Mark Zandi of Moody's on the need for a government backstop to mortgage finance

by Ethan Handelman, National Housing Conference

The housing bubble came from a “mortgage securitization machine [that] was fundamentally broken,” writes Mark Zandi in the Washington Post. He gives us a brief, cogent explanation of how private lenders and, to a lesser extent, regulators deserve most of the blame for the mortgage bubble, and shows that Fannie Mae and Freddie Mac simply were late to the party rather than the prime movers.

Getting recent history right is crucial to future plans. As we spend perhaps the next few years sorting out how to make mortgage finance work:

• effectively—to serve all of the responsible borrowers who need mortgage, and
• safely—to avoid another bailout,

we should make sure we preserve the essential government backstop and regulatory functions that keeping the mortgage system operating at all now and will keep it functioning effectively in the future.

FTA recognizes need to coordinate transit investments and affordable housing policy

by Ethan Handelman, National Housing Conference

This week, NHC loses a gifted and hardworking policy associate, Clare Duncan. Clare isn’t moving too far away in her new job at Stewards of Affordable Housing for the Future, and as her new organization is both an NHC member and extremely active in the affordable housing world, we'll get to see plenty of her. Still, we'll be sad to see her go.

Clare did leave us with a parting gift, though. During the last week of Clare's tenure, we learned of the success of a major effort that she, others at NHC/CHP and the broader housing community have worked very hard on over the past two years to strengthen the coordination of housing and transportation policy.

Yesterday, the Federal Transit Administration (FTA) published a proposed rule for the New Starts / Small Starts programs that funds new transit lines and major extensions of existing lines. This includes subway, commuter rail, light rail, bus rapid transit, etc. The proposed rule reflects input on an Advanced Notice of Proposed Rulemaking issued in June 2010 asking for feedback on how to improve the New Starts / Small Starts program. Through the housing and transportation working group, NHC worked to develop comments on the advanced notice and jointly submitted comments with Enterprise Community Partners and Habitat for Humanity International. The comment letter was accompanied by visits to the Department of Transportation and HUD to discuss the issue, as well as a subsequent regulatory response that Clare prepared together with Enterprise. Many other NHC members and other organizations also contributed to the cause, submitting their own comments on the importance of coordinating housing and transportation policy in the New Starts process.

In yesterday's announcement, FTA accepted the basic premise advanced in the NHC/Enterprise/Habitat comment and by the housing community more broadly that the New Starts allocation process should be modified to create incentives to preserve existing affordable housing near planned transit stations and to ensure that a share of newly developed housing in those areas is affordable to low- and moderate-income families. FTA also agreed with the argument that the locations of publicly supported affordable housing should be considered in planning the routing for new transit lines.

This represents a major shift in federal policy that if ultimately adopted and implemented appropriately could have a major lasting impact in ensuring that families of all incomes can afford to live near newly developed transit stations. We are proud of the role that NHC and CHP played in advancing this issue and congratulate all of the organizations in the housing and transportation communities that worked together to achieve this outcome.

A proposed rule is just that—proposed. There's much to be done to consolidate this victory and ensure that the final rule adopts the proposed policy and the final guidance implements in robustly and effectively. Among other steps, we plan to reach out to the transportation community to strengthen our mutual understanding of the issues we both face and the benefits of collaboration. In the meantime, we’re pleased to announce the progress to date and look forward to working with everyone on next steps.

If you’re interested, take a look at the proposed regulations. If you search for the word "housing," and skim those passages, you'll catch the general tenor.

Please join the conversation in the comments section below and let us know what you think about this rule and how you think we can continue to strengthen housing and transportation policy.

The State of Housing

by Ethan Handelman, National Housing Conference

In last night’s State of the Union address, President Obama paid specific attention to the housing crisis and its economic cost to the country. He called for “smart regulations” to ensure responsible behavior by all participants in housing and mortgage markets. And he called for a mass refinancing plan, which could help many existing homeowners if implemented correctly. We eagerly await details and hope for thoughtful, nonpartisan attention to housing.

The speech underscores the critical need for federal action to support housing, and through housing, a broader economic recovery. As the Fed’s recent paper and statements made clear, weakness in housing markets is preventing job creation, new investment, and economic growth. Meanwhile, millions in America, from working families to the poorest of the poor, cannot find affordable housing. Disruptions created by foreclosures and neighborhood disruption are making the problem worse, not better. And, as the Center for Housing Policy’s research shows, declining home prices have not solved America's housing affordability problems as the number of working families paying more than half their income for housing continues to grow.

NHC applauds the renewed attention to mortgage relief and effective regulation, but we know that more is needed. Housing isn’t an issue for one party or one region of the country—it’s a challenge that all in America are facing, one that demands effective, nonpartisan policy response. We need to:

• provide effective alternatives to foreclosure that minimize the disruptions to households and neighborhoods
• clear the inventory of vacant homes using rental conversion and others means in ways that stabilize housing markets and protect neighborhoods
• ensure that credit is broadly available to responsible borrowers
• renew federal support for housing programs that create affordable homeownership and rental opportunities for low-income households while strengthening communities

Federal action is essential, and we will only achieve the needed action by coming together around proven solutions that provide decent, safe, and affordable housing for all in America.

New study shows high downpayment requirement would exclude many for little benefit

by Ethan Handelman, National Housing Conference

Setting a high downpayment or other requirements for mortgage loans would do far less to reduce defaults than it would to exclude borrowers with low incomes or from communities of color from homeownership, according to a new report from the Center for Responsible Lending and the Center for Community Capital at the University of North Carolina. The research findings focus specifically on the proposed rule for qualified residential mortgages (QRM) which implements parts of the Dodd-Frank financial reform law. Since the proposed rule came out, NHC and many others in the housing community have united around this very issue—that federal regulation should not set a 20% downpayment as a threshold for mortgage lending (see, for instance, NHC’s comment letter and past blog posts).

What’s new in this study?

• Directly addresses the tradeoff between reducing defaults and restricting access to credit. Proposed restrictions based on loan-to-value ratio (LTV), debt-to-income ratio (DTI), and credit score exclude a lot of borrowers to achieve very small reductions in the default rate. The study’s concept of benefit ratio provides a new way of evaluating the appropriate level, if any, of LTV requirement. For instance, the study shows that an LTV restriction of 97% (comparable to a 3% downpayment) provides more benefits in reducing default while excluding fewer borrowers than a 90% or 80% LTV.
• Relies on new data. The data set for the study includes data from loan servicers and from investor pools, which means the study could analyze more subprime and Alt-A mortgages (the more problematic loans, in other words). Data released with the proposed rule, in contrast, came from the GSEs and therefore skewed away from subprime loans.
• Starts from a baseline of product type restrictions. QRM is a layer of regulation on top of qualified mortgages (QM), which exclude many problem loan types such as negative amortization or exploding adjustable rate mortgages. The study therefore looks at the incremental change that QRM would make on top of the QM restrictions. Not surprisingly, QM alone goes very far to reduce defaults.

Regulators have yet to release a revised proposal. They and others should take a hard look at this new study before moving forward on QRM.

Where families go after foreclosure

by Laura Williams, Center for Housing Policy

One of the most interesting questions about foreclosures is about what happens afterwards. Does the house sit vacant? Do criminals steal the copper pipes? Is the yard kept up? Does crime increase in the neighborhood? Does the home become a rental property? What happens to the family?

The Center will be hosting a webinar on that last question next week (register here!), and in advance I wanted to bring up a couple of additional studies that have tried to find out what happens to families after a foreclosure. In the first, from October of last year, Federal Reserve Board and Urban Institute researchers found that families’ credit scores are very slow to recover after a foreclosure, driven in part by other delinquent payments on cars and credit cards following the loss of their home. This problem has gotten worse in the current economic turmoil. This is not good news, as a low credit score can make it more difficult to access credit in the future, and even make securing an apartment more difficult.

But the other study, also from the Federal Reserve Board, found that while a foreclosure does raise the probability of moving, most families don’t end up in lower-quality neighborhoods or more crowded conditions. This seems like a pretty good thing. Their findings support the notion that only about half of foreclosures are actually completed, so while the owners’ credit scores take a hit, a loan modification or other work-out allows the family to stay in their home. For those who do move, most seem to end up in rental housing, but in similar neighborhoods. Only a small number move in with older adults (presumably parents) and even fewer with other families.

The study from the Urban Institute that we’ll be discussing examines how foreclosures impact children and schools. We know that unplanned moves can negatively impact education; this report takes that finding a step further to compare families’ neighborhoods and school before and after a foreclosure to assess the impact of losing a home on children.

In some ways, these three studies are all somewhat unsatisfying. We cannot know definitively what trade-offs families are making to stay in a neighborhood, make up for poor credit or to keep their children in school. That being said, all three of these are windows into the impact foreclosures are having on people and give us insight on what policies and practices can improve the current situation. At the end of the day, that’s what’s most important.

NHC, U.S. Green Building Council and 14 partners release recommendations to Obama Administration for executive action to accelerate “greening” and improve sustainability in buildings

by Blake Warenik, National Housing Conference and Center for Housing Policy

Along with 14 partners, NHC and the U.S. Green Building Council today announced the release of a report that recommends nearly three-dozen executive actions across 23 agency programs where the Obama Administration can drive the economic and environmental benefits of green building without new legislation.

The report, Better Buildings though Executive Action: Leveraging Existing Authorities to Promote Energy Efficiency and Sustainability in Multifamily and Commercial Buildings, builds on a 2010 report that identified nearly 100 legal authority opportunities across 30 existing federal programs worth over $72 billion to improve energy efficiency in U.S. building stock.

“The report identifies a host of actions that federal agencies can take to make housing greener in ways that create jobs, save money, protect the environment, and make homes healthier,” said Ethan Handelman, NHC Vice President for Policy and Advocacy. “This about good governance, not partisanship—putting into action the decisions already made by legislators.”

To download the full report, visit nhc.org.

On Thursday, Jan. 26, NHC and U.S. Green Building Council will also host a forum on greening the existing stock of single-family homes at USGBC offices in Washington. For more information, see the event listing on nhc.org.

Irony in the Washington Post

by Ethan Handelman, National Housing Conference

This weekend’s Washington Post juxtaposed two pieces with, I suspect, unintentional irony:

• Debbie Cenziper asserted that DC housing officials had authorized homeownership assistance at unsustainable levels, resulting in foreclosures, and she implied that HUD officials had not overseen the program sufficiently.
• Courtland Milloy opined that inclusionary zoning restrictions, which induce developers to create affordable housing as a part of market-rate housing development, are over-regulated because public agencies have to verify that affordable homes are not being rented for profit and that the public funds which provide equity to the homeowners are used properly.

So, is it that we aren’t watching use of affordable housing funds carefully enough, or are we overregulating? One can certainly argue with the specifics of the pieces, and I’m sure others will. But the irony of them appearing together in the Post is hard to miss.

Sadly, neither piece deals with the reality that human enterprises are imperfect, both because of frequent human errors of judgment and infrequent human errors of conscience. Small and large businesses have to double-check their employees and government agencies have to double-check their counterparties. Double-checking adds cost and some loss of efficiency, and we’re continually adjusting to find the right balance between trust and verification. I’d rather see that nuance in reporting on affordable housing than the painful irony we found this weekend.