[Editor's note: Ivory Innovations House Party, a podcast series hosted by Ivory Innovations Chief Innovation and Strategy Officer Jenna Louie, is presented in here partnership with The Builder's Daily. The weekly series of episodes dive deep with entrepreneurs, researchers and practitioners in the community, striving to shine a light on housing affordability solutions. In this second episode, Jenna goes one-to-one with John Green, Managing Principal at BlackStar Stability, a 2022 Ivory Prize winner in the Finance category. You can access the podcast episode here.]

America's affordable housing crisis is, of course, not one story. Rather, it's a heaving, ebb-and-flow tide of thousands of them.

One runs the length, width, height, and depth of the memorable June 2014 cover story narrative in The Atlantic by Ta-Nehisi Coates, "The Case for Reparations."

In its opening lines, Coates unmasks an ugly truth.

In the 1920s, Jim Crow Mississippi was, in all facets of society, a kleptocracy."

The bulk of the piece and its epic sweep make starkly clear a tragic reality that theft of this same nature continued unabated, as "from the 1930s through the 1960s, black people across the country were largely cut out of the legitimate home-mortgage market." Coates zeroes in on the experience of one of his story's protagonists, Clyde Ross, the son of people who owned and farmed 40 acres of Clarksville, MI land until Mississippi authorities seized the land on a back-taxes claim.

In 1961, Ross and his wife bought a house in North Lawndale, a bustling community on Chicago’s West Side. North Lawndale had long been a predominantly Jewish neighborhood, but a handful of middle-class African Americans had lived there starting in the ’40s. The community was anchored by the sprawling Sears, Roebuck headquarters. North Lawndale’s Jewish People’s Institute actively encouraged blacks to move into the neighborhood, seeking to make it a “pilot community for interracial living.” In the battle for integration then being fought around the country, North Lawndale seemed to offer promising terrain. But out in the tall grass, highwaymen, nefarious as any Clarksdale kleptocrat, were lying in wait.

Three months after Clyde Ross moved into his house, the boiler blew out. This would normally be a homeowner’s responsibility, but in fact, Ross was not really a homeowner. His payments were made to the seller, not the bank. And Ross had not signed a normal mortgage. He’d bought “on contract”: a predatory agreement that combined all the responsibilities of homeownership with all the disadvantages of renting—while offering the benefits of neither. Ross had bought his house for $27,500. The seller, not the previous homeowner but a new kind of middleman, had bought it for only $12,000 six months before selling it to Ross. In a contract sale, the seller kept the deed until the contract was paid in full—and, unlike with a normal mortgage, Ross would acquire no equity in the meantime. If he missed a single payment, he would immediately forfeit his $1,000 down payment, all his monthly payments, and the property itself."

Outrageous, right? Hard to believe that such practices were still going on right through and into the 1960s.

And they still go on, right through and into the 2020s! A ProPublica dive into the topic details the legal and wrenching emotional odyssey of Somali families striving to make Minnesota their home.  The story's main focus is a trucker whose instincts to shelter and protect his family left him open to getting sucked into a financial vortex that hid behind what he mistook about four years ago as a path to homeownership: A Contract for Deed.

Just two months [after he signed for a home "purchase,"] he said, the contract had already become unmanageable. His family is at risk of losing not only the house, but about $100,000 they have paid, including a hefty down payment. He said he never understood the disadvantages and quirks of the contract for deed."

So, it goes, on and on.

Affordable housing is hard – there's no getting around that. But it's not all anonymous forces, abstract matters of economics and policy, constraints of materials or labor costs, nor an amorphous "they" opposing it.

Sometimes what thwarts affordability has a face, a name, and a specific array of deceptions, chicanery, and robberies. This boils down to the fact that affordability, attainability, and access solutions come in two formats: For and Against. Some of that tide of thousands of affordability challenges need solutions for transformation, to elevate capabilities, access, and striving.

On the other hand, the domain of other needed solutions to housing's affordability crisis need to square off against the soul-crushing effects of greed, hatred, and disregard for other people. When it comes to predatory seller-financed lending that uses contracts for deed, a successful battle to thwart bad players might look like this:

Buy the properties, forgive the usurious, virtually-impossible-to-repay debt, re-term the loans, and set residents on a real-world path to owning their home. That's precisely the purpose of 2022 Ivory Prize winner Blackstar Stability, founded and led by John Green, Managing Principal.

Blackstar Stability Distressed Debt Fund is focused on single-family investments that provide compelling risk-adjusted returns, while generating significant benefits for low and moderate-income families through the restructure of contracts for deed (CFDs).  Blackstar buys large pools of properties financed with CFDs or non-performing loans, work with the family to refinance, reduce rates, then transfer equity to new buyers before recycling its capital into purchasing a new pool of properties. Blackstar battles the bad players for low- to moderate-income homeowners and fights predatory lending practices / foreclosures.

What happens in most of these arrangements is that less than one in five of these buyers ever ultimately becomes the owner of the property," Green tells Ivory Innovations House Party podcast host Jenna Louie. "They have an arrangement where in many cases that may not be entirely clear to the families who are buying so they may have this illusion of ownership that doesn't really ring true. So they may be investing sweat equity or real capital to improving a place only to realize too late that it's not actually theirs. They're usually paying above market prices for it. So the interest rates tend to be higher than previous rates otherwise, and in most cases, the prices of those contracts are higher than the market price of that property. The obligations traveled without the benefits."

Battling the bad players means also disrupting entrenched biases in lending that give those players such a wide and obscenely profitable field to play in. Green explains:

A really interesting stat that we keyed in on is that nationwide, less than 30% of all properties that are $70,000 or less are financed with a traditional mortgage," Green says. "That has much more to do with the fixed costs of originating mortgages that it does the credit worthiness or financial conditions of the prospective borrowers. If you or I go out and try to get a $50,000 or $60,000 or $70,000 mortgage, you're gonna have a harder time than you would think. And much harder than if you're trying to get a $300,000 mortgage in the same markets."

Blackstar Stability, John Green says, is evolving affordability solutions by going out against the problem and process of the predators.

We're working to expand the equitable ownership of of affordable single family housing," Green says. "We do that by attacking forms of seller-financing that we consider at best problematic but much more often outright predatory. In particular, the contracts for deed that we encounter, but also similar sorts of products that may look and feel and behave like these contracts. Ones where the typical landlord obligations have been foisted upon tenants where they're not necessarily practical, predictable way for the tenants who may be on the other end of a rental or lease/option to buy agreement.

What we do is to buy large pools of properties, many of which are encumbered by these sorts of contracts," Green says. "Generally, we buy them with meaningful discounts. Then we work with the families who occupy those homes to extinguish those contracts and replace them with traditional purchase and sale agreements that are financed by mortgages that we use our funds to take back.

We've raised a fund specifically to acquire properties to migrate into that form of financing. We dramatically improved the financing terms of those of the debt versus the previous contracts. We're in the process of reducing interest rates. Equity, in our judgment, is rightfully the property of those families, and to the extent that there are penalties or or any negative equity, we actually extinguish those as well. We absorb negative equity to ensure that families are not underwater. And we absorb the cost of originating and funding the escrows for those mortgages that we create. We then hold these for a period of time, and then eventually sell them in the secondary market and recycle that capital. Our focus is on trying to confront the issue of CFDs and similar financing and replace them with traditional mortgages. And in that process, hopefully, become much more effective lenders, servicers, operators of properties at this sort of smaller balance and spectrum for families who are outright owners."

Progress to date:

We're in the early innings. We have a portfolio that's a couple of hundred properties that we're we've been specifically working toward that in a lot of families that we've been able to, to help in that process. Also, we are in the late stages of closing out our first fund. So by the end of the second quarter of 2024, we'll be we'll have our final close on a fund that will be $100 million."

Catch the Ivory Innovations House Party podcast here!