Tuesday, September 2, 2014

Lessons for housing from Ferguson

What we're building
by Ethan Handelman, National Housing Conference

As I watched the accounts of protests in Ferguson, Missouri, this month from a distant perch in DC, I’ve been asking myself whether different housing policy over the past decades could have averted some of this tragedy and unrest.  Had we built more inclusive communities in America, would things be different? The immediate and pressing issues of racial justice and public safety quite reasonably dominate the public discourse right now. But as we think on all that has transpired, we should take the events in Ferguson as a call to avoid the mistakes of past housing policy and build inclusive, rather than segregated and polarized, communities and make housing a pathway to the middle class.

Policy decisions at the local, state and federal level shape where and how we live. The patterns of housing we see in Ferguson (and Grosse Pointe and Boston and Atlanta and elsewhere) emerged from many years of government and private actions that encouraged segregation by race and by wealth. The Federal Housing Administration’s explicit redlining excluded African-Americans from financing homes in many communities, effectively forcing them elsewhere. Some local policies were brutal and explicit, others were subtle and implicit, and some persist today (see James Loewen’s database of “sundown towns” for examples). Segregated communities emerged from years of pressure exerted politically and economically on the housing choices of Americans.

Housing is also part of how American families build wealth and enter the middle class. But in the most recent foreclosure crisis and ensuing recession, African-American and Hispanic households were hit hardest. Between 2005 and 2009, median net worth for White households fell from $134,992 to $113,149. That’s 16 percent. For African-American households, it fell from $12,124 to $5,677. That’s 53 percent. And for Hispanic households, it fell from $18,359 to $6,325. That’s 66 percent.

Housing is only one dimension of the current problems—our country needs to engage squarely with the issue of race and racism in many areas. But there are housing policy steps that can move America in the right direction.  We can help localities find ways to build communities that welcome people of all backgrounds and income levels and let them live near where they work and study. We can make sure our mortgage finance rules don’t exclude low-wealth families from the best financing. We can replace the current patchwork with a durable housing finance system that provides opportunity to all.

But most of all, we need to acknowledge that the neighborhoods of entrenched poverty and racial segregation are neither inevitable nor acceptable. Our collective choices—as households, governments and institutions—created these neighborhoods, and our future collective choices can change them for the better. 

Research to help build inclusive communities

Developing solutions through research
by Lisa Sturtevant, Ph.D., National Housing Conference

Inclusive communities are places where people from diverse socioeconomic backgrounds can find safe and affordable housing, with access to high-quality services and amenities. In many high-cost areas, however, the market does not supply a sufficient amount of housing for low- and moderate-income households. As a result, the public sector—through direct subsidy, land use and zoning changes, and other means—can provide the means necessary to promote inclusivity. But the public solutions and the public-private partnerships that have evolved to meet the housing needs of lower-income households are not straightforward. And, as the recent controversy over the so-called “poor door” in New York City has underscored dramatically, inclusive housing policies can be divisive and the discussion around the best approaches can become contentious.   

NHC’s Center for Housing Policy strives to provide research and perspective around the issue of inclusionary housing policy, with the goal of helping to fairly frame the debate and provide evidence-based analysis of potential policy interventions. Senior research associate Robert Hickey recently wrote a blog post that clearly lays out the case that much of the current debate includes misplaced outrage against a particular building and masks the larger, more pernicious problem of neighborhood segregation in the country. 

Some of his analysis is based on a compilation of inclusionary housing programs the Center recently completed in conjunction with the National CLT Network and the Lincoln Institute of Land Policy. The research found 512 local inclusionary housing programs in 27 states and the District of Columbia. In addition to revealing the geographic breadth of inclusionary housing programs, this research and the related database has helped to increase knowledge of program characteristics and to shed light on the diversity in the design and implementation of inclusionary housing programs nationwide.

Our additional work on inclusionary housing includes Robert’s recent research report and webinar on inclusionary upzoning, a technique by which increased development potential is made available to builders in exchange for creating affordable housing units, above and beyond any baseline requirements. This approach, used in New York City and other cities, and urbanizing suburban communities, creates opportunities and challenges. This best practices research helps clarify the issues and approaches.

In the weeks to come, the Center for Housing Policy will be updating and expanding HousingPolicy.org, its online resource for state and local housing policy, to include new resources and research on inclusionary housing policy. With expanded resources, access to a national directory and evaluation of ongoing inclusionary housing programs, this site will help local housing planners, advocates and developers who are all working to build inclusive communities.

“Poor door” discussion misplaces outrage, masks solutions

by Robert Hickey, National Housing Conference

The ongoing media discussion of the “poor door” development in New York City misses the forest for the trees by focusing on segregation within an individual building, rather than the more pernicious segregation of our nation’s neighborhoods and schools.

At the center of the media controversy is the city’s inclusionary housing policy and the developer of a luxury housing property on New York’s Upper West Side. Under the terms of the voluntary policy, the developer priced 20 percent of the homes at below-market rate rents, in perpetuity, in exchange for a zoning bonus. The developer also gained access to public subsidies, including a lucrative property tax exemption, by building the affordable units “on-site.” But the developer clustered the affordable units within a low-rise building while placing the luxury units in an adjoining tower, and made key amenities available exclusively to luxury tenants. Furthermore, the property is designed so as to appear to be a single building, but has separate entrances for the affordable- and market-rate-units.

Clearly there’s room for improvement here: if you’re going to offer extra financial incentives to developers for complying with the “on-site” option in inclusionary housing (as NYC does), these mixed-income properties should meet higher standards of integration and communicate that all residents are welcome and afforded equal rights as tenants. If anything, the poor-door controversy clarifies why most of the nation’s 500+ inclusionary housing policies include basic guidelines to ensure the residents of the affordable apartments or condos aren’t stigmatized or treated unequally.

But we mustn’t lose sight of the ultimate goal of inclusionary housing: improving location choices for lower-income families, and increasing the availability of decent, affordable homes in neighborhoods with good schools, quality job access, and healthy living environments. The Extell development on the Upper West Side needlessly offends with its design, but it’s also creating 55 affordable, quality homes in an amenity- and opportunity-rich community that is increasingly off-limits to poorer residents. Developments such as these may be better termed “off-site” or “adjacent.” But with small design improvements (like just making the buildings separate!) they are a significant improvement to the status quo of exclusionary, segregated neighborhoods.

New York City and jurisdictions throughout the country continue to have many highly segregated communities – a legacy of decades of exclusionary zoning, redlining, and the market’s inabilities to create balanced neighborhoods. This leads to separate and unequal schools, and restricts too many opportunities to those with means. Inclusionary housing policies help restore the promise of equal opportunity by linking market-rate development to affordability, fostering mixed-income neighborhoods, and helping lower-income households access better schools and healthier living environments where they can thrive

But for inclusionary housing to work, we need developers to build new housing. To avoid stifling the market, inclusionary housing policies need some degree of flexibility.  The economics of creating mixed-income housing is tricky on certain properties and in many high-cost areas. For this reason, many jurisdictions structure their policies with a menu of options, including the option to develop the affordable homes “nearby but off-site.”  These homes still have access to the same neighborhood schools and amenities; they’re simply distinct properties. And in many cases this arrangement makes it easier to deepen the affordability of the below-market-rate homes. 

As inclusionary housing policies become more common and sought-after in cities and town centers, it’s important to keep the big picture in mind, and keep our inclusionary housing policies flexible. Mixed-income buildings are ideal.  But we need to be creating multiple pathways to more inclusive neighborhoods.

Friday, August 29, 2014

RAD isn’t as radical as it sounds

By Ethan Handelman, National Housing Conference

The name of HUD’s Rental Assistance Demonstration (RAD) has a phonological connection to “radical,” but it’s far from it in practice.  Mostly, it’s trying proven techniques for financing and renovating older affordable housing and applying them to public housing properties that all agree need attention.  It’s still a pilot program, and rightly so, but over time I expect it will prove to be the future direction for fixing up long-neglected public housing.  

Recent coverage of RAD by the American Prospect highlights the concerns of some tenant organizations advocates who worry that changes to the financing and ownership structure of public housing may affect tenants’ rights and property operations over the long term.  These concerns come in part from a complicated history around affordable housing marred by too-abrupt property conversions, explosive politics, poorly planned demolitions and redevelopment and enough bad actions to create distrust on all sides.  I expect that implementation of the program will calm many of these fears as residents see property improvements and a continued commitment to maintaining affordable housing properties in these communities.

The American Prospect article missed a few points on the potential benefits of RAD bringing private capital to public housing:

1.   Public housing authorities (PHAs) can continue to own and operate the properties after they go through RAD.  RAD allows a private developer to come in, but it does not require it.  PHAs with the capacity to do the financing transaction and continue operating the property can do so, and many are.  Depending on the specifics of the transaction, a technical sale of the real estate may be necessary, but even then, it can be to a new entity controlled by the PHA.

2.   There are proven benefits to having private capital in affordable housing.  The default rate for Low Income Housing Tax Credit properties is well below 1 percent (even during the financial crisis), in large part because you have an investor, often a syndicator, and a lender all focused on the success of the property.  That level of oversight and asset management is far more than public-sector bureaucracy has ever provided with past programs like public housing, Section 202, Section 236, Section 221d3 and the like.

3.   HUD's Section 236 mortgages were 40 years with a prepayment option at 20 years.  The article misstates this as 30-year mortgages.  This is a minor factual point, but it’s a reminder that past approaches to creating affordable rental properties aimed at very long term commitments without providing an effective source of capital to renovate properties over time.  Indeed, that’s why NHC has been researching lifecycle underwriting as a way to think constructively about the long-term sustainability of affordable housing.

In short, RAD isn’t radical.  The Low Income Housing Tax Credit program has relied on private capital for more than 25 years, and it is a singularly successful affordable housing tool, and RAD builds on that success and the lessons learned.  NHC has been working with lenders, PHAs, developers and HUD to iron out key program details that affect the permanent mortgage debt for these properties.  As the pilot moves forward, let’s watch it closely and make sure we get it right without letting our fears get in the way.

Thursday, August 21, 2014

Bank of America settles with DOJ over mortgage lending case

By Rebekah King, National Housing Conference

On Thursday, Aug. 21, Bank of America and the U.S. Department of Justice (DOJ) reached a $16.65 billion settlement.  The settlement resolves federal and state claims against Bank of America and its affiliates, Countrywide Financial and Merrill Lynch, regarding their mortgage lending and securitization activities.  This is the largest civil settlement ever reached between the U.S. government and a single company, and it includes $7 billion in funding for homeowner relief, community development and affordable rental housing activities that families and communities across the country will welcome. 

The settlement has two parts:  $9.65 billion will go toward settling legal claims with federal and state governments, and $7 billion to consumer relief.   There are specific provisions around affordable rental housing and tax relief for borrowers that are of particular note.

Federal and state government: The $9.65 billion includes a $5.02 billion fine under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).   The remainder, approximately $4.6 billion, will go to settle federal claims related to Bank of America’s origination and sale of mortgages, to settle claims with the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC) and to settle claims with six states: California, Delaware, New York, Kentucky, Maryland, and Illinois.

Consumer relief: The $7 billion in consumer relief will be a mix of cash payments and credit for eligible activities.  The eligible activities for homeowners in distress include first lien principal forgiveness, forgiveness of forbearance, forbearance, extinguishment of second liens and forgiveness of junior liens.  Bank of America will also receive credit for low to moderate income lending that supports homeownership. Community reinvestment and neighborhood stabilization activities are eligible under the settlement and include funding for demolition/property remediation of abandoned residential properties; mortgages or REO properties that Bank of America donates to local governments or nonprofits; funding to capitalize Community Development Financial Institutions (CDFIs), land banks and community development funds; donations to Interest on Lawyers’ Trust Account (IOLTA) organizations (which provide funds to legal aid organizations); and funding to HUD approved housing counseling agencies.

Rental housing: Bank of America can receive credit, as part of its consumer relief agreement, for financing affordable rental housing.  Its support must be to properties for low-income households (equivalent to Low Income Housing Tax Credit standards) and that meet additional income and unit size criteria to ensure low income families benefit from the rental housing.  A possible indicator of how these requirements will play out are the specifications that are part of Citigroup’s recently announced program under its settlement. 

Borrower tax relief: Additionally, as explained in the DOJ briefing this morning, Bank of America will provide $490 million plus the $7 billion in consumer relief to support tax relief for borrowers who receive loan modifications or principal forgiveness.   Bank of America will provide these funds unless Congress passes an extension of the Mortgage Debt Relief Act (something NHC and many others have repeatedly called for).

Bank of America must reach minimum credit levels in the six states that are part of the settlement so its efforts may be targeted to California, Delaware, Kentucky, New York, Maryland, and Illinois.  According to the settlement statement, Bank of America has a deadline of Aug.31, 2018, to meet all of its obligations. 

As with other mortgage settlements, the parties involved have not explained the particular distribution of relief amounts among federal agencies, state governments, community benefits and consumer relief.  And while these financial amounts are notable because of their size, it is unclear how much of the consumer relief and community benefits will be new activity on the part of Bank of America and how much recognizes current or planned business activities.  Settlement payments, excluding the $5 billion FIRREA fine, are also tax deductible for the bank.  We are hopeful that more details will emerge from the settlement monitor and the parties involved.

Details aside, as Associate Attorney General Tony West stated in the DOJ briefing Thursday morning, this is one of the largest financial relief packages ever reached, and $7 billion in funding for homeowner relief, community development, and affordable rental housing activities will have significant positive impacts on communities across the country.

Thursday, August 7, 2014

Impacts of CFPB proposed rule on HMDA reporting

by Rebekah King, National Housing Conference

The Consumer Financial Protection Bureau (CFPB) has released a proposed rule that would expand Home Mortgage Disclosure Act (HMDA) reporting requirements. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) requires CFPB to expand HMDA’s dataset to include more detailed information about mortgage lending.

Why does mortgage data matter? In summary, the proposed rule would greatly expand our understanding of what is happening in the mortgage market.  Up until now, HMDA has provided a limited (but still useful) view of mortgage lending. Although the final content of the rule is still being determined, as proposed, the HMDA data under the new rule would allow CFPB to see loan pricing and distribution in new and varied ways as well as gain an understanding of how reforms are impacting the mortgage market, like the Ability-to-Repay and Qualified Residential Mortgage rules. The expanded data collection could give everyone greater knowledge about actual loan costs and better information about applicants seeking mortgage financing. In short, we’ll know more about the effects of policy changes and whether more or different actions are needed.

What’s HMDA? It’s a 1975 law that requires lenders to report on home loans for which they receive applications, originate or purchase. Current data points include loan volume by loan type (purchase, refinance, improvement, non-occupant, geography, gender, race, ethnicity and income); they also include minimal pricing information and information on applications denied, withdrawn, incomplete and reasons for denial. 

What’s new in this proposal? New collected information will include total points, fees and rate spreads; duration of teaser rates, prepayment penalties and non-amortizing features; unique identifiers for the loan and loan officer; property value and improved property location data; and borrower age and credit score information. CFPB is also considering including other data points, in addition to the new requirements of Dodd-Frank. These potential data points include a borrower’s debt-to-income (DTI) ratio, more information on reasons for application denials, qualified mortgage status, combined loan to value ratio, automatic underwriting systems results and when a property is deed restricted for affordable housing. 

What’s covered? Essentially any dwelling secured loan would be reported on, and unsecured home improvement loans would no longer be included. 

Who reports and how? In addition to enhanced reporting, the proposed rule would standardize the reporting threshold for depository and non-depository lenders. Institutions making more than 25 closed-end loans or reverse mortgages in a year would have to report on those loans, but entities with fewer than 25 loans would not have to report. If depository institutions are below the minimum asset threshold, they would also continue to be exempt. The rule would align data requirements with industry standards, specifically the standards endorsed by Mortgage Industry Standards Maintenance Organization (MISMO), expressly to meet Fannie Mae and Freddie Mac data needs. This change is designed to make it easier for lenders to report required data points, but may impose an additional burden on smaller lenders and community banks that do not sell loans to GSEs. Lenders and financial institutions have also expressed concern about data security as well as privacy of borrower data. The CFPB is not planning to publicly disclose the new data points at this time.

Frequency of reporting? Financial institutions are still required to report annually under the proposed rule, but institutions with more than 75,000 reported transactions would be required to submit data quarterly; this change would have impacted 28 institutions in 2012.

What should I do? The number of potential new requirements is significant and NHC encourages its members to comment on this proposed rule so that the final rule accurately reflects practical realities of mortgage lending, while improving our knowledge of trends in the housing market. The proposed rule is available for comment until October 22, 2014.

Tuesday, August 5, 2014

No sleep ‘til Solutions

by Chris Estes, National Housing Conference

Congress has left town for August recess without making much progress on appropriations or other major legislation. We expect a continuing resolution to keep program funding at current levels through the November election. At that point, election outcomes will dictate how much progress can be made on legislation.

This does not mean, however, that Washington or NHC will be inactive this month. We are working to finalize all of the details of Solutions 2014, the National Conference on State and Local Housing Policy, and have many exciting workshops scheduled that make this a can’t-miss event for the affordable housing community. Please take a look at the agenda on our website to see all that is offered.

As with last year’s event in Atlanta, we will offer four main workshop tracks, plus a track of bonus sessions and a track of roundtable discussions for experienced practitioners. Ethan writes about our Restoring Neighborhoods track below, but I wanted to note the workshops focusing on both reinvestment and gentrification strategies in Ohio, Georgia and California, and on how two cities have used HUD’s Rental Assistance Demonstration to revitalize their public housing stock.

Again this year, NHC is partnering with the Innovative Housing Institute on the Inclusive Communities track. Inclusive Communities will feature workshops on how Boston, Chicago and Seattle have been leaders in the active production of affordable housing in high opportunity areas, how localities have included or preserved affordable housing within walking distance of transit stations and how cities like New York and San Francisco have used upzoning to increase affordability requirements.

Our Housing Intersections track builds on last year’s research-focused offering and seeks to make practical connections among the many ways housing supports outcomes in health, education and economic opportunity. This track will feature workshops that look at how housing demands differ between baby boomers and millennials and how localities can attract, serve and retain different age groups over their lifespans; how Arizona has developed a Health Community Collaborative among the housing, community development and health sectors; and the mechanics of housing and education collaborations in San Francisco to improve outcomes for low-income children.

One area NHC specializes in is best practices in communicating about affordable housing. Our Housing Communications track again this year will focus on the most promising strategies and latest research in promotion, education and advocacy on affordability issues. This includes workshops specifically targeted to affordable housing developers (especially those with limited communication staff); the science behind effective messaging for more affordable, inclusive communities, and an opportunity to hear from journalists and communicators about the new media landscape and what it means for our work.

As a lead-in to Solutions, NHC is offering a number of webinars on a variety of topics throughout the fall. Coming up on August 12, NHC’s Amy Clark, with Janet Byrd and Matt Kinshella of Neighborhood Partnerships, will explain how science-based communications techniques can be beneficial and how you can incorporate the tools in your work. See below for more information.

We expect Solutions 2014 to be the only national event that brings together such a wide range of regional, state and local practitioners working on affordable housing issues. If you are interested in being a sponsor at this unique event, please visit the sponsor page on our website for more information.

As always, thank you for being a member of NHC!