Editor: David Reiss
Brooklyn Law School

September 25, 2015

Friday’s Government Reports Roundup

By Shea Cunningham

September 25, 2015 | Permalink | No Comments

September 24, 2015

Mortgage Market, Hiding in Plain Sight

By David Reiss

David Jackmanson

I blogged about the Center for Responsible Lending’s take on the 2014 Home Mortgage Disclosure Act (HMDA) data yesterday.  The mere act of aggregating this data reveals so much about the state of the mortgage market. Today I am digging into it a bit on my own.

There is a lot of good stuff in the analysis of the HMDA data released by the Federal Financial Institutions Examination Council (FFIEC). I found the discussion of the effects of the Qualified Mortgage and Ability to Repay rules most interesting:

The HMDA data provide little indication that the new ATR and QM rules significantly curtailed mortgage credit availability in 2014 relative to 2013. For example, despite the QM rule that caps borrowers’ DTI ratio for many loans, the fraction of high-DTI loans does not appear to have declined in 2014 from 2013. However, as discussed in more detail later, there are significant challenges in determining the extent to which the new rules have influenced the mortgage market, and the results here do not necessarily rule out significant effects or the possibility that effects may arise in the future. (4)

This analysis is apparently reacting to those who have claimed that the new regulatory environment is restricting lending too much. The mortgage market is generally too complicated for simple assertions like “new regulations have restricted credit too heavily” or “not enough” There are so many relevant factors, such as changes in the interest rate environment, the unemployment rate and the change in the cost of housing, to be confident about the effect of the change in regulations, particularly over a short time span. But the FFIEC analysis seems to have it right that the new regs did not have such a great impact when they went into effect on January 1, 2014, given the similarities in the 2013 and 2014 data. This reflects well on the rule-writing process for the QM and ATR rules. Time will tell whether and how they will need to be tweaked.

While the discussion of the new rules was comforting, I found the discussion of FHA mortgages disturbing: “The higher-priced fraction of FHA home-purchase loans spiked from about 5 percent in early 2013 to about 40 percent after May 2013 and continued at monthly rates between 35 and 52 percent through 2014, for an annual average incidence of about 44 percent in 2014.” (15) Higher-priced first-lien loans are those with an APR that is at least one and a half percentage points higher than the average prime offer rate for loans of a similar type.

The FHA often provides the only route to homeownership for first-time, minority and lower-income homebuyers, but it must be monitored to make sure that it is insuring mortgages that homeowners can pay month in and month out. If FHA mortgages are not sustainable for the long run, they are likely to do homebuyers more harm than good.

September 24, 2015 | Permalink | No Comments

Thursday’s Advocacy & Think Tank Round-up

By Serenna McCloud

  • A joint study by Enterprise Community Partners and the Harvard Joint Center for Housing Studies, Projecting Trends in Severely Cost Burdened Renters: 2015 – 2025 predicted that, in the coming decade, little would change with respect to 1 in 4 renters being severely rent burdened. The researchers examined a number of factors, including: a predicted 10% population increase, declining homeownership rates, and a predicted rise in demand for rental housing.  They also looked at a number of possible scenarios to determine how salary gain and population growth would affect the percentage of severely rent burdened households.  Even the most optimistic of scenarios would only result in a 1.4% decrease.
  • According to analysis by the National Association of Realtors (NAR) Existing Home sales fell by 4.8% from July to August despite slowing price growth and a slightly lower interest rate.  On the other hand NAR points out that Existing Home sales are 11% higher than August of last year.
  • The Turner Center for Housing innovation at U.C. Berkley has released analysis entitled Housing Highlights from the 2014 American Community Survey (ACS) which culls the housing related data from the ACS which is released by the Census Bureau and provides statistical trend charts relating to homeownership, cost and vacancy rates.  The Turner Center’s analysis finds, among other things  homeownership continuing to slide it is now at 63.1% following its peak in 2006 when it was at 67.3%. But it also finds that the overall housing cost burden is at its lowest point following the bubble.
  • According to a recent study by Zillow student debt only reduces chances of homeownership for non-graduates.

September 24, 2015 | Permalink | No Comments

September 23, 2015

Homeowners Keeping the Wolf at Bay

By David Reiss

Wolf at the Door by Gidi

The Center for Responsible Lending has released a policy brief with the lengthy title, 2014 HMDA data shows that Federal rules did not have a chilling effect on lending, despite lender predictions. Borrowers of color continue to be under-served by the mortgage market. While it is not a pithy title, it does say it all. The brief opens with some finer detail:

The 2014 mortgage data submitted by lenders under the Home Mortgage Disclosure Act (HMDA) reflects a slowly recovering mortgage market, but one that troublingly continues to under-serve important market segments. The implementation of federal mortgage underwriting standards (known as Ability-to-Repay or “ATR” and the Qualified Mortgage rule or “QM”) in early 2014 did not cause a departure from mortgage lending trends in recent years. However, access to credit remains tight; people of color and low and moderate-income families continue to receive a far lower share of home purchase loans than they have historically and than would be expected based on their share of the population. These borrowers also are much more likely to be served by government-backed loan programs than by the conventional market, and are increasingly paying more for mortgages than other borrowers. (1, footnote omitted)

The brief closes, arguing that

recent mortgage lending reforms support sustainable homeownership and wealth building opportunities for lower-wealth households. However, continued problems with access to credit stem from the constrained lending of the post crisis market. Since the crisis, mortgage lending has been mostly limited to borrowers with the most pristine credit history. This constrained lending environment is reflected in the 2014 HMDA data. This environment is most harmful to lower-wealth households as well as to borrowers of color. (5)

The missing piece in this analysis is a proposal for to how to loosen mortgage underwriting so that homeownership can be achieved by more households while also making sure that they can keep making their mortgage payments over the long term.

The key to a sustainable homeownership policy is a plan to keep the wolf at bay while households deal with the unemployment, sickness and divorce that is predictably going to affect some of them all of the time. This policy brief does not chart a path forward to that goal. There is more work to be done.

September 23, 2015 | Permalink | No Comments

Wednesday’s Academic Roundup

By Shea Cunningham

September 23, 2015 | Permalink | No Comments

September 22, 2015

Severely Cost-Burdened Renters

By David Reiss

Geoff Stearns

Enterprise Community Partners and the Joint Center for Housing Studies of Harvard University have issued a report, Projecting Trends in Severely Cost-Burdened Renters: 2015-2025. The report opens,

At last measure in 2013, over one in four renters, or 11.2 million renter households, were severely burdened by rents that took up over half their incomes. This total represented a slight reduction from the record level of 11.3 million set in 2011, but remains dramatically higher than the start of the last decade, having risen by more than 3 million since 2000. With substantial growth in renter households expected over the next decade and little sign of a turnaround in the income and rent trends that produced these record levels of cost burdens, there is little prospect for substantial improvement in these conditions over the coming decade. (4)

And it concludes,

Overall, our analysis projects a fairly bleak picture of severe renter burdens across the U.S. for the coming decade. Under nearly all of the scenarios performed, we found that the renter affordability crisis will continue to worsen without intervention. According to our projections, annual income growth would need to exceed annual rent growth by 1 percent in order to reduce the number of severely burdened renters in 10 years. Importantly, that decline would have a net impact on fewer than 200,000 households, only because continued increases in burdens among minorities would be offset by declines among whites. Under the more likely scenario that rents will continue to outpace incomes, the number of severely rent-burdened households would increase by a range of 1.7 – 3 million, depending on the magnitude.

Given these findings, it is critical for policymakers at all levels of government to prioritize the preservation and development of affordable rental housing. Even if the economy continues its slow recovery and income growth improves, there are simply not enough quality, affordable rental units to house the millions of households paying over half their income in rental costs. (16)

It is unsurprising that the policy takeaway of these two housing organizations is to prioritize the preservation and development of affordable housing. But given the pervasive nature of the problem, I wonder if it is better to just say that this is an income inequality problem and address the root cause — low-income families just don’t have enough money to make ends meet.

September 22, 2015 | Permalink | No Comments

Tuesday’s Regulatory & Legislative Round-Up

By Serenna McCloud

  • The Consumer Financial Protection Bureau (CFPB) has finalized changes to Mortgage Rules as applied to small lenders that operate primarily in underserved and rural areas.  This change eliminates some of the prohibitions under the Ability- to-Repay Rule thereby allowing income to debt ratios as high and 43% and balloon payments, as long as the creditor holds the loan in their own portfolio. The Rule also allows more creditors to be considered small lenders because it increases the number of mortgages a small lender can hold from 500 to 2000.  It would also expand the number of geographic locations which can be considered rural.

September 22, 2015 | Permalink | No Comments