Moving To Opportunity

Mount Laurel

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.

California Dreamin’ of Affordable Housing

Architecturist

Just A Dream for Many

Yesterday, I blogged about the affordable housing crisis in New York City. Today, I look at a report from the Center on Budget and Policy Priorities, How Housing Vouchers Can Help Address California’s Rental Crisis. It opens,

California’s severe shortage of affordable housing has hit low-income renters particularly hard. Nearly 1.6 million low-income California renter households paid more than half of their income for housing in 2013, and this number has risen 28 percent since 2007. While the shortage is most severe on California’s coast, many families throughout California struggle to pay the rent. A multifaceted approach with roles for local, state, and federal governments is needed to address the severe affordable housing shortage, but the federal Housing Choice Voucher program can play an outsized role.

California’s high housing costs stretch struggling families’ budgets, deepening poverty and hardship and exacerbating a host of other problems. For example, 23 percent of Californians are poor, according to Census measures that take housing costs into account, well above the poverty rate of 16 percent under the official poverty measure. California has 14 percent of the nation’s renter households but nearly 30 percent of the overcrowded renters. And California has one-fifth of the nation’s homeless people, more than any other state. A large body of research shows that poverty, overcrowding, housing instability, and homelessness can impair children’s health and development and undermine their chances of success in school and later in the workforce.

Housing vouchers help some 300,000 low-income California families afford the rent, more than all other state and federal rental assistance programs combined. Vouchers reduce poverty, homelessness, and housing instability. They can also help low-income families — particularly African American and Hispanic families — raise their children in safer, lower-poverty communities and avoid neighborhoods of concentrated poverty. Moreover, so-called “project-based” vouchers can help finance the construction of affordable rental housing in areas with severe shortages.

Yet the number of vouchers in use has fallen in recent years, even as California’s housing affordability problems have worsened. Due to across-the-board federal budget cuts enacted in 2013 (called sequestration), 14,620 fewer California families used vouchers in December 2014 than in December 2012. By restoring funding for these vouchers, Congress can enable thousands more California families to afford safe, stable housing. (1, reference omitted)

Really, the analysis here is not California-specific. The authors are arguing that low-income families benefit greatly from rental subsidies and that Congress should restore funding for housing vouchers because they provide targeted, effective assistance to their users. While California has a high concentration of voucher users, all low-income renter households would benefit from an increase in the number of housing vouchers. No argument there.

I am disappointed that the report does not address an issue that I highlighted yesterday — attractive places like NYC and California continue to draw a range of people from global elites to low-income strivers. Policymakers cannot think of the affordable housing problems in such places as one that can be “fixed.” Rather, it must be seen as, to a large extent, a symptom of success.

So long as more and more people want to live in such places, housing costs will pose a challenge. Housing costs can be mitigated to some extent in hot destinations, but they are hard to solve. And if they are to be solved, those destinations must be willing to increase density to build enough units to house all the people who want to live there.

CFPB Mortgage Market Rules

woodleywonderworks

Law360 quoted me in Questions Remain Over CFPB Mortgage Rules’ Market Effects (behind a paywall). The story highlights the fact that the jury is still out on exactly what a mature, post-Dodd-Frank mortgage market will look like. As I blogged yesterday, it seems like the new regulatory regime is working, but we need more time to determine whether it is providing the optimal amount of sustainable credit to households of all income-levels. The story opens,

Despite fears that a set of Consumer Financial Protection Bureau mortgage rules that went into effect last year would cut off many black, Hispanic and other borrowers from the mortgage market, a recent government report showed that has not been the case.

Indeed, the numbers from the Federal Financial Institutions Examinations Council’s annual Home Mortgage Disclosure Act annual report showed that the percentage of black and Hispanic borrowers within the overall mortgage market actually ticked up in 2014, even as the percentage of loans those two communities got from government sources went down.

However, it may be too early to say how the CFPB’s ability-to-repay and qualified-mortgage rules are influencing decisions by lenders and potential borrowers as the housing market continues to recover from the 2008 financial crisis, experts say. 

“Clearly, there’s a story here, and clearly there’s a story from this 2014 data,” said David Reiss, a professor at Brooklyn Law School. “But I don’t know that it’s that QM and [ability to repay] work.”

The CFPB was tasked with writing rules to reshape the mortgage market and stop the subprime mortgage lending — including no-doc loans and other shoddy underwriting practices — that marked the period running up to the financial crisis.

Those rules included new ability-to-repay standards, governing the types of information lenders would have to collect to have a reasonable certainty that a borrower could repay, and the qualified mortgage standard, a class of mortgages with strict underwriting standards that would be considered the highest quality.

The rules took effect in 2014, after the CFPB made changes aimed at easing lenders’ worries over potential litigation by borrowers should their QMs falter.

Even with those changes, there were worries that black, Hispanic and low-income borrowers could be shut out of the market, as lenders focused only on making loans that met the QM standard or large loans, known as jumbo mortgages, issued primarily to the most affluent borrowers.

According to the HMDA report, that did not happen in the first year the rules were in effect.

Both black and Hispanic borrowers saw a small uptick in the percentage of overall mortgages issued in 2014.

Black borrowers made up 5.2 percent of the overall market in 2014 compared with 4.8 percent in 2013, when lenders were preparing to comply with the rule, and 5.1 percent in 2012, the report said. Latino borrowers made up 7.9 percent of the overall market in 2014 compared with 7.3 percent in 2013 and 7.7 percent in 2012, the federal statistics show.

And the percentage of the loans those borrowers got from government-backed sources like the Federal Housing Administration, a program run by the U.S. Department of Housing and Urban Development targeting first-time and low- to middle-income borrowers, the U.S. Department of Veterans Affairs and other agencies fell.

Overall, 68 percent of the loans issued to black borrowers came with that direct government support in 2014, down from 70.6 percent in 2013 and 77.2 percent in 2012, the HMDA report found. For Hispanic borrowers, 59.5 percent of the mortgages issued in 2014 had direct government support, down from 62.8 percent in 2013 and 70.7 percent in 2012.

For backers of the CFPB’s mortgage rules, those numbers came as a relief.

“We were definitely waiting with bated breath for this,” said Yana Miles, a policy counsel at the Center for Responsible Lending.

To supporters of the rules, the mortgage origination numbers reported by the federal government showed that black and Hispanic borrowers were not being shut out of the mortgage market.

“Not only did we not see lending from those groups go to zero, we’re seeing a very, very small baby step in the right direction,” Miles said. “We’re seeing opposite evidence as to what was predicted.”

And in some ways, the CFPB has written rules that met the goal of promoting safe lending following the poor practices of the housing bubble era while still giving space to lenders to get credit in the market.

“We have a functioning mortgage market,” Reiss said.

Segregation in the 21st Century

NYU’s Furman Center has posted a research brief, Race and Neighborhoods in the 21st Century. The brief is is based on a longer paper, Race and Neighborhoods in the 21st Century: What Does Segregation Mean Today? (One of the co-authors of the longer paper, Katherine M. O’Regan, is currently Assistant Secretary for Policy Development and Research at HUD.) The brief opens,

In a recent study, NYU Furman Center researchers set out to describe current patterns of residential racial segregation in the United States and analyze their implications for racial and ethnic disparities in neighborhood environments. We show that 21st Century housing segregation patterns are not that different from those of the last century. Although segregation levels between blacks and whites have declined nationwide over the past several decades, they still remain quite high. Meanwhile, Hispanic and Asian segregation levels have remained relatively unchanged. Further, our findings show that the neighborhood environments of blacks and Hispanics remain very different from those of whites and these gaps are amplified in more segregated metropolitan areas. Black and Hispanic households continue to live among more disadvantaged neighbors, to have access to lower performing schools, and to be exposed to more violent crime. (1)

And the brief concludes,

Black and Hispanics continued to live among more disadvantaged neighbors even after controlling for racial differences in poverty, to have access to lower performing schools, and to be exposed to higher levels of violent crime. Further, these differences are amplified in more segregated metropolitan areas. Segregation in the 21st century, in other words, continues to result not only in separate but also in decidedly unequal communities. (5)

This conclusion makes clear that segregation is not merely the result of poverty. It is important to understand how segregation persists even though the legal support of segregation has been dismantled. Richard Brooks and Carol Rose’s work in this area is a good start for those who are interested.

Cool Mortgage Tool

The Urban Institute has created a cool interactive tool to map mortgages in the United States. Enterprise describes the tool as follows: it

maps 12 years of data on more than 100 million mortgage originations throughout the U.S. by race and ethnicity, illustrating how the housing boom and bust affected borrowers of different backgrounds by metropolitan area. According to the data, not only were African-American and Hispanic communities particularly damaged by the housing bust, but they have also been the least likely to recover since the recession. The map also shows how geographically uneven the housing recovery has been. For instance, while mortgage originations have only decreased 18 percent in San Francisco and San Jose since 2005, they have fallen by 39 percent in Detroit.

The Urban Institute argues that

For a full mortgage market recovery, we need to expand the credit box again. A number of reforms can be undertaken to encourage lending to creditworthy borrowers who would have qualified before the housing boom. A return to 2005 and 2006 lending practices would be ill-fated, but the pendulum has unquestionably swung too far. Today’s tight standards have locked out many prospective borrowers from homeownership, disproportionately preventing African American and Hispanic families from building wealth and benefiting from the recovery.

There is a growing outcry to loosen credit. It is important that those calling for that loosening also support reforms that ensure that new credit is sustainable credit.  The last thing that people need is a mortgage that has a high likelihood of ending up in default. The Urban Institute acknowledges this point, but it can get lost in the political fight over the future of housing finance.

Policy folk also need to better understand how homeownership helps households build wealth, particularly given the rapid changes in the mortgage market. If households can readily access the equity in their homes through home equity loans, homeownership’s wealth-building function becomes more of a consumption spreading one.  That is, if homeowners access equity in the present in order to supplement current income, they will not be building wealth over the long term.

The robust Consumer Financial Protection Bureau should protect consumers from predatory attempts to get them to refinance, but people may not protect their future selves from their current desires. This may just be the way it goes, but we should not make claims about wealth building until we know more about how homeownership in the 21st century actually promotes it.