Join The Fed's Chat Board Alongside The Chairman During His Address At The Community Affairs Research Conference

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As the Fed Chairman is about to commence his luncheon address (and yes, take more moronic questions) at the Community Affairs Research Conference, it has offered readers the option of joining in and commenting alongside in realtime on the Fed's very own chat board. Everyone is suggested to participate and tell the Chairman what they really think. The chatboard link is here.

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Chairman Ben S. Bernanke

At the Federal Reserve Community Affairs Research Conference, Arlington, Virginia

April 29, 2011

Community Development in Challenging Times

As always, I'm pleased to join you at the Federal Reserve's
biennial Community Affairs Research Conference. This meeting brings
together researchers, community development professionals, and
public-sector officials to explore how best to strengthen struggling
communities. Needless to say, that endeavor is more crucial than ever.
The past few years have been very difficult. Weak economic conditions at
the national level have translated into hardships in many communities
at the same time that communities have fewer resources available for
stabilization and revitalization. Considerable good work is going on
nonetheless, and I will offer a few examples of that today.

At the national level, the economy is recovering at a moderate
pace. In particular, the labor market has been gradually improving and
the unemployment rate has declined somewhat. But unemployment remains
quite high, particularly among minorities, the young, and those with
less education. What's more, long-term unemployment remains at
historically high levels. Nearly half of the unemployed have been out of
work for six months or more. The housing market is also holding back
the recovery. The foreclosure rate remains very high, and many
homeowners who have avoided foreclosure find themselves "under water,"
meaning their mortgage debt exceeds the value of their homes. Obviously,
the problems in the labor market and the housing market are not
unrelated. In particular, lost income from unemployment is causing many
families to fall behind on their mortgage payments.

The Challenges to Communities
As families have struggled, so have their communities. In some
areas, for example, high foreclosure rates have produced significant
numbers of vacant properties, depressing surrounding home prices,
attracting crime, and creating financial burdens for local governments.
Thus, some community development groups now are simply trying to hold
onto past progress that they have made in building up the physical
infrastructure and human capital of their communities, while others have
lost ground and are beginning the process of rebuilding.

While the scale of the problems has been exceptional, many of the
problems themselves are not new for lower-income families and
communities that were already struggling. People who were vulnerable to
begin with--those with low incomes, few assets, and less education--have
had a more difficult time weathering the financial storm or recovering
from setbacks. The same is true for communities that were already
relatively poor, with fewer community assets and insufficient drivers of
economic growth.

To solve problems, we must first understand them. Like many of
you here today, the Federal Reserve has been engaged for some time in
research and analysis of the economic challenges faced by neighborhoods
and communities as well as by individuals and families. For example, in
2008, the Federal Reserve Banks and the Board of Governors, in
partnership with the Brookings Institution, published a study of the
effects of concentrated poverty on communities.1
 The communities studied included older inner cities in the North,
smaller cities in the South and West, Native American reservations,
"gateway" neighborhoods that are entry points for immigrants, and rural
areas in Appalachia and the Mississippi Delta. What these diverse
communities had in common was that they did not share in our country's
general prosperity, even in good times. Our research identified some of
the barriers to economic progress shared by these communities, including
inadequate schools and workforce skills, lack of investment in
infrastructure and business development, and limited institutional
capacity. Not surprisingly, these communities were particularly
ill-equipped to deal with the recession.

Of course, economic conditions in a given community both affect
and are affected by the economic status of the individuals and families
in that community. One of the most valuable sources of data on family
finances is the Federal Reserve Board's triennial Survey of Consumer
 To better understand the effects of the crisis on households, the
Board, in a special update to its 2007 survey, asked the participants
about their financial and personal circumstances two years later, in
2009.3 The findings help illustrate the challenges facing families and communities.

According to this special survey, lower-income households
continued to experience significantly more unemployment than
higher-income households. In 2009, nearly one-fourth of the families in
the bottom half of the income distribution had at least one member who
was out of work for some portion of the year prior to the survey; this
rate was about double that of higher-income households. 

Declines in the values of homes and stocks sharply reduced the
wealth of many Americans during the crisis. Three-fifths or more of
families across all income groups reported a decline in wealth between
2007 and 2009, and the typical household lost nearly one-fifth of its
wealth, regardless of income group. Moreover, one in eight of the
households in the panel started the crisis with zero or negative net
worth and thus had scant resources to fall back on to maintain their
standard of living during bouts of unemployment.

Unemployment and declines in wealth obviously can make it
difficult for a household to pay its debts on time. The survey update
found that lower-income households fell behind on their payments at a
substantially higher rate than higher-income households. Among
households with debt, about 11 percent of those with incomes in the
bottom half of the income distribution fell 60 days or more behind on at
least one of their obligations in 2009, compared with nearly 3 percent
of those in the highest tenth of the income distribution. 

Just as lower-income households weather financial storms with
more difficulty, the same is true of communities. Even before the
crisis, some neighborhoods, towns, and cities were in distress. Those
areas already lacked sufficient assets such as strong public schools and
community facilities, and rising unemployment and falling tax revenues
reduced the funds available for public services even as needs increased.
Often, residents were disproportionately unbanked or underbanked and
relied on expensive alternative financial service providers. In
communities with already low housing values--due, for instance, to
oversupply caused by population shifts--the wave of foreclosures that
began in 2007 sent the number of vacant properties soaring, causing
additional problems.

In short, the financial crisis and recession touched many
families and communities. But those that were struggling before the
crisis were often disproportionately affected.

Responding to the Challenges
The challenges for those working to address the many evident
problems in troubled communities can be daunting. When so many social
and economic problems are interconnected--high unemployment,
foreclosures, crime, loss of tax revenues and social services, lack of
economic opportunity--deciding where to start to improve the situation
can be quite difficult. Certainly no single program or approach will
address all of the problems. But realistically, we have to pick places
to begin, with the expectation that finding solutions in one area will
confer wider benefits. For example, providing responsible credit for
individuals and small businesses through community development financial
institutions can stimulate economic activity that generates local tax
revenues. Those tax revenues can be spent on programs to put vacant
properties back into active use, helping to reduce crime, or on job
training or economic development programs, leading to more employment
and wage income that can help homeowners avoid foreclosures.

As the Board's eyes and ears around the country, the Federal
Reserve Banks have kept us well informed of the variety of ways local
communities are meeting the challenges of tough times in troubled
communities. Though the following is only a small sampling of the work
going on around the country, I'd like to share a few of these stories
with the hope that one community's success may lead others to emulate

In Massachusetts, for example, a community development financial
institution called Boston Community Capital is pursuing an innovative
strategy to prevent occupied homes from becoming vacant and creating a
strain on the community. Through special financing entities, it buys
foreclosed-upon but still occupied homes from lenders at market value.
The initiative, dubbed Stabilizing Urban Neighborhoods, or SUN, is
focused on six low-income neighborhoods in Boston that have the city's
highest concentration of foreclosures. Taking advantage of the
diminished home values, the group buys the properties and then resells
them at affordable prices to existing occupants--both owners and
tenants--who can demonstrate that they have suffered hardship. This
program prevents properties from becoming vacant and provides families
with a sustainable and affordable housing situation; it is designed to
start small and expand as needed. 

In the South, ACCION Texas-Louisiana, a nonprofit organization,
has been focused on assisting entrepreneurs start small businesses and
helping existing small businesses to expand. ACCION lends to
entrepreneurs whose businesses are too small or too new to qualify for a
regular bank loan. Minority-owned businesses receive more than 80
percent of its loans, and almost half of the lending goes to women-owned
businesses. Since 2009, the organization has expanded from Texas into
Louisiana to respond to small businesses affected by Hurricane Katrina.
The recession put extra pressure on ACCION, as existing borrowers were
having increasing trouble paying back their loans. At the same time,
demand for its services increased, as newly laid-off workers were
seeking loans to start their own businesses. The organization responded
by expanding its services--opening a business support center and
business incubators, providing more comprehensive technical assistance,
developing new business partnerships, reaching into new markets, and
strengthening its underwriting platform to reduce waiting time for
applicants and reduce its own costs.

In my home state of South Carolina, as in many parts of the
country, the effects of the crisis varies from community to community.
For instance, the city of Charleston, a popular tourist destination
known for its historic architecture and fine cuisine, is faring
relatively well overall. Even so, both unemployment and poverty in the
greater Charleston area increased significantly between 2007 and 2009.4
 Median income in the nearby city of North Charleston, which has
struggled ever since a naval base closed in 1996, is about three-fourths
that of Charleston. In some older neighborhoods, families have moved
out, leaving behind many vacant properties. Some parts of the
metropolitan area are experiencing economic growth, but the benefits of
that growth do not reach all communities. While some major corporations
have expanded into the area, inadequate education and training, as well
as the lack of public transportation, make it difficult for many
residents of low-income and minority communities to take advantage of
new jobs. Local development groups have been working to ameliorate the
situation. For example, Metanoia CDC, a community development
corporation, is located in the heart of the old naval communities of
North Charleston, and its work has visibly improved the hardest hit
communities. Its holistic range of programs--in community leadership,
quality affordable housing, and economic development--appears to be
contributing to decreasing crime, rising student grades, and homes for
first-time homebuyers. The group focuses on building assets--both
physical and human--such as transforming vacant buildings into homes for
families and helping students in a Young Leaders program improve their
performance in school. 

In the San Joaquin Valley of California, the unemployment rate
hovers around 18 percent. In 2009, in response to the ongoing
foreclosure crisis, nonprofit agencies; local, state, and federal
agencies; academics; real estate professionals; financial institutions;
small business and workforce development professionals; and loan
servicers organized the San Joaquin Valley Foreclosure Task Force. The
original intent was to coordinate efforts on a regional scale to avoid
preventable foreclosures. This work continues, and the group is now
expanding its efforts to also help families that have already gone
through a foreclosure. This year, the task force is beginning a series
of foreclosure recovery workshops across the valley. Families will learn
about local programs and assistance, including job training and
employment assistance. Credit counselors will help them begin repairing
their damaged credit. And, in cases in which they may be victims of
fraud, they will receive guidance and referrals to legal aid attorneys. 

As a final example, in Cleveland, local leaders in the Slavic
Village neighborhood have been dealing with some of the highest
foreclosure rates in the nation since the 1990s. Cleveland saw
population loss for five successive decades, resulting in an oversupply
of housing. With the onset of the financial crisis, the problem began to
worsen dramatically. By 2007, Slavic Village was the Zip code with the
highest number of foreclosures in the nation. By 2010, more than 1,500
properties in a neighborhood of 11,000 homes needed to be demolished.
This community has a history of strong neighborhood organizations, and
as might be expected, its residents, community leaders, nonprofits,
local governments, and companies stepped up their efforts. In one
partnership, community groups are using data provided by a local
university to identify borrowers at risk of foreclosure and are reaching
out to them, door to door, to see what might be done to prevent a
foreclosure. In another example, residents and community leaders in
Slavic Village alerted county prosecutors to fraudulent lending in the
neighborhood. As the crisis continues to play out, community leaders
have found ways to reuse vacant land, adding gardens, yard expansions,
and bike trails among the neighborhood's declining number of homes,
making it safer and more attractive. Business leaders are helping as
well by purchasing and demolishing properties adjacent to the gardens
and trails and supporting the renovation and expansion of a nearby
school and recreation center.

I have cited just a few examples of work that is making a
difference at the grassroots level all around the country. They show
that, though the challenges in troubled communities are indeed daunting,
we are far from helpless, and much good work is being accomplished. 

For our part, we at the Federal Reserve will remain closely
attuned to the economic health of all communities, including low- and
moderate-income communities. Each of our Federal Reserve Banks works
with local leaders and community groups to provide relevant research,
data, and support, with the Board backing up these efforts across the

The broader economy is in a moderate recovery, and we have
recently seen some welcome, if gradual, improvement in the labor market.
But our economy is far from where we would like it to be, and many
people and neighborhoods are in danger of being left behind. The work of
community groups, local leaders and businesses, and others is a
critical component to a national economic recovery. In addition to our
work in regulating banks and in conducting monetary policy so as to
achieve maximum employment with price stability, the Federal Reserve
will continue to assist these efforts through local community outreach,
by using its convening power, and through research like that being
discussed at this conference. If we work together, I believe we can find
effective ways to repair the damage done by the crisis to the economic
prospects of families and communities. Until vulnerable families and
troubled communities have regained lost progress, the economic recovery
will remain incomplete.