Chocolate and Gold Coins

Thursday, February 17, 2005

Karen Cleveland Replies

This post is an update of my Habitat for Market Failure post.
Recently, I wrote to Karen Cleveland, director of Habitat for Humanity of Northern Virginia.
Here is my letter to her:

Hello Ms. Cleveland
I read about the plight of Mrs. James in the Washington Post and I have to say that I am very disappointed with Habitat for Humanities role in this whole situation. I can understand why you would not want Mrs. James to sell the home and profit from the windfall she received so easily, but why wouldn't Habitat for Humanity at least co-sign a small home equity loan for Mrs. James so that she could make needed repairs on her home and so that she could pay this year’s taxes? It is absolute rubbish to claim that the restrictive covenant reduces the value of the home. It just means that Habitat for Humanity is a co-owner of the home during the covenant period and maybe your organization should be paying part of the property tax.

Karen Cleveland graciously wrote back:

Thank you for your interest in Habitat and Kesha's story. Actually we did give Kesha a Home Equity loan recently and we [are] working with the craftsmen to fix her leak and the wall. Often times the whole story does not make it into the paper or onto the news clips. We would never abandon our homeowners at a time of need.

First off, I owe Habitat for Humanity an apology for the following statement:

…Mrs. James is not going to be wealthy because of a small home equity loan to pay for the leak in her living room and her $5000 tax bill. It is a sad example of how a charity can be oddly indifferent to the suffering that their rules have brought upon the very people they claim to want to aid.

Apparently, Habitat for Humanity will help their owners with a home equity loan. This is very commendable, and it is heartening to know that the charity is committed to helping the owners even after they buy the home. However, it also provides a motive for Habitat for Humanity to misrepresent the plight of their homeowners. I will have more to say about this point later.

The quote above raises more questions. Karen Cleveland says: “Often times the whole story does not make it into the paper or onto the news clips.” Does this mean that the reporter chose not to report the whole story or Mrs. Cleveland chose not to tell it? I wrote to Annie Gowen for her side of the story. Annie Gowen was aware of the loan to Mrs. James but she might have been misled about its significance. Bottom line, if a journalist doesn’t ask the right questions, he or she will not get the full story. I will have something more to say about this in the section “Annie Gowen replies”.

The fact that Habitat for Humanity can and will approve a home equity loan for their homeowners completely invalidates any claim that the restrictive covenant on the home makes it difficult for these homeowners to pay their taxes. There would be no reason why the Mrs. James could not borrow sufficiently to meet all of her future obligations. Of course, it may be that Habitat for Humanity would not like to do that for a whole range of internal reasons. The point is, faced with the reality that their homeowner will go bankrupt if Habitat for Humanity does not assist, they would probably decide to swallow their misgivings and approve such a loan.

Here is a quick calculation. From the article, Mrs. James’ monthly mortgage is $375. The remaining real estate tax and homeowner’s insurance is $954-$375=$579 per month. How this $579 splits between real estate tax and insurance is hard to tell but my guess is that her home is assessed at about $450,000. The tax rate in Alexandria is 0.995%, which would work out to be about $375 per month. This leaves $204 per month for homeowner’s insurance, which seems reasonable. If she took out a home equity loan for $107,000 at 7% (a little high) she would be able to pay all $954 per month for the remaining 15 years. This yields a net profit to Mrs. James of roughly $340,000. Obviously, Habitat for Humanity would not want to make owning her home that easy, but they have no reason not to let her borrow $20,000 to help pay her taxes. Cutting Mrs. James’ taxes in half would effectively put another $20,000 into her pocket. Do you think Mrs. James’ deserves this extra windfall? I don’t.

Why is Habitat for Humanity lobbying for real estate tax abatement when it is unnecessary? It would seem foolish on their part because they risk engendering bitterness of the general community. But charities are greedy. They live off of other people’s money (OPM) or in Habitat for Humanity’s case, other people’s sweat (OPS). So if they see an opportunity to leverage their charitable OPM to get some public OPM, it is very tempting. Reducing real estate taxes helps relieve Habitat for Humanity of their continuing burden of helping these homeowners, a burden Karen Cleveland alluded to. And the fact that they think that they are altruistic ironically absolves them of any guilt associated with greedily coveting the public money pot. It seems ridiculous to ask society to help these homeowners when they stand to make a small fortune from their “gift” homes.

The disturbing aspect of their lobbying is that it might be the tip an iceberg. Habitat for Humanity may soon discover that they can leverage their standing in the community to push through their political objectives. They might want their homes zoned for low-income use for all eternity. This would certainly not be in the public’s interest, but it is easy to see it would be in Habitat for Humanity’s interest.

Annie Gowen replies

I wrote to Annie Gowen of the Washington Post.

Hi Annie Gowen
I was very interested in the piece you wrote on Monday involving Kesha James and her Habitat for Humanity home.
There was one really big question I had. Why didn't Habitat for Humanity co-sign a home equity loan so she could make necessary repairs on her home? I posed that question to Karen Cleveland, director of Habitat for Humanity of Northern Virginia.
She wrote back and said that this is exactly what they did.
She wrote that not everything gets reported in the media.
So why wasn't this reported in your article?
Did you think to ask this question?
This point is central to the general thesis of the article that rising home prices have hurt these Habitat for Humanity Homeowners. That is completely false if homeowner can tap into the equity of their homes, which clearly they can, if Habitat for Humanity chooses to help them. Mrs. James could borrow against the equity of her home for the next 15 years, easily pay the property tax, and still get an enormous windfall profit. In no way does she deserve another windfall profit in the form of tax abatement. Habitat for Humanity is clearly gaming the system in order to subsidize their operation at taxpayer expense.
This was not reported in your article, and it should have been.

Annie Gowen wrote back. She emphatically denied me permission to post her reply. Fine.

Here is my reply to the letter you cannot see:

That is a home equity loan. Habitat for Humanity is the lender. And like most lenders, they borrow the money from someone else. But clearly, Mrs. James stands to lose her home if she does not pay back the loan, so it is a classic home equity loan.

Annie Gowen wrote back. I cannot tell you what she said. I can tell you what she didn’t say: “Oh thank you for pointing this out to me. It didn’t occur to me to think of it that way.”

I don’t know for sure if Annie Gowen had an agenda with her article or she was being used. She seemed to be very sympathetic to Habitat for Humanity’s cause and presented the material in a less than objective way. However, I cannot say for sure if Annie Gowen purposefully hid the home equity loan from the story because it would undercut the thesis of the story or if she just did not think it was very relevant. In any case, the Washington Post article by Annie Gowen is shoddy journalism.

I am not a journalist, but I can guess how this story came about. Habitat for Humanity contacted the Washington Post, outlined the story, and asked if they would report it. Fair enough, people have the right to claim their story is newsworthy. But there is an interesting game here between the newspaper and the source. If the newspaper sends a reporter who is too objective, maybe you get a good story, but you also bite the hand that fed the story. If the newspaper sends a reporter who is sympathetic to the source, then the newspaper runs the risk of bias, but it also assures a stream of sources giving it news. Media bias exists. Of course, everyone plays this game, not just the liberal charities.


  • if they buy a home they should be like anyone who buys a home if they need to sell thats their problem. but dont babysit them you helped them up now they are on their own

    By Anonymous Anonymous, at 8:55 AM  

  • Annie Gowen totally supports the Post's anti-middle class gentrification agenda. When is the last time you saw the Post editorially support affordable housing inside the DC Beltway?

    By Anonymous Anonymous, at 9:53 PM  

  • Reading real letters is much more interesting and useful that some general information, just the same as checking
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    By Blogger Unknown, at 2:56 PM  

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