November 18, 2015
The Center on Budget and Policy Priorities has posted Realizing the Housing Voucher Program’s Potential to Enable Families to Move to Better Neighborhoods. It opens,
Housing Choice Vouchers help families afford decent, stable housing, avoid homelessness, and make ends meet. They also enable children to grow up in better neighborhoods and thereby enhance their chances of long-term health and success. When African American and Hispanic families use housing vouchers, for example, their children are nearly twice as likely as other poor minority children to grow up in low-poverty neighborhoods and somewhat less likely to grow up in extremely poor areas. Still, 280,000 children in families using vouchers lived in extremely poor neighborhoods in 2014. Vouchers could do much more to help these and other children grow up in safer, low-poverty neighborhoods with good schools.
Public housing agencies have flexibility under current Housing Choice Voucher (HCV) program rules to implement strategies to improve location outcomes, and state and local governments could facilitate these efforts. But without changes in federal policy to encourage state and local agencies to take such steps and to modify counter-productive policies — and reliable funding to maintain the number of families receiving HCV assistance and to administer the program effectively — there is little reason to expect better results.
Federal, state, and local agencies can make four sets of interrelated policy changes to help families in the HCV program live in better locations:
- Create strong incentives for state and local housing agencies to achieve better location outcomes;
- Modify policies that discourage families from living in lower-poverty communities;
- Minimize jurisdictional barriers to families’ ability to live in high-opportunity communities; and
- Assist families in using vouchers to rent in high-opportunity areas. (1)
This paper poses a number of concrete policy proposals for HUD to increase choices for voucher recipients. They include giving weight to location outcomes for recipients in measuring local housing agency performance; aligning these goals with the new fair housing rules; and providing incentive payments to local agencies that help voucher recipients move to higher-opportunity areas. (8) There are more concrete proposals in the paper that I leave to the reader to review.
What I like about these proposals is that many of them can be implemented administratively by HUD, just like the fair housing rules were. I hope HUD is giving this paper its full attention — there is a lot of good stuff in it that can help people move to opportunities that they cannot currently access.
- Introduction to Special Issue: Government Involvement in Residential Mortgage Markets, W. Scott Frame, Real Estate Economics, Vol. 43, Issue 4, pp. 807–819, 2015 (Paid Access).
- How Does the Federal Reserve’s Large‐Scale Asset Purchases (LSAPs) Influence Mortgage‐Backed Securities (MBS) Yields and U.S. Mortgage Rates?, Diana Hancock & S. Wayne Passmore, Real Estate Economics, Vol. 43, Issue 4, pp. 855–890, 2015 (Paid Access).
- Property Rebels: Reclaiming Abandoned Bank-Owned Homes for Community Uses, Valerie Schneider, American University Law Review, Vol. 65, Issue 2, Forthcoming.
- Is an Apartment a Nuisance?, Michael Lewyn, 43 Real Est. L.J. 509 (2015).
- Helping the Middle-Class: How Interest Rates Affect the Distribution of Housing Wealth, Isaac Hacamo.
- Urbanization and Property Rights, Yongyang Cai, Harris Selod & Jevgenijs Steinbuks, World Bank Policy Research Working Paper No. 7486.
- Crowdfunding the City: The End of ‘Cataclysmic Money’?, David S. Bieri.
- The Role of Property Rights in the Debate on Large-Scale Land Acquisitions, Olivier De Schutter.
- Using Urban Agriculture to Grow Southern New England, Laurie J. Beyranevand, Sara C. Bronin, Marie Mercurio & Sorell E. Negro, Connecticut Planning, SNEAPA 2015.
November 17, 2015
The Citizens Budget Commission has released Whose Burden Is It Anyway? Housing Affordability in New York City by Household Characteristics. The CBC produced some interesting and counterintuitive policy briefs last year, in which it
examined housing affordability across large U.S. cities to assess New York’s situation in a broader context. Using federal data sources, CBC found that while many New Yorkers face high rents, and the share of households who are “rent burdened” (paying more than 30 percent of income toward rent) grew between 2000 and 2012, the city ranks near the middle among 22 large cities in the share of rent-burdened households. A second analysis revealed New York has the lowest transportation costs among the 22 cities studied due to the large proportion of residents who commute via mass transit. When housing and transportation costs are combined, the city rises from 13th to 3rd place in affordability. The average New York household pays 32 percent of its income towards housing and transportation costs, well within the U.S. Department of Housing and Urban Development’s (HUD’s) affordability guideline of 45 percent. CBC also examined how some “typical” households (as defined by HUD) fared in terms of housing and transportation costs in the same group of cities. In this analysis, low income households in New York also ranked relatively well despite facing serious rent burdens. (1)
The current CBC report looks at NYC rent burdens in greater detail. Key findings include,
- Forty-two percent of New York City’s renter households are “rent burdened;” that is, adjusting for actual rent paid by each household (“out-of-pocket contract rent” plus utility costs) and food stamp benefits, they pay more than 30 percent of income in rent.
- Half of rent burdened households are severely rent burdened, paying more than 50 percent of income in rent. Ninety-four percent of these severely rent-burdened households are low income.
- Low-income severely burdened households are disproportionately comprised of singles and seniors. They are also disproportionately households with children and located in the outer boroughs. (2)
CBC adjusts rent to take into account subsidies and familial support. Some will disagree with adjustments of this type, but I think it is a pretty reasonable approach. When combined with the adjustments it made for transportation costs, CBC has produced a textured portrait of the state of housing affordability in NYC.
- The Federal Housing Administration (FHA) has announced relaxed requirements, effective immediately, for condominium project approval. The move is intended to increase options for affordable housing for 1st time and low income homebuyers. Among the changes are streamlining project recertification, expanding the definition of owner occupancy, and expansion of the eligible condominium project insurance coverage.
- The Federal Housing Finance Agency (FHFA) has released its 2015 Annual Performance and Accountability Report which describes its regulatory activities with regard to the Federal Home Loan Bank and as conservator of Fannie Mae and Freddie Mac
November 16, 2015
The Federal Housing Administration released its Annual Report to Congress on the Financial Status of the FHA Mutual Mortgage Insurance Fund. The MMIF covers the lion’s share of the FHA’s mortgage insurance obligations. In his forward to the report, HUD Secretary Castro focused on the achievement of two goals, the MMIF has “reached its congressionally mandated capital ratio” and it “reduced its annual mortgage insurance premium” which “opened the doors for tens of thousands of Americans to become homeowners or to refinance into a more affordable loan.” (2) Some commentators had been critical of lowering the premium before the MMIF reached its mandated capital ratio, but all’s well that ends well, or so it seems.
I was particularly struck by the key characteristics of FY 2015 FHA borrowers:
- The average credit score for all FHA endorsements was 680, and the average loan size was $190,928 for all mortgages, and $186,176 for purchase mortgages.
- 82 percent of FHA purchase loans (614,148 loans) were for first-time homebuyers.
- In calendar year (CY) 2014, FHA provided financing for 43 percent of all African-American borrowers, and 44 percent of all Hispanic borrowers. In contrast, in CY 2014, FHA represented just 21 percent of the total purchase market.
- African-American borrowers represented 10.4 percent of total FHA endorsements in FY 2015; Hispanic borrowers represented 17.4 percent of total FHA endorsements in the same period.
- FHA assisted more than 57,990 senior households to age in place through the Home Equity Conversion Mortgage (HECM) [reverse mortgage] program.
- At the state level, during CY 2014, FHA-insured loans represented at least 20 percent of all purchase activity in 32 states. In 12 states and Puerto Rico, FHA-insured lending represented a quarter of all 2014 purchase lending. Nevada, Puerto Rico, and Arizona had the highest proportion of FHA purchase activity in 2014, with FHA-insured loans representing 34 percent, 33 percent, and 31 percent of all purchase loans in those areas, respectively. Arizona and Nevada were particularly hard hit by the housing crisis, and FHA has played an important role in the recovery in those states. (6-7)
The FHA had an outsized role for the entire country after the financial crisis and it is still having an outsized role in many ways for many communities. The big issue going forward is whether the FHA will further lower its premiums in an attempt to reach more borrowers and if it can do so in a fiscally responsible manner.
- Following SCOTUS’s March Omnicare decision, a pension fund is claiming that the Second Circuit failed to take into account said decision in failing to revive Bank of America mortgage suit. The plaintiff requests SCOTUS’s review.
- U.S. District Court judge dismisses whistleblower suit against CitiMortgage where ex-VP claimed the bank engaged in reckless lending practice and made false claims.
- NY appellate court will not revive suit against Morgan Stanley and UBS for misrepresentation of $665 million in residential mortgage-backed securities.
November 13, 2015
Robert J. Shapiro and Elaine C. Kamarck have posted A Strategy to Promote Affordable Housing for All Americans By Recapitalizing Fannie Mae and Freddie Mac. While it presents as a plan to fund affordable housing, the biggest winners would be speculators who bought up shares of Fannie and Freddie stock and who may end up with nothing if a plan like this is not adopted. The Executive Summary states that
This study presents a strategy for ending the current conservatorship and majority government ownership of Fannie and Freddie in a way that will enable them, once again, to effectively promote greater homeownership by average Americans and greater access to affordable housing by low-income households. This strategy includes regulation of both enterprises to prevent a recurrence of their effective insolvency in 2008 and the associated bailouts, including 4.0% capital reserves, regular financial monitoring, examinations and risk assessments by the Federal Housing Finance Agency (FHFA), as dictated by HERA. Notably, an internal Treasury analysis in 2011 recommended capital requirements, consistent with the Basel III accords, of 3.0% to 4.0%. In addition, the President should name a substantial share of the boards of both enterprises, to act as public interest directors. The strategy has four basic elements to ensure that Fannie and Freddie can rebuild the capital required to responsibly carry out their basic missions, absorb losses from future housing downturns, and expand their efforts to support access to affordable housing for all households:
- In recognition of Fannie and Freddie’s repayments to the Treasury of $239 billion, some $50 billion more than they received in bailout payments, the Treasury would write off any remaining balance owed by the enterprises under the “Preferred Stock Purchase Agreements” (PSPAs).
- The Treasury also would end its quarterly claim or “sweep” of the profits earned by Fannie and Freddie, so their future retained earnings can be used to build their capital reserves.
- Fannie and Freddie also should raise roughly $100 billion in additional capital through several rounds of new common stock sales into the market.
- The Treasury should transfer its warrants for 79.9% of Fannie and Freddie’s current common shares to the HTF [Housing Trust Fund] and the CMF [Capital Magnet Fund], which could sell the shares in a series of secondary stock offerings and use the proceeds, estimated at $100 billion, to endow their efforts to expand access to affordable housing for even very low-income households.
Under this strategy, Fannie and Freddie could once again ensure the liquidity and stability of U.S. housing markets, under prudent financial constraints and less exposure to the risks of mortgage defaults. The strategy would dilute the common shares holdings of current private investors from 20% to 10%, while increasing their value as Fannie and Freddie restore and claim their profitability. Finally, the strategy would establish very substantial support through the HTF and CPM for state programs that increase access to affordable rental housing by very low-income American and affordable home ownership by low-to-moderate income households.
Wow — there is a lot that is very bad about this plan. Where to begin? First, we would return to the same public/private hybrid model for Fannie and Freddie that got us into so much trouble to begin with.
Second, it would it would reward speculators in Fannie and Freddie stock. That is not terrible in itself, but the question would be — why would you want to? The reason given here would be to put a massive amount of money into affordable housing. That seems like a good rationale, until you realize that that money would just be an accounting move from one federal government account to another. It does not expand the pie, it just makes one slice bigger and one slice smaller. This is a good way to get buy-in from some constituencies in the housing industry, but from a broader public policy perspective, it is just a shuffling around of resources.
There’s more to say, but this blog post has gone on long enough. Fannie and Freddie need to be reformed, but this is not the way to do it.