buildin g ac ti viti es w ith o th e r
firm s. Th e !DA poo l was a lso
lin ked to a ma rket .issis ta ncc effort connected new entrepreneu rs
direc tl y to the ma instrea m economy.
T hi s lin king of .i ctiviti es seve r.i i benefits. Firs t, linking p rovides more subst,1 ntia l suppo rt fo r
firm s .i nd entre pre neurs, in crL'asing the likelihood of the ir success
.is well .is a mo re subs tan tia l re turn
fro m use o f the asset. But linking
ac tivities a lso tend s to thicken the
soci.i l fabri c o f il community, by
bring ing peo pl e toge the r w ho
wo uldn' t ordina ril y interac t- such
.i s the ba nkers and lo w-income
cntrc prc ncurs--.ind ena bling them
to become resources for each othe r.

Spccifi e ac ti vitics desig ned to
cquiti zc asse ts- both throu g h
o pe nin g specifi c .issct poo ls fo r
people w ith few .i sscts a nd assis ting lo w-income people to build
economic support ne tworks - .i lso
result in g reate r im pac t. Gettin g a
ch.i ncc to be in il meeting with
ba nke rs a nd cst.i bli shing re la tio nships with o ther firms a re in va lu able pa th wa ys to o pe n bu siness
As Timo th y Ba tes has pointed out
in il number of a rticles, mino rity
bu sinesses hire ma ny m ore mino rity workers th,1 n non-minority
firm s- but such firm s are limi ted
in their ex pa ns io n efforts du e to
the well-d ocu me nted lack of access
to equity a nd loa n ca pital. When
communiti c id e ntify ga ps such .is
this, they need to con vene appropri a te s ta keho ld e rs to set up a n
asse t poo l a nd suppo rt ac ti viti es to
med this specific need.


Con necting ea ch asset to o ther
.icti viti cs w ithin the community
ensures that asse ts d o no t sta nd
.i lo ne but a rc e mbedd ed in o r
linked to o the r prog ra ms th a t
increase the ir impact a nd effecti veness. In the exa mples a bove, bo th
the loa n fund and the !DA pool
were linked to a techni ca l .iss ista nce prog ra m c1 nd to rela tionship-

Partn ers in Co1111111111ity n11rf Eco 110111ic D evelop111e11t
Federal Reserve Bank of St. Louis

/\s the Bates stud y clea rl y reveal s,
cquiti za ti on is often a rela ti vel y
low-cos t me thod for produ cing
d ra ma tic a nd las ting changes in
th e loca l econo my beca use it build s
on something tha t is a lread y there.
C rea ting a new cquiti zing assetin this case a n equity system fo r
minority e ntre pre ne urs-ta ps a
prev iou sly und erutili zed assetCm1/111ucd

0 11

11n l


I I

minority owners' willing ness a nd
co mmitm ent to hire min o rity
employees- tha t can m a ke a substa nti al difference in the ava ilability of jobs fo r low-inco me resid ents.
In the exa mpl es presented earlier,
one of th e equiti zing assets was the
conn ec ti o n th a t th e low- in com e
entrepreneurs were abl e to ma ke to
la rger firms. For microenterprise
pra ctiti oner organi za ti ons, hav ing
links to la rger firms and thu s being
able to assist in the rela tionshipbuildin g process is a key to
increased effecti veness.

Embedd edn ess and equiti za tio n
a re poss ible becau se asse ts a re
d eveloped th ro ug h coll abo ratio n
a mon g di ve rse g roups in the community. When we encourage peopl e to wo rk with o thers in their crea ti on of ne w asse ts, core econ om ic
rela ti onships a re transformed a nd
more community d evelo pment is
likely to occur in the future.

asse ts - mea nt tha t the solutions
ge nerated w e re mu ch more likely
to be successfu l and broadl y effecti ve . And , in each case, the prog ra ms o r re la ti o ns hips we re
red esig ned a nd improved - o r th ey
end ed , leaving room to try something else more e ffective.
Why do orga ni zations and firm s
participate in these asset-building
acti vities? As is seen in the exa mples
above, economic benefit and community benefit become synergistic assisting
becomes a mea ns to identify potential new partners; investing in an
IDA fund and assisting in design
sessions enables banks to id entify
and create new bo rrowers. On
another level, we ca n see that subsets of the communi ty that seldom
had an y interactions of substance arc
now energized throu gh the act of
working together, a nd thus they ca n
become resources for each other in a
multitude of ways. And finally, the
people involved in these collabora-

In th e exa m ples above, di verse
sets of community resid ents ca me
together to id entify op portunities
a nd coo k up jo int projects to d evelo p th e m . In som e cases, they
d esigned a new progra m- the JDA
prog ra m o r th e me nto rin g p rog ra m . In o th er cases, two firm s
wo rked o ut mutu a ll y bene fi cia l
econom ic arra ngements. The di versity of these g roups - especia lly
th eir incl us ion of people with fe w

Fn /1 1998
Federal Reserve Bank of St. Louis

Reserve Bn11k of A t/1111/n

tions arc building a deep sense of
community, and their positi ve role in
it, which nourishes the entire system.
In this model, everyo ne is encouraged to give back to the communi ty
throu gh the myriad concrete activities th e community es tablishes .
People ma ke the mental shift that
enables them to rea lize that when
they benefit fro m a communi ty asset,
such as a loa n or IDA fund, they have
a responsibili ty to become an asset to
others, by sharing kn ow led ge or
opening an opportuni ty.
Drawing In Innovation

Fina lly, just as asse t building
d eri ves its power from coll aboratio n of di ve rse g roups a nd indi vid uals throu g hout the co mmunity, so
communities need to benefit from
the divers ity o f experience of o ther
communiti es. Flora c t al , in a
recent stud y, d iscovered tha t com munities w ith the most self-d evelopment (c rea ti on of new loca l programs o r projects) we re those w ho
had sig nifi ca nt rela tio nships with
communiti es a nd o rgani zati o ns
outside the ir region . Thi s way, new
id eas can strea m into th e commu nity, pro viding a la rge r pool of creati vity th a n a ny sing le co mmunity
could ge nera te on its ow n. Thus,
part of a ny asse t-bu ilding process
need s to bring in fres h ideas from
the rest of the wo rld .

Fo r copies of th is pnper in its c11tireity, plcnsc mil Christy Brndford 171
ACE11ct, 740/592-3854.

11111· .... . . , , .


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Contact: Judy Bu rt on ot jburto n@cdvco or
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recycled paper

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Permit No. 292

C0l111lllll l ity r\ffa irs

Fc clc r,11 Hcscrvc Bank o f 1\tl ,1111 ,1
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Pn rtners in Com munity
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and Eco110111ic Development