Monday, January 30, 2012

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.

Thursday, January 26, 2012

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.

Wednesday, January 25, 2012

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.

Friday, January 20, 2012

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.

Wednesday, January 18, 2012

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

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

Tuesday, January 17, 2012

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.

Friday, January 13, 2012

Preparing for major shifts in demand

by Jeffrey Lubell, Center for Housing Policy

This post originally appeared on the Bipartisan Policy Center's Housing Expert Blog in response to the question, "what are the most pressing issues in housing policy today?" posed to several guest experts. View the full forum here.

The punch line of my response is that the most pressing issues of housing policy today are not necessarily the most pressing issues of the medium- or long-term future. We have an obligation to work to resolve today’s pressing issues. But it’s critical that we start thinking now about how to meet tomorrow’s challenges. Waiting will only drive up costs and reduce options.

In the short-term, the foreclosure crisis and related challenges of neighborhood stabilization, large REO inventories, and underwater homeowners all loom large as critical issues to address. The housing finance system is struggling, restricting the availability of credit—a problem policymakers are threatening to worsen by raising down payment standards despite good evidence from a UNC study showing that low-down payment loans can be made safely to moderate-income families if properly underwritten.

Worst case needs for rental housing are at an all-time high, though the recent increase appears to be due largely to income decreases associated with the struggling economy. When the economy recovers, this statistic will recover somewhat as well, but there will remain a sizable structural gap between the wages of low- and moderate-income families and the cost of both rental housing and homeownership in many markets. If we want children to grow up in stable homes and the elderly and people with a disability to live independent lives, we will need to address this critical affordability challenge. Of course, it hasn’t helped that chronic underfunding has led to a major backlog of capital needs in public housing.

If today’s problems are a struggling economy and high foreclosures, tomorrow’s problem is one of growth. With the U.S. population set to expand by 40 percent by 2050, we will need to substantially increase the supply of housing to meet new demand. Rising populations of older adults and younger adults without children will increase demand for housing near transit, job centers, and in village and town centers, driving up the costs of living in these location-efficient areas. There is a real danger that low- and moderate-income families could be pushed out of these neighborhoods and forced to relocate to more peripheral areas where housing costs are low but transportation costs are high, reducing the diversity and vibrancy of our cities; contributing to increases in energy use, greenhouse gas emissions, and infrastructure expenses; and exacerbating disparities in wealth.

The sharp increases in both the overall number of older adults and the number of frail elderly will lead to major shifts in demand for housing and require more effective approaches for linking housing and services. Without fresh thinking on how to meet this challenge, there is a risk both that quality of life will decline for older adults and that older adults absorb all or nearly all of available affordable housing resources, shrinking the resources available to help bring stable, affordable housing to families with children.

Thursday, January 12, 2012

A little rain on the foreclosure-data parade

by Laura Williams, Center for Housing Policy

It’s been making the rounds this morning that foreclosures have dropped to their lowest levels since 2007. Unfortunately, as RealtyTrac points out, this is not so much a sign that the housing crisis is getting better but instead that the foreclosure process is simply dysfunctional.

Problems first unearthed en masse in 2010, such as improper filings and “robo-signing”, continue to cause huge delays in the foreclosure pipeline; the national average time for the process increased to 348 days – nearly one year – from start to finish. In New York and Florida, foreclosures took almost three years to complete. While losing a home to foreclosure is a terrible thing for a family, a long period of uncertainty about their home’s stability is also bad (as we documented in “Should I Stay or Should I Go?”).

As the Federal Reserve noted in a recent white paper, clearing the inventory of foreclosed, vacant, and underwater homes is a key step towards housing and broader economic recovery. Years of effort have shown some promising solutions that should be scaled up: foreclosure alternatives such as loan modifications, shared appreciation mortgages, rent-back programs, and structured short sales are some. Better oversight and management of the foreclosure process could certainly help, too. That will take bipartisan, forward-looking focus on housing and a real commitment from private sector participants.

Wednesday, January 11, 2012

Fannie Mae CEO to step down

by Sarah Jawaid, National Housing Conference 

Fannie Mae head Michael Williams submitted his resignation Jan. 10. Williams has been with the GSE since 1991 and took over as chief executive in 2009, at the height of the housing crisis and when the company was put into conservatorship by the government. He will stay on as CEO until the company’s board finds a successor.

"I decided the time is right to turn over the reins to a new leader," Williams said in the statement. "As I told our employees today, I am extremely proud of what we have achieved together, and I am confident that they will continue to make a positive difference.”

Federal Housing Finance Agency Acting Director Ed DeMarco said in a statement that he was “grateful for Mr. Williams’ steadfast dedication to ensuring Fannie Mae meets its public mission of providing stability, liquidity, and affordability to housing finance while both leading his company and working with government officials to that end.

This comes after the GSEs and their chief regulator FHFA got heat from Congress on executive salary compensation late last year. Before a congressional hearing, Freddie Mac chief executive Charles E. "Ed" Haldeman, Jr. and Williams were asked to justify executive pay anywhere between $2.8 and $3.5 million for their second-highest-paid staff. In response to these questions, Halderman and Williams said the salaries were an appropriate amount for the industry. Halderman had submitted his resignation last Oct. saying he would step down sometime this year. Read more from earlier on NHC's Open House blog.

Tuesday, January 10, 2012

Congress’ tapping of G-fee drains vitality from Fannie’s & Freddie’s bond ratings

by Ethan Handelman, National Housing Conference

Remember a few weeks ago when Congress decided that a 10-year increase in the guarantee fee on Fannie Mae and Freddie Mac mortgage-backed securities was the way to pay for an extension of the payroll tax cut? Those who know housing knew, and said, it was a bad idea (for an entertaining and sharp-edged expression of this, see my colleague David A. Smith’s excellent blog post). Now it’s becoming even clearer.

Rating agencies are now more likely to downgrade the credit ratings of Fannie Mae’s and Freddie Mac’s bond, according to Bank of America analyst Ralph Axel, cited in Businessweek. If ratings on bonds drop, Fannie and Freddie may well have to offer higher interest rates to attract investors, which would translate into higher mortgage rates for homebuyers.

In other words, tapping the g-fee isn’t free money. But we all knew that, right?

Friday, January 6, 2012

Fed urges REO to rental among other steps on housing

by Ethan Handelman and Sarah Jawaid, National Housing Conference

The Federal Reserve submitted a 26-page letter to Congress on January 4 recommending action on real estate owned, or REO, properties nationwide owned by Fannie Mae, Freddie Mac, FHA, and various lenders comprising around “one-fourth of the 2 million vacant homes for sale in the second quarter of 2011.” This paper is a notable move for the Fed in several ways, because it:
  • Points to weak housing markets as an impediment to economic recovery
  • Highlights the need for greater housing affordability and stability of tenure amidst unemployment and foreclosures
  • Signals possible action by the Fed to clarify banks regulatory obligations if renting REO property
  • Identifies conversion of REO homes to rental use as a needed step, which requires action by others—Congress, FHFA, the GSEs, FHA, and private lenders
  • Provides useful discussion of other steps to revive housing markets, including principal reductions, broader refinancing efforts, targeted interventions and rental options for underwater homeowners, and improvements to mortgage servicing.
Federal Reserve Chairman Ben Bernanke wrote REO conversion can help “redeploy the existing stock of houses in a more efficient way.” It would address rising demand for rental units, low demand for owner-occupied properties, and banks hesitance to provide borrowers access to credit. The paper also highlights the inefficiencies and disruptive consequences of foreclosures in the form of economic harm of vacant properties to a community “beyond the personal suffering and dislocation” of a family. Renting these properties could help move the housing market to a more stable footing.

The Fed’s attention to REO properties builds on efforts already in motion by FHFA and HUD, which requested information in August of last year on ways to best handle the REO portfolio of Fannie Mae, Freddie Mac, and FHA. The agencies were inundated with over 4,000 responses from various housing industry leaders and are currently sifting through the proposals, including one from NHC’s Foreclosure Response and Neighborhood Stabilization Task Force.

The Fed’s paper observes some of the key investment challenges for REO conversion, but necessarily goes into little detail on the basic real estate difficulties of operating a portfolio of single-family rentals, including maintenance, oversight, geographic dispersion, and tenant responsibilities. It acknowledges a potential role for nonprofits as experienced rental managers, but does not directly address the need to provide seller financing or other support to allow nonprofits and other mission entities to bid competitively with purely economic investors.

The paper’s basic conclusion is unsurprising, but nonetheless worth highlighting. We are facing “a correction of the unsound underwriting practices that emerged over the past decade, but also a more substantial shift in lenders’ and the GSEs’ willingness to bear risk…the challenge for policymakers is to find ways to help reconcile the existing size and mix of the housing stock and the current environment for housing finance… Absent any policies to help bridge this gap, the adjustment process will take longer and incur more deadweight losses, pushing house prices lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.”

Translated out of economist-speak: We put too much debt on too few housing assets, and adjusting will hurt. But it will hurt a lot less if we make policy choices now rather than let foreclosures be the only means for reducing the debt.