How Will Secretary Carson Engage Latino Homebuyers?

By Agatha So, Policy Analyst, Economic Policy Project, NCLR

Many questions remain for Dr. Ben Carson, who last month was officially sworn in as our newest Secretary of the U.S. Department of Housing and Urban Development (HUD). Since his January 12 confirmation hearing, many are still wondering how Dr. Carson will fulfill HUD’s mission and carry out the critical task of providing affordable rental and homeownership opportunities—free from discrimination—for all Americans.

On March 28, Secretary Carson had an opportunity to discuss his housing policy priorities at the National Association of Hispanic Real Estate Professionals Conference. It was an important audience for Secretary Carson—the Association represents the largest group of Hispanic real estate professionals, whose primary mission is getting Latinos into homes. This is a critical constituency, because Latinos are expected to form more than 40 percent of new households in the next decade. By 2020, Latinos are expected to account for half of new homeowners. Yet today, only 46 percent of over 14 million Hispanic households own their home, well below the rate in 2006, before the housing crisis, when nearly half of over 12 million Hispanic households owned homes.

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Small Steps to Revive the American Dream of Homeownership

Family in front of housePresident Obama recently gave a speech in Arizona announcing a reduction in mortgage insurance premiums charged by the Federal Housing Administration (FHA). This much-needed policy change will save homeowners with FHA loans an average of $900 a year on their mortgage payments while making the dream of homeownership more affordable and easier to reach for many Americans, including Latinos.

Unfortunately, the key message and potential benefits to hard-working Americans were lost following the announcement. Conservative policymakers were quick to invoke a deeply entrenched false narrative that attributes the collapse of the housing market to unqualified borrowers. For example, House Financial Services Committee Chairman Jeb Hensarling (R–Texas) released a statement calling the reduction in FHA premiums disappointing and warned against “the destructive cycle of boom, busts, and bailouts that poor decisions in Washington produce.

Regrettably, comments like this from Hensarling and others distract from the large body of evidence confirming that the foreclosure crisis was a result of unscrupulous lenders steering minority borrowers into costly subprime loans. The Financial Crisis Inquiry Commission, studies by economists at the Federal Reserve, and a number of other independent investigations have all shown that the housing crisis stemmed from private-sector lenders chasing profits by producing large volumes of unsustainable loans without regard for borrowers. The Department of Justice reached historic settlements with large lenders charged with steering Black and Hispanic borrowers into predatory subprime products, even when these borrowers qualified for safer conventional mortgages. Additionally, a recent study by a private consulting firm refutes the idea that mortgage credit was easily attainable leading up to the housing market’s collapse. Using 10 years of mortgage originations, the study finds denial rates were actually higher before the crisis than they are in today’s tight credit market. Yet, just as banks and other financial institutions received taxpayer bailouts, they responded by restricting access to affordable mortgage credit to only the most pristine borrowers.

This restrictive environment is where we find ourselves today. Access to affordable mortgage credit continues to be a real barrier to homeownership, especially for qualified Latinos and other underserved markets. The reduction in mortgage insurance premiums from the FHA is expected to provide some relief to put many qualified Americans on the path to homeownership and better financial prospects. We hope that in the future, policymakers stop blaming victims of the foreclosure crisis and we encourage the Obama administration to continue doing more to put the dream of homeownership back within reach of Latino families.

Low-income Borrowers & Minorities Need Other Sources of Mortgage Credit

By Enrique Lopezlira, Senior Policy Advisor, NCLR Policy Analysis Center

Sold Home For Sale Sign in Front of New HouseThe financial health of the Mutual Mortgage Insurance Fund, a fund that insures mortgages made by the Federal Housing Administration (FHA) on single-family homes, has improved substantially, according to a recent report by the agency.  Although the fund is still in the negatives, FHA expects the fund to meet its 2 percent capital reserve ratio by 2015—two years earlier than predicted by an independent actuary last year.

This improvement is more impressive when considering the countercyclical role FHA played during the housing crisis.  FHA saw its share of the housing market balloon fivefold during this time.  As private capital fled the industry, FHA continued to ensure that families had access to mortgage credit.  By carrying out this role, FHA prevented a further erosion of both housing prices and jobs.  Continue reading

Will the Housing Market Be a Casualty of the Government Shutdown?

Photo: Jeffrey Turner

Photo: Jeffrey Turner

What’s one way to sabotage the already struggling housing market recovery that millions of Americans desperately need?  Why, a government shutdown, of course.

As we head into the second week of the government shutdown, little progress has been made beyond pointless offers to fund specific programs with piecemeal bills. Realistically, this strategy amounts to political posturing and saving face for a group of lawmakers that continue to obstruct progress—with it, we are no closer to finding a solution.  Continue reading

The Federal Housing Administration: Unsung Hero of the Housing Market

By Jose A. Garcia, Policy Fellow, Wealth-Building Policy Project

The Federal Housing Agency (FHA) is one of the unsung heroes of the housing market.  Despite helping to save the housing market following the mortgage crisis in 2007, the FHA is continuously attacked, erroneously, for its commitment to provide mortgage liquidity in times of need and encourage lending to low income households.

American Enterprise Institute (AEI) recently released a report on the riskiness of the Federal Housing Administration’s (FHA) lending practices.  The report conflates and confounds data to reach misleading conclusions and recommends unnecessary changes.  FHA’s current financial challenges are overwhelming due to loans insured between 2007 and early 2010 as well as a single loan product:  seller-financed mortgages.  However, its losses are not due to creditworthy borrowers with lower credit scores and lower down payments, and AEI would do well to remember that correlation is not causation.  Furthermore, FHA no longer insures seller-financed loans.

If that is not enough for you, let’s look into this further.  For decades, lenders have been able to successfully provide reliable and sustainable mortgage products to low income communities across the country that are profitable for the markets and fair to vulnerable borrowers. A decade long study conducted by UNC Center for Community Capital of 46,000 low-income homeowners found that of those who received traditional 30-year, fixed-rate mortgages with a small down payment, 95% of homeowners were paying their mortgages. UNC’s study shows that correctly structured home loans to low-income households perform quite well, leading to sustainable homeownership and sound business opportunities for lenders.

For many low- and middle-income American households and communities of color, the FHA is a critical part of the mortgage lending repertoire to access homeownership.  By insuring loans made by private lenders—even during severe economic downturns—the FHA provides stability to the housing market and access to credit.  This was never truer than after the recent housing crisis, when credit became difficult to access and many lenders turned to the FHA.  Now the 78-year-old agency may need help to continue its good work, and if it does, American taxpayers should lend a hand.  Doing so benefits not only families looking to purchase their first home but the economy at large.

The FHA helped hold down the fort as the housing market reeled from the aftermath of bad loans and Wall Street greed.  Based on an analysis by Moody’s analytics, the agency’s actions in 2011 alone helped prevent housing prices from decreasing an additional 25% and from a 40% decrease in the sales of new and existing homes, saving three million jobs and half a trillion dollars in economic output.  By stepping in, the FHA rescued tens of thousands of middle-class families from losing their home equity and, in many instances, their homes.  The agency did this by backing a larger share of mortgage originations as private investors fled the housing market.  At the peak of the housing bubble,  FHA insured one-third of loans made in 2009, compared to 5% before the alarms rang in 2006.

Despite the important role that the FHA played in keeping the housing market from total economic collapse, Edward Pinto from AEI stated that, “This paper reports on a comprehensive study that shows the FHA is engaging in practices resulting in a high proportion of low- and moderate-income families losing their homes.”  Fiscal projections point to a shortfall between what the FHA needs to cover all its claims over the next 30 years and how much it has on hand.  FHA’s possible shortfall was not caused by lending to low- and middle-income households but rather due to maintaining liquidity in the housing market.  The shortfall does not mean a definitive need for taxpayer monies to cover it—it will be months before we know that for sure.

The FHA has already addressed unsustainable programs that contributed to its trouble.  Its seller-financed down payment assistance program, which called for the originator to cover the down payment, often resulted in originators inflating the purchase price of a home in order to do so.  This in turn led to financially unstable loans, especially during the recession, that resulted from the subprime debacle.  Congress banned the program from FHA insurance in 2008, after FHA had tried to eliminate the program for years.

While the seller-financed down payment program did not work, most FHA products do.  Low- and middle-income borrowers and communities of color have benefited from sustainable and profitable mortgage loans insured by the FHA.  The FHA provides a necessary service that the conventional market does not provide.  However, by pointing fingers at the FHA, critics are undermining the ability of an agency that has been critical in keeping the mortgage market accessible and affordable, providing sustainable pathways to homeownership for millions of Americans.