This two part series explores how race built the city of Memphis. In part one, we examined a redlining map from the 1930s that government agencies and lenders used to facilitate discriminatory housing policies that kept Black families and neighborhoods from thriving. Part two dives deeper into the Opportunity Home Loan Fund and other efforts by South Memphis CDC The Works Inc. to bring investment back to Memphis' disinvested and historically Black communities. 

While many parts of the Bluff City have seen property values spike, South Memphis' 38106 ZIP code has one of the top five highest rates of underwater mortgages in the country, according to an U.S. Home Equity & Underwater Report by ATTOM.

In fact, 60 percent of properties in the area are mortgaged for more than their market value.

But a rash of underwater mortgages doesn’t just happen and neither do the other mass-scale social ills plaguing many of Memphis’ lower income, majority-minority neighborhoods like South Memphis.

Factors like low property values and homeownership rates, vacant and blighted properties, crime, low education and sky-high poverty rates are often the result of a lack of capital investment and, in certain areas of Memphis and around the country, the effects of systemic racism.

Related: "Seeing Red I: Mapping 90 years of redlining in Memphis"

To help balance the scales, nonprofit The Works, Inc. established the $2 million Opportunity Home Loan Fund to target neighborhoods in nine ZIP codes across Memphis’ most historically disinvested neighborhoods — Binghampton, Orange Mound, North Memphis and South Memphis. The initial $500,000 seed money came from Nashville-based Pinnacle Financial Partners. 

“Our mortgage product was a semi-solution to no access to mortgage credit in neighborhoods like 38106 because they’ve been deemed too high risk,” said Roshun Austin, president and CEO of The Works.

The Works introduced the loan program in February 2017. Twenty-two home loans of $50,000 or less have since been issued.

Austin has over 20 years in nonprofit housing development and eight years in foreclosure prevention. She’s the driving force behind the loan program and recruited Pinnacle as the nonprofit's financial partner.

“One of the first things we were told after we began operations in Memphis was that no banks were making small dollar mortgages in the area,” said Carla Jarrell, community development officer with Pinnacle Financial Partners.

“[Austin] has a lot of lending and counseling experience, and we really felt that she was the perfect person with the perfect organization to start that type of loan program. So, we invested in The Works.”

A CREATIVE APPROACH

Traditional banks base their loan decisions on credit, collateral, wealth and neighborhood health, all things historically denied to Black people and communities.

Banks utilize a debt to income ratio model to determine who is eligible for a mortgage loan. The Works says this approach continues to keep wealth out of Black communities.

Garry Witherspoon, mortgage program manager of The Works, Inc. (Ziggy Mack)
In contrast, The Works takes into account monthly spending in its totality — family expenses, food, utilities, entertainment, eating out — which helps give an accurate picture of income to actual expenses. The Works takes a more nuanced look at credit scores and salaries than traditional lenders and ferrets out the reasons behind the scores, which can include circumstances like medical expenses, a job loss or a family emergency.

Parameters to qualify for the Opportunity Home Loan Fund include a credit report, annual income and budget evaluation. The Works calls this holistic approach "social underwriting".

The loan fund is open to anyone seeking a primary residence. It isn’t open to investors. 

The loans are low interest with a low down payment. Austin notes that while most of their borrowers are African-American, the loan is specific to disinvested ZIP codes and low to moderate-income families, not race. A majority of those receiving a loan fall below the city’s median income of level of $38,826. A separate grant is available for those who are eligible for closing costs and down payment assistance.

Looking at a family's financial history on a case-by-case basis unlocks opportunities for those who may not have traditional paths to gaining credit and collateral. 

“We were having trouble getting the final approval to buy because we are self-employed. I desperately wanted a home for our family. My elderly mother and our two children live with us,” said Leslie Clark, who along with her husband, John, obtained a loan through The Works for their home in Frayser.

The Clarks heard about the loan program through a friend, and with a home already picked out, they made a call to the The Works.

Leslie and John Clark purchased their home in Frayser with a loan from The Works, Inc. (Ziggy Mack)
“I remember [Austin] coming in the room and telling us we were approved," said Clark. "My husband got excited. I told my husband to slow down because we had heard so many times the words 'approved' only to be denied later. That is when [Austin] looked at me and said, ‘I am the lender and you are approved’. I immediately started crying and hugged her."

Financial literacy training is included with the loan, and a ten percent surplus is built into the borrower’s budget to address an emergency like a home repair.

“Many of my clients have not been educated on how to handle their finances or on why it’s important to pay your bills," said Garry Witherspoon, The Works mortgage program manager. "So, this job is an opportunity to get to know and spend time with the clients and look at credit behavior.”
 

past policies, CURRENT results

In the 1930s, the U.S. government, with the help of banking and insurance industries, assigned color-coded risk assessments to neighborhoods. Red was high risk, and green was considered a safe bet.

But those economic decisions were drawn down racial lines — communities of color were designated red while majority-white communities were greenlined. 

Businesses and developers flowed into greenlined communities. Redlined communities like  South Memphis stagnated and declined in value. The Fair Housing Act of 1968 was supposed to put an end to the practice, but hard-baked economic prejudices and practices remained.

Related: "On the Ground Podcast: Memphis' modern-day redlining"

“At this point, we can’t get appraisals that match the amount we put in. No private developer is in this business to lose money,” said Austin of the ramifications of redlining today in Memphis' disinvested neighborhoods."

“They may not have access to credit because, mostly, it’s not around them. There are no banks. They don’t think traditionally about financial institutions. They’ve lived off of cash their whole life."

“Mortgage companies are biased," she added. "They think people who want to buy a $50,000 house are credit risks because they probably don’t have good behavior of paying things back. They don’t have credit, so we won’t give them credit. It’s a catch-22."

Lenders who neglect to open branches in poorer neighborhoods maintain banking deserts where residents are unable to build a relationships with a banks and establish loan-worthy credit scores. 

“They may not have access to credit because, mostly, it’s not around them. There are no banks. They don’t think traditionally about financial institutions. They’ve lived off of cash their whole life,” said Austin.

Related: "Unbanked: The high cost of doing business in ZIP 38126"

Redlining’s modern-day iterations were brought to light by the 2008 mortgage crisis. Many low-income neighborhoods in Memphis were targeted with predatory lending practices, including Adjustable Rate Mortgages, that resulted in ballooning interest rates.

Other practices included Stated Income Loans, which do not require a borrower to verify their income, and 110 Loan-to-Value Equity Loans set at 110 percent of the home’s value so the borrower starts out underwater.

In the past seven years, three major banks have settled lawsuits related to their predatory lending practices targeted in disadvantaged neighborhoods in Memphis.
 

The problem isn’t concentrated in one ZIP code, either. In the Memphis metro area, there are an estimated 13,000 to 15,000 vacant homes. From 2005 to 2017, Black home ownership in Memphis dropped 18 percent.

MAKING IMPROVEMENTS

Those who live below the poverty line and own homes in disinvested neighborhoods face financial barriers to making major home repairs. The elderly residents of Memphis neighborhoods are hindered by age and fixed incomes and also have trouble maintaining their properties. The Works has a program to meet the needs of those residents as well.

“We have people who have remained for whatever reason, and I always say we must honor them in the places where they’ve remained even if it’s distressed and declined around them because they are aged now," said Austin. 

Roshun Austin and Garry Witherspoon (front) of The Works, Inc. stand in the nonprofit's South Memphis headquarters. (Ziggy Mack)
"It’s a delicate balance of making sure they don’t get displaced. At the same time, building up the area so we are generating more property tax, and we have less blight and vacancy, and we’re also getting new families in — younger families," she added.

The Works offers a home repair program for established homeowners using a recoverable grant that doesn’t have to be paid back if the homeowner remains in the home. The grant is attached to the deed to ensure the funds aren’t used as a windfall to sell. 

“That’s not the idea. It’s to make sure that you can age in place or stay in your home, and it looks nice in the area. It’s not to sell it and then go on to Collierville,” said Austin.

The program is being implemented in Klondike-Smokey City and in South City as part of the Choice Neighborhoods initiative. The grant program covers $15,000 for exterior improvements in South City and $20,000 for both interior and exterior improvements in Klondike-Smokey City.

Beyond improving housing in South Memphis, The Works operates The Grocer and South Memphis Farmers Market to combat food insecurity. The community development group has been a key driver for infrastructure upgrades including bike lanes and crosswalks which are designed to make the neighborhood more friendly to cyclists and pedestrians.

“People in our neighborhood don’t own automobiles — one third of them don’t. So, we need to make the streets safer for them and they need to have access to get somewhere," said Austin.

"They should be able to ride a bike on a nice day and not take a bus that is going take them an hour-and-a-half to get two miles."

The nonprofit is expanding its approach to cover other types of quality affordable housing. With partner Neighborhood Preservation, Inc., The Works is undertaking an $11 million renovation of a Frayser apartment community. The commercial property will follow an anchor-based strategy around area schools including MLK Preparatory High School, Frayser-Corning Achievement Elementary School and Whitney Achievement Elementary School to uplift education and neighborhood health. The Works will be the long-term owner of the property and work with area partners to provide social services.

“South Memphis’ and North Memphis’ distressed neighborhoods are similar," said Austin. "Wherever we have distress, we are going together in fighting for those issues."