Tag Archives: housing

The Hispanic Homeownership Gap

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photo by Gabriel Santana

Freddie Mac’s latest Economic & Housing Research Insight asks Will the Hispanic Homeownership Gap Persist? It opens,

This is the American story.

A wave of immigrants arrives in the U.S. Perhaps they’re escaping religious or political persecution. Perhaps a drought or famine has driven them from their homes. Perhaps they simply want to try their luck in the land of opportunity.

They face new challenges in America. Often they arrive with few resources. And everything about them sets them apart—their religions, their languages, their cultures, their foods, their appearances. They are not always welcomed. They frequently face discrimination in housing, jobs, education, and more. But over time, they plant their roots in American soil. They become part of the tapestry that is America. And they thrive.

This is the story of the Germans and Italians and many other ethnic groups that poured into the U.S. a century ago.

Today’s immigrants come, for the most part, from Latin America and Asia instead of Europe. Hispanics comprise by far the largest share of the current wave. Over the last 50 years, more than 30 million Hispanics migrated to the U.S. And these Hispanics face many of the same challenges as earlier European immigrants.

Homeownership provides a key measure of transition from a newly-arrived immigrant to an established resident. Many immigrants arrive without the financial resources needed to purchase a home. In addition, the unfamiliarity and complexity of the U.S. housing and mortgage finance systems pose obstacles to homeownership. As a result, homeownership rates start low for new immigrants but rise over time.

The homeownership rate among Hispanics in the U.S.—a population that includes new immigrants, long-standing citizens, and everything in between— stands around 45 percent, more than 20 percentage points lower than the rate among non-Hispanic whites. Much of this homeownership gap can be traced to differences in age, income, education and other factors associated with homeownership.

Will the Hispanic homeownership gap close over time, as it did for the European immigrants of a century ago? Or will a significant gap stubbornly persist, as it has for African-Americans? (1-2)

It concludes,

Census projections of future age distributions suggest that the age differences of Whites and Hispanics will be reduced by six percent (0.7 years) by 2025 and 12 percent (1.2 years) by 2035. If these projections are realized, the White/Hispanic homeownership gap is likely to narrow by 20 percent (five percentage points) by 2035. The Census projections include both current residents and future immigrants, and averaging the characteristics of these two groups of Hispanics tends to mask the relatively-rapid growth in homeownership among the current residents.

It is important to remember that about 13 percent of the White/Hispanic homeownership gap cannot be traced to population characteristics such as age and income. The explanation for this residual gap is unclear, although some of it may be due to wealth gaps and discrimination. (12)

Researchers at the Urban Institute have documented the importance of the Hispanic homeownership rate to the housing market more generally. It is worthwhile for policymakers to focus on it as well.

Cracked Foundation for American Households

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photo by shaireproductions.com

President Trump’s budget claims to lay A New Foundation for American Greatness. Whatever else it does, when it comes to housing it leads down a path to ruin for many an American family.

Here is just some of what he proposes: cutting housing choice vouchers by almost $1 billion; cutting support for public housing by nearly $2 billion; and getting rid of the entire $3 billion budget for Community Development Block Grants (CDBG). These are all abstract numbers, so it is worth breaking them down to a more human scale.

Vouchers.  Housing choice vouchers help low-income families afford a home. Republicans and Democrats have long supported these vouchers because they help tenants afford apartments that are rented by private landlords, not by public housing agencies. Vouchers are effectively an income subsidy for the poor that must be used for housing alone. The landlord is paid the subsidy and the tenant pays the difference between the subsidy and the rent. These vouchers are administered by local public housing agencies.

Nearly half of vouchers go to families with children, nearly a quarter go to the elderly and another fifth go to disabled adults. The nonpartisan Center on Budget and Policy Priorities has found that voucher dramatically reduce homelessness. It also found that voucher holders were likely to be in the workforce unless they were elderly or disabled. While vouchers are a very effective subsidy, the federal budget has only provided enough funds for about a quarter of eligible households. Trump’s proposed cuts would cut funding for more than 100,000 families. That’s 100,000 families that may end up homeless as a result.

Public Housing. Public housing has been starved of resources for nearly forty years. While some believe that public housing has been a failure overall, it remains a vital source of housing for the very poor. Trump’s proposed cuts to public housing operating and capital expenses means that these tenants will see their already poorly maintained homes descend deeper into decrepitude. Unaddressed leaks lead to mold; deferred maintenance on boilers leads to no heat in the winter – every building needs some capital repairs to maintain a baseline of habitability.

We must ask ourselves how bad will we allow this housing stock to get before we are overcome by a sense of collective shame. If a private landlord provided housing that was as poorly maintained as much of the public housing stock, it would be on a worst landlords list in local newspapers. The fact that the landlord is the government does not redeem the sin.

CDBG. The Community Development Block Grant funds affordable housing and anti-poverty programs along with community development activities engaged in by local governments. CDBG has broad support from Republicans and Democrats because it provides funds that allow local governments to respond more nimbly to local conditions. Local governments use these funds for basic infrastructure like water and sewer lines, affordable housing and the soft costs involved in planning for their future.

While these expenditures are somewhat abstract, recent press stories have highlighted that CDBG also funds Meals on Wheels for the elderly. While this is not a big portion of the CDBG budget, it does make concrete how those $3 billion are being allocated each year by local communities seeking to help their neediest residents.

*     *     *

Trump’s budget proposal is honest in that it admits to making “substantial changes to the policies and spending priorities of the previous administration . . .” Members of Congress from both parties will now have to weigh in on those substantial changes. Are they prepared to make Trump’s cuts to these housing and community development programs that provide direct aid to their neighbors and local governments? Are they prepared for the increase in homeless that will follow? In the increase in deficits for state and local governments? If not, they should reject President Trump’s spending priorities and focus on budget priorities that support human dignity and compassion as well as a commitment to local responses to address local problems.

Patenaude To Help Lead HUD

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photo: J. Ronald Terwilliger Foundation for Housing America’s Families

Pamela Hughes Patenaude

Realtor.com quoted me in ‘Ultimate Housing Insider’: Pam Patenaude Nominated as HUD Deputy Secretary. It reads,

Pam Patenaude was nominated by President Donald Trump to become deputy secretary of Housing and Urban Development, according to a White House statement released on Friday. The move has been met with resounding applause by industry insiders who think her background could serve as the perfect complement to HUD Secretary Ben Carson, who entered his role without experience in housing or government.

Patenaude, currently president of the J. Ronald Terwilliger Foundation for America’s Families, was formerly an assistant secretary for community, planning, and development at HUD, under President George W. Bush. She also served as director of housing policy at the Bipartisan Policy Center’s Housing Commission. Patenaude’s nomination must be confirmed by the Senate.

“She’s the ultimate housing insider,” says David Reiss, research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School. “She’s connected and has a lot of respect within the housing field.”

Real estate industry organizations hailed the choice, including the National Association of Realtors®. In a statement, NAR President William E. Brown said, “Pam’s extensive and strong background in real estate and housing will be an asset. … Pam is an ideal candidate for the position; she understands the issues that impact the industry.”

David Stevens, president and CEO of the Mortgage Bankers Association, also offered his thumbs-up.

“Pam is an exceptional choice for the position,” Stevens said in a statement. “Personally, I have worked with her for a number of years and she is exactly the kind of leader who will help support the secretary and also address the critical issues ahead for HUD. She has a well-informed understanding of the agency, and essential technical knowledge of the real-estate finance industry. I would encourage the Senate to move swiftly in confirming her nomination.”

This depth of experience, Reiss says, serves as the perfect foil for Carson. As HUD secretary, Carson serves as the public face of this department, while Patenaude will handle the daily duties of running the organization.

“The big criticism of Carson is that he has no experience or background in housing,” Reiss continues. “So to have a No. 2 who’s really responsible for the day-to-day responsibility of the agency is a plus.”

What Patenaude’s appointment could mean for housing

In November, rumors were swirling that the Trump administration was considering Patenaude as HUD secretary, but then Carson got the nod instead, and then the Trump administration released a budget calling for $6 billion in cuts to the department. Patenaude’s nomination has many hopeful that HUD’s core initiatives—like affordable housing—will remain a priority.

“Trump’s ‘skinny budget’ decimated HUD,” Reiss continues. “Trump has made lots of appointments who’ve expressly said they want to destroy the agencies that they’re running. But Patenaude is an insider with HUD. So my hope is she sees the value it provides, and be an advocate for many HUD programs.”

Mortgage Rates & Refis

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TheStreet.com quoted me in Mortgage Rates Expected to Rise and Push Down Refinancing Levels. It reads, in part,

Mortgage rates will continue their upward climb in 2017 as the economy demonstrates additional growth and inflation, but this will of course dampen the enthusiasm for homeowners who have sought to refinance their mortgages up until early this year.

The levels of refinancing will definitely “take a hit relative to 2016,” said Greg McBride, chief financial analyst for Bankrate, a New York-based financial content company.”

A survey conducted by RateWatch found that 56.57% of the 400 financial institutions polled said it is unlikely mortgage rates will fall and unlikely there will be an increase in refinancing in 2017. RateWatch, a Fort Atkinson, Wis.-based premier banking data and analytics service owned by TheStreet, Inc., surveyed the majority of banks, credit unions, and other financial institutions in the U.S. between December 16 and December 29, 2016 on how the Donald Trump presidency will affect the banking industry. The survey found that 35.71% said an increase in refinancing levels is very unlikely, while 6.29% said such an increase is somewhat likely, 1.14% said one would be likely and 0.29% said it would be very likely.

Mortgage rates, which are tied to the 10-year Treasury note, are predicted to fluctuate between 4% to 4.5% in 2017 “with a brief trip below 4% in the event of a market sell-off or economic stumble,” McBride said.

The 4% threshold is critical for homeowners, because when mortgage rates fall below this benchmark level, more consumers are in a position to refinance “profitably,” which is why 2016 experienced a “surge in activity,” McBride said.

When rates rise about the 4% level, the number of homeowners who opt to refinance declines dramatically and “refinancing levels will be notably lower in 2017,” he said.

The mortgages in the 3% range gave many homeowners the opportunity to refinance last year, some for the second time, as many consumers also chose to refinance their mortgages during the 2013 to 2015 period.

As the economy expands and workers are experiencing pay increases, the number of home sales should also rise in 2017.

“People who are working and receiving a pay increase will buy a house whether mortgage rates are 4% or 4.5%,” McBride said. “They may buy a different house, but they will still buy a house.”

Refinancing activity is likely to continue ramping up in January rather than later in the year as the “recent dip in rates allows procrastinators to act before rates continue their movement up,” said Jonathan Smoke, chief economist for Realtor.com, a Santa Clara, Calif.-based real estate company. “As interest rates resume their ascent and get closer to 4.5% on the 30-year mortgage, the number of households who can benefit from refinancing will diminish. That’s why we expect lenders to shift their focus to the purchase market this year.”

Economic growth resulted in interest rates rising before the election and in its aftermath. The rates rose because of the expectation from the financial markets of expanding fiscal policies leading to additional growth and inflationary pressures, Smoke said.

Mortgage rates will continue to rise in 2017 as a result of more people being employed, and this economic backdrop will favor the buyer’s market instead of the refinancing market. Current data from the Mortgage Bankers Association already demonstrates that refinancing activity has declined compared to 2016 due to higher interest rates, Smoke said.

“Rates have eased a bit since the start of the year as evidence of a substantial shift in inflation remains limited and the financial markets oversold bonds in December,” he added.

*     *     *

Borrowers should be concerned with increased interest rate volatility in 2017, said David Reiss, a professor at the Brooklyn Law School. The Trump administration has been sending out mixed signals, which may lead bond investors and lenders to change their outlook more frequently than in the past.

“Borrowers should focus on locking in attractive interest rates quickly and working closely with their lender to ensure that the loan closes before the interest rate lock expires,” he said. “While there is no clear consensus on why rates went lower after the new year, Trump has not set forth a clear plan as to how he will achieve those goals and Congress has not signaled that it is fully on board with them. This leaves investors less confident that Trump will make good on those positions, particularly in the short-term.”

HUD, Exit Stage Left

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photo by Gage Skidmore

Obama HUD Secretary Julián Castro

President Obama had members of his Cabinet write Exit Memos that set forth their vision for their agencies. Julián Castro, his Secretary of HUD, titled his Housing as a Platform for Opportunity. It is worth a read as a roadmap of a progressive housing agenda. While it clearly will carry little weight over the next few years, it will become relevant once the political winds shift back, as they always do. Castro writes,

Every year, the U.S. Department of Housing and Urban Development (HUD) creates opportunity for more than 30 million Americans, including more than 11.6 million children. That support ranges from assisting someone in critical need with emergency shelter for a night to helping more than 7.8 million homeowners build intergenerational wealth. Simply put, HUD provides a passport to the middle class.

HUD is many things but, most of all, it is the Department of Opportunity. Everything we did in the last eight years was oriented to bring greater opportunity to the people we serve every day. That includes the thousands of public housing residents who now have access to high-speed Internet through ConnectHome. It includes the more than 1.2 million borrowers in 2016 – more than 720,000 of them first-time homebuyers – who reached their own American Dream because of the access to credit the Federal Housing Administration provides. And it includes the hundreds of thousands of veterans since 2010 who are no longer experiencing homelessness and are now better positioned to achieve their full potential in the coming years.

Our nation’s economy benefits from HUD’s work. As our nation recovered from the Great Recession, HUD was a driving force in stabilizing the housing market. When natural disasters struck, as with Superstorm Sandy in the Northeast, the historic flooding in Louisiana, and many other major disasters – HUD helped the hardest-hit communities to rebuild, cumulatively investing more than $18 billion in those areas, and making it possible for folks to get back in their homes and back to work. And when we invested those dollars, we encouraged communities not just to rebuild, but to rebuild in more resilient ways. The $1 billion National Disaster Resilience Competition demonstrated our commitment to encourage communities to build infrastructure that can better withstand the next storm and reduce the costs to the American taxpayer.

Housing is a platform for greater opportunity because it is so interconnected with health, safety, education, jobs and equality. We responded to the threat posed by lead-contaminated homes by launching a forthcoming expansion of critical protections for children and families in federally assisted housing. And we finally fulfilled the full obligation of the 1968 Fair Housing Act by putting into practice the Affirmatively Furthering Fair Housing rule to ensure that one day a child’s zip code won’t determine his or her future.

Much has been accomplished during the Obama Administration, but new challenges are on the horizon, including a severely aging public housing stock and an affordable housing crisis in many areas of the country. Just as HUD provided necessary reinforcement to the housing market during the latest economic crisis, this vital Department will be crucial to the continued improvement of the American economy and the security of millions of Americans in the years to come. (2)

There is a fair amount of puffery in this Exit Memo, but that is to be expected in a document of this sort. it does, however, set forth a comprehensive of policies that the next Democratic administration is sure to consider. If you want an overview of HUD’s reach, give it a read.

Carson’s Call of Duty

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photo by Gage Skidmore

Dr. Ben Carson

The Hill published my most recent column, Ben Carson’s Call of Duty as America’s Housing Chief:

Ben Carson, the nominee for secretary of the U.S. Department of Housing and Urban Development (HUD), has made almost no public pronouncements about housing policy. The one exception is a Washington Times opinion piece from 2015 in which he addresses an Obama administration rule on fair housing.

While Carson appears to agree with the Obama administration’s diagnosis of the problem of segregation, he attacks its solution. If he refuses to vigorously enforce the rule at HUD, it is still incumbent on him to address the underlying problem it was meant to address.

Carson acknowledges the history of structural racism in American housing markets. He notes that segregation was caused in part by the federal government’s reliance on “redlining,” which refers to the Federal Housing Administration’s mid-20th century practice of drawing a red line around minority communities on underwriting maps and then refusing to insure mortgages within those borders.

He also acknowledges that racially restrictive covenants played a significant role in maintaining segregation. Racially restrictive covenants were legally enforceable agreements among property owners to keep homes from being sold to members of various minority groups. African Americans were the group most often targeted by them.

These covenants were very common in the mid-20th century, until the Supreme Court ruled that they were not legally enforceable. Shockingly, the Federal Housing Administration continued to encourage their use, even after the Supreme Court’s ruling.

Carson also acknowledged that “the Fair Housing Act and other laws have greatly reduced explicit discrimination in housing” but that “significant disparities in housing availability and quality persist.”

All in all, Carson’s take on the history of American housing policy is consistent with the consensus view across the left and the right: the federal government promoted segregationist housing policies for a large part of the 20th century.

Where he veers sharply from the Obama administration is in crafting a solution. The Obama administration promulgated a rule pursuant to the Fair Housing Act that would require localities to affirmatively promote fair housing if they chose to take funds from HUD.

While Carson states that the Obama rule is based on a “tortured reading of Fair Housing law,” the statutory authority for it is pretty clear. The Fair Housing Act states that HUD is to administer housing programs “in a manner affirmatively to further the policies” of the law.

Carson has characterized the Obama administration rule as a “socialist experiment.” I think his characterization is just plain wrong, particularly because the federal government often ties the provision of federal funds to various policy goals.

Think, for instance, of how federal highway dollars were tied to lowering state speed limits to 55 miles an hour. Such linkages are hardly socialist experiments. They merely demonstrate the power of the purse, a long-time tool of the federal government. Even if Carson cannot be convinced of this, the debate over how to address this legacy of discrimination does not end there.

After all, Carson’s opinion identified a serious problem: segregation resulting from longstanding policies of the federal government. He then stated that he does not agree with the Obama administration’s approach to solving the problem. He concluded by stating, “There are reasonable ways to use housing policy to enhance the opportunities available to lower-income citizens.”  But he failed to identify a single policy to address the problems caused by those longstanding and discriminatory federal policies.

If confirmed, Carson must outline how the U.S. Department of Housing and Urban Development can address the legacy of structural racism in American housing markets. The text of the Fair Housing Act makes it clear that HUD must administer its housing programs in a manner that would affirmatively further the policies of the law.

The problem Carson faces is clear. The duty imposed upon him by the law is clear.  What remains unclear is how he will fulfill that duty. He has both a legal and moral obligation to set forth his vision, if he is bent on rejecting that of President Obama.

Muddled Future for Fannie & Freddie

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The United States Government Accountability Office released a report, Objectives Needed for the Future of Fannie Mae and Freddie Mac After Conservatorships.  The GAO’s findings read a bit like a “dog bites man” story — stating, as it does, the obvious:  “Congress should consider legislation that would establish clear objectives and a transition plan to a reformed housing finance system that enables the enterprises to exit conservatorship. FHFA agreed with our overall findings.” (GAO Highlights page) I think everyone agrees with that, except unfortunately, Congress.  Congress has let the two companies languish in the limbo of conservatorship for over eight years now.

Richard Shelby, the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, asked the GAO to prepare this report in order to

examine FHFA’s actions as conservator. This report addresses (1) the extent to which FHFA’s goals for the conservatorships have changed and (2) the implications of FHFA’s actions for the future of the enterprises and the broader secondary mortgage market. GAO analyzed and reviewed FHFA’s actions as conservator and supporting documents; legislative proposals for housing finance reform; the enterprises’ senior preferred stock agreements with Treasury; and GAO, Congressional Budget Office, and FHFA inspector general reports. GAO also interviewed FHFA and Treasury officials and industry stakeholders (Id.)

The GAO’s findings are pretty technical, but still very important for housing analysts:

In the absence of congressional direction, FHFA’s shift in priorities has altered market participants’ perceptions and expectations about the enterprises’ ongoing role and added to uncertainty about the future structure of the housing finance system. In particular, FHFA halted several actions aimed at reducing the scope of enterprise activities and is seeking to maintain the enterprises in their current state. However, other actions (such as reducing their capital bases to $0 by January 2018) are written into agreements for capital support with the Department of the Treasury (Treasury) and continue to be implemented.

In addition, the change in scope for the technology platform for securitization puts less emphasis on reducing barriers facing private entities than previously envisioned, and new initiatives to expand mortgage availability could crowd out market participants.

Furthermore, some actions, such as transferring credit risk to private investors, could decrease the likelihood of drawing on Treasury’s funding commitment, but others, such as reducing minimum down payments, could increase it.

GAO has identified setting clear objectives as a key principle for providing government assistance to private market participants. Because Congress has not established objectives for the future of the enterprises after conservatorships or the federal role in housing finance, FHFA’s ability to shift priorities may continue to contribute to market uncertainty. (Id.)

One finding seems particularly spot on to me. As I wrote yesterday, it appears as if the FHFA is not focusing sufficiently on building the infrastructure to serve secondary mortgage markets other than Fannie and Freddie.  It seems to me that a broader and deeper bench of secondary mortgage market players will benefit the housing market in the long run.