Latinos Looking for a Place to Call Home: How Hard Will it Be?

By Agatha So, Policy Analyst, Economic Policy Project

Photo: American Advisors Group

Ten years after one of the worst financial crises in history, our nation’s economy is recovering, and the housing market is finally getting back to “normal”, according to the Harvard Joint Center for Housing Studies’s (Harvard JCHS) State of the Nation’s Housing Report. Yet, for many Americans, especially communities of color and low-income households, the recovery has yet to trickle down into their neighborhoods. Latino families, who were hit hard by the foreclosure crisis, are just now recovering some of what they had lost nearly a decade ago.

In a national poll of Latino voters, an overwhelming majority of respondents said that they would like to own a home. However, these voters were split on whether they thought they could find affordable housing in the neighborhood where they would want to live. Forty percent of voters reported they would be able to find an affordable place to live and in a location where they want to live, and 9 percent said they had already found that place. On the other hand, 47 percent of voters reported that they don’t think it would be possible to find an affordable place to live and in the neighborhood where they would want to live.

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GSE Bill Passed in Committee Doesn’t Do Enough for Latino Community

HFG_LOGO-FullColor-horiz 6 4 12With a 13–9 vote, the Senate Committee on Banking, Housing and Urban Affairs approved the Johnson-Crapo government-sponsored enterprise reform bill yesterday, which would restructure our nation’s housing finance system. While our nation’s housing market is in need of a major overhaul, the legislation approved today simply doesn’t do enough to ensure affordable access to mortgages for Latinos and all communities of color.

In a statement, NCLR President and CEO Janet Murguía expressed serious concerns with the bill:

“Our housing finance system must, above all, maintain a duty to serve all creditworthy borrowers. Although there are components of this bill that we support, the legislation as a whole misses the mark because it fails to ensure that Latinos and other traditionally underserved communities won’t be unfairly cut off from affordable mortgage credit.

“In fact, this bill could actually make getting a mortgage tougher for middle- and low-income families, the same families who were hurt most by the predatory lending and irresponsible gambling practices of financial institutions that led to our housing crisis. We are deeply disappointed by the unwillingness of some members of the committee to adequately address the mortgage credit needs of our community.”

Murguía also stressed that despite the bill’s problems, opportunities still exist to improve it:

“While we are disappointed with the current version of the bill, there is still time to fix the serious structural problems that exist within this legislation.To create a housing finance system that works for all Americans, our concerns about access and affordability must be dealt with before the bill moves to the Senate floor.”

Weekly Washington Outlook – April 21, 2014

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What to Watch This Week:

Congress:

The House:

The House is in recess, returning Monday, April 28.

The Senate:

The Senate is in recess, returning Monday, April 28.

White House:

On Monday, the president and the First Family will participate in the White House Easter Egg Roll.  The event will feature live music, sports courts, cooking stations, storytelling, and Easter egg rolling.  On Tuesday, President Obama will travel to Oso, Wash., to view the devastation from the recent mudslide and to meet with families affected by this disaster, as well as first responders and recovery workers.  Following his visit to Washington state, the president will travel to Tokyo.  On Wednesday night, the president will arrive in Tokyo and remain overnight.  On Thursday, President Obama will hold a state call with the Emperor and Empress of Japan at the Imperial Palace.  Later in the morning, the president will participate in a bilateral meeting and joint press conference with Prime Minister Shinzo Abe of Japan at the Akasaka Palace.  In the afternoon, the president will visit the National Museum of Emerging Science and Innovation to tour and deliver remarks at a youth and science event with students.  Later in the afternoon, Mr. Obama will visit the Meiji Shrine and host a roundtable meeting with Select USA business leaders. In the evening the president will attend the Japanese State dinner at the Imperial Palace with the Imperial family. On Friday morning, President Obama will meet with employees and family members of the U.S. Embassy to Japan. He will then travel to the Republic of Korea. In the afternoon, the president will participate in a wreath laying ceremony at the National War Memorial to honor fallen soldiers. Following the ceremony, he will tour the Gyeongbok Palace. Later in the afternoon, the president will visit the Blue House to participate in a bilateral meeting and joint press conference with President Park of the Republic of Korea . In the evening President Obama will join President Park for a working dinner. On Saturday morning, the president will participate in a roundtable meeting with business leaders to discuss trade policy. Following the roundtable, President Obama will travel to Yongsan Garrison. Here, he will be briefed by U.S.-ROK Combined Forces Command officers and deliver remarks and visit with troops and their families to thank them for their extraordinary service to our nation. In the afternoon, Mr. Obama will travel to Kuala Lumpur, Malaysia. In the evening, he will join King Abdul Halim and Prime Minister Najib of Malaysia for the State dinner at the Istana Negara Palace. On Sunday, the president will visit the National Mosque of Malaysia. Following his visit, he will participate in a bilateral meeting and working lunch followed by a joint press conference with Prime Minister Najib of Malaysia at the Prime Minister’s Office. In the afternoon, the president and Prime Minister will take part in an event at the Malaysian Global Innovation and Creativity Center. In the evening, the president will travel to Malaya University to participate in a town hall with participants in the Young Southeast Asian Leaders Initiative.

Also this week and beyond:

Immigration Reform – Last week, both Speaker Boehner and Majority Leader Eric Cantor made statements about immigration reform as the President marked the anniversary of the introduction of the Senate comprehensive immigration reform bill. The Majority Leader’s came after the president called him to wish him a happy Passover and was widely considered an over-reaction to what was otherwise categorized as a “pleasant” conversation. Later in the week, after much speculation about the status of immigration reform in the House, Speaker Boehner’s press secretary emailed a number of reporters asking their editors to “chill” and emphasizing that the focus remained on job creation.  He provided the following quote:  “Nothing has changed.  As he’s said many times, the Speaker believes step-by-step reform is important, but it won’t happen until the president builds trust and demonstrates a commitment to the rule of law.”

Smarter Sentencing Act – While the Senate could begin consideration of Senator Dick Durbin (D-Ill.) and Senator Mike Lee’s (R-Utah) Smarter Sentencing Act as soon as the next work period, the Administration is planning to grant clemency to “hundreds, perhaps thousands” of imprisoned non-violent drug offenders.  It is possible that new procedures to handle the large number of applications could be announced as soon as this week.

Housing Finance Reform – The Senate Banking Committee has scheduled a mark-up of the Johnson-Crapo housing finance overhaul bill for April 29.

Minimum Wage – A procedural vote to advance a minimum wage hike has been postponed again and is now expected in the Senate sometime in early May. However, the next work period in the Senate is now likely to be dominated by judicial nominations and several bipartisan measures, including the long-stalled Shaheen-Portman energy efficiency bill. As a result, it is possible that a vote on minimum wage could be put off once again.

Tax Reform – Following the recess, Senate Majority Leader Harry Reid has said he plans to bring to the floor the so-called “extenders package” approved by the Senate Finance Committee last week. The measure extends retroactively the majority of tax credits that expired at the end of the year. In the House, Ways and Means Chairman Dave exercise. Camp is instead examining making certain tax credits permanent rather than going through the annual extenders

Avoiding the Debt Cycle: Problems with Payday Loans

Photo: Dan Iggers

Photo: Payday loan shop. Dan Iggers, Flickr, Creative Commons

recent report by the Consumer Financial Protection Bureau (CFPB) confirms what many consumers have experienced and many advocates have long claimed: payday loans are inherent debt traps, locking borrowers in a cycle of rollover loans that can last several months and ultimately cost hundreds of dollars in interest. With 80 percent of consumers rolling over payday loans five to six times, interest rates for these loans climb into the triple digits. Regulations are needed to protect consumers from harmfully designed and largely unchecked products in the financial marketplace.

The future of these products will affect many low-income Latino and other minority consumers. Significant racial and ethnic disparities exist in access to mainstream financial services. Research from the FDIC shows that 53 percent of Blacks and 43 percent of Hispanics are either unbanked or underbanked. This leaves little choice for these communities when seeking products and services to meet their financial needs.

Unfortunately, the most ubiquitous and convenient providers of these alternative financial products are payday loan lenders, nationally numbering more storefronts than McDonald’s and Starbucks combined. A new study released by the Center for Responsible Lending found that race and ethnicity are the leading factors in determining payday lender locations, with concentrations of these businesses in lower-income and largely minority communities.

USCurrency_Federal_ReserveAccording to testimony before the Senate Banking Committee, over 58 percent of payday loan borrowers report using them to pay monthly expenses such as utilities, rent, and food. However, a payday loan used to cover these basic expenses will usually require a balloon payment averaging $400 from a borrower’s very next paycheck. This results in a pattern for countless borrowers who pay off their loan and then immediately take out another loan to cover their cost of living expenses. This revolving door of loans creates a debt trap that can leave borrowers in a worse financial position than before they took out the original loan.

The CFPB recognizes the importance of addressing this issue. A recent CFPB field hearing in Nashville, Tenn., focused on payday loans. According to CFPB’s Director, Richard Cordray, given the need for more consistency and oversight in payday lending, the agency intends to issue a rule in the near future.

NCLR welcomes any effort to reduce household debt and help Latino families continue recovering from the economic crisis, and we will watch closely for CFPB action on this issue. While access to small-dollar credit is critically important for low-income families, the current structure of payday loans leaves little choice but to roll over loans once a borrower is ensnared in a debt cycle. When the interest and repayment terms prevent a reasonable likelihood of paying off the total balance, consumer protections vanish.

Consumers now have a federal agency to monitor nonbank products such as payday lending, which went unregulated for too many years. The CFPB has a responsibility to ensure that any forthcoming rules adequately protect consumers, especially those who are most financially vulnerable.

In Fannie Mae and Freddie Mac Overhaul, Don’t Leave Out Latino Families

(This was originally posted to the Home for Good blog.)

HFG_LOGO-FullColor-horiz 6 4 12Last week, the Senate Banking Committee announced a new bipartisan agreement to overhaul our nation’s housing finance system by restructuring government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. The draft discussion bill, authored by Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho) (Johnson-Crapo), preserves the 30-year fixed mortgage and takes concrete steps to prevent a future housing crisis.

While we welcome these meaningful steps toward sustainable housing finance reform, the Johnson-Crapo draft contains shortcomings that reduce affordable access to credit for Latino families and underserved communities.

Under the proposed system, Fannie Mae and Freddie Mac would be dissolved and replaced with private capital overseen by a new government-backed mortgage-bond insurer and regulatory agency called the Federal Mortgage Insurance Corporation (FMIC).

Modeled after the FDIC, which insures bank deposits, the FMIC would provide a government guarantee for mortgages while private firms would be required to accept losses of up to 10 percent of capital. In exchange for the guarantee, firms would pay a small 0.1 percent fee on all mortgage securities to fund affordable housing and community development. This small fee would finally fund the National Housing Trust Fund and the Capital Magnet Fund, two essential affordable housing programs that NCLR has long advocated for. These funds have the potential to make significant, much-needed investments in affordable housing, yet they have never been funded since their inception more than five years ago.

Family in front of homeThough the bill contains numerous bright spots for the Latino community, Johnson-Crapo also removes beneficial features that exist in the current housing finance system under Fannie Mae and Freddie Mac. These features should be reworked in the Johnson-Crapo proposal to make affordable housing a real priority for housing finance reform.

One example is that Fannie Mae and Freddie Mac maintain a “duty to serve” the entire housing market, and as part of their public mission, they are required to provide financing for affordable housing. In contrast, the Johnson-Crapo system replaces this duty to serve and its affordability goals with an incentive-based fee structure to fund affordable housing programs. This mechanism, while creative, may not sufficiently address our current and future affordable housing needs. The fee can be raised or lowered based on how well entities perform in lending to underserved borrowers, but the criteria for who is considered high-performing is unclear. This could lead to the housing market not adequately serving the Latino community.

Photo: Jeffrey Turner

Photo: Jeffrey Turner

With regard to fair housing and fair lending, Johnson-Crapo does not explicitly prohibit involved entities from discrimination based on race, gender, national origin, familial status, and other characteristics. Failing to include such statements, combined with a lack of a strong regulatory body and transparency requirements, could create a recipe for failure to achieve fair lending that is free of discrimination.

Finally, the proposal does not incorporate the proven benefits of housing counseling in a post-GSE landscape. Research shows that homeowners who work with qualified housing counselors are less likely to be delinquent on their mortgages. When faced with foreclosure, they’re more likely to receive modifications. If the FMIC replaces the GSEs, the new agency should integrate housing counseling into its programs.

As debate begins on the merits of the Johnson-Crapo bill, Congress should not forget that a strong and sustainable commitment to fair lending and affordable housing is crucial to the well-being of not just the Latino community and other underserved groups, but the entire economy. Communities of color were affected most severely during the housing crisis, and they deserve a chance to rebuild what was lost. More importantly, these communities are the future of the housing market. If it is going to succeed, the new housing system cannot shut them out.