Posts Tagged ‘Housing’

CNBC's Diana Olick has the story on Fannie Mae's survey that unveils the housing mood in the U.S....(read more)

According to the Department of Housing and Urban Development's (HUD) research publication, Evidence Matters, the U.S. has not examined its national rental policy since the housing crisis began.  As a result of that crisis, an ever-increasing number of renters are facing a shortage of decent, safe, and affordable homes.

In addition to the fallout from the housing crisis, there are other reasons for revisiting this topic.  Derek R.B. Douglas, a special assistant to the president who serves on the White House Domestic Policy Council and leads an interagency rental policy working group says, "It is not just homeowners who are struggling in the economy; a third of the population rents. We need to start the conversation, and the thinking, about what we can do at the federal level, and what can be done by the state, local, and private sectors to support those renters who are now looking for affordable housing options, or having trouble making rents, or living in communities where rental prices are going up, as more people who were homeowners move into the rental markets."

This was the impetus for a conference titled Informing the Next Generation of Rental Housing Policy held last October under sponsorship of the Departments of Agriculture, Treasury, and HUD at which more than a dozen experts from the nonprofit development, financial, and academic worlds offered ideas for budget-neutral initiatives in the areas of rental housing for low-income households, the relationship between rental housing and neighborhoods, and the financial and regulatory barriers in the housing industry.

That conference featured a panel of experts from the nonprofit, development, financial, and academic worlds that looked at rental housing in three different ways: rental housing and low-income households, the relationship between rental housing and neighborhoods, and the financial and regulatory barriers inherent to the industry.  This panel discussion forms the basis for the final article in the spring edition of Evidence Matters.

The primary theme that emerged from the panel discussion was using rental policy to promote better outcomes across a whole array of domains - asset-building for low income families, good schools, better neighborhood conditions, more positive outcomes for children and an end to chronic homelessness.

Nancy O. Andrews, president of the Low Income Investment Fund, said she envisioned a "children's healthy start voucher" that would link affordable housing to an array of early interventions: prenatal nutritional support; quality early childcare; community health care; replications of the family nurse visitation program which trains caregivers to parent effectively; and quality schools.

There is evidence supporting the efficacy of this approach.  Nutritional support programs such as the Special Supplemental Nutrition Program for Women, Infants, and Children, as well as increases in family income in the early childhood years appear to have more long-term effects than similar initiatives aimed at adults. Likewise, studies and experiments "have shown long-term effects, even into adulthood, of high-quality early childhood education," said Jeanne Brooks-Gunn, a social scientist at Columbia University Teachers College. Finally, each early intervention initiative "saves government spending later" on remedial programs, criminal justice, unemployment, and welfare, according to Tama Leventhal, assistant professor of child development at Tufts University.

Andrews conceived the idea of using rental housing as a platform for a healthy start voucher based on a 17-year longitudinal study by Professor Gary Evans at Cornell University which suggests that the stresses of poverty pose a serious threat to children's brain development.  The research shows that the high stresses of poverty on children "actually create physical impairments in child brain formation. In other words, poverty poisons children's brains" including inhibiting executive function and working memory, the parts of the brain used in learning. Making matters worse is that the diminished function appears to be long lasting, perhaps permanent.

The Evans study and others bring the importance of housing affordability and safe communities into focus.  Andrews said, "I began to see the connections among housing, community, and human potential." When implemented together, the services embedded in her voucher concept may counteract the stresses on children's brains and the resultant deficits. As a result, Andrews believes that lower-income children will enter kindergarten ready to learn, which may help diminish the achievement gap over the long term.

Although it may not seem as critical as quality childcare or education, research shows that net worth is a key predictor of long-term educational attainment. The article cites a study showing that parental net worth has a significant effect on total years of schooling, post-high school years of schooling, and college attendance," and net worth and non-liquid assets also affect whether parents can obtain loans to support their children's college attendance.  Given the huge and growing disparity in income in this country and the distribution of wealth, building assets is a hurdle to low income households and, given the link between net worth and educational attainment this becomes a vicious cycle. .

To help build assets among the 4 million people receiving rental assistance and the 8 million families who spend more than half their income on rent and utilities, Andrea Levere, president of the Corporation for Economic Development, proposed embedding asset-building strategies within rental housing; creating opportunities for renters to build assets through positive behaviors like contributing to a building's maintenance, paying rent on time, helping to manage properties, and reducing energy usage for individually metered apartments. These activities would be rewarded with credits, convertible to cash, that are deposited in savings accounts which residents, after financial counseling, could borrow against for asset-building investments, including education, debt reduction, homeownership, and launching a business. 

Levere also suggested eliminating restraints on asset building such as limits for subsidized housing that discourage savings accounts or even owning a car.  Income limits also discourage people from earning more money which might force them to leave their subsidized rental homes. Expanding the Family Self-Sufficiency program would allow people to stay in subsidized housing as their income rises, banking those extra funds in escrow accounts which might ultimately enable them to put a downpayment on a house or a deposit on a market-rate apartment.

Another advocate of basing a range of social services within rental housing, Rosanne Haggerty, MacArthur Fellow and founder and president of Common Ground, proposed blending nine different housing and services programs to create long-term supportive housing with the ultimate goal of ending long-term homelessness. Mental health, health care, and other programs would share risk and pool their resources she said and when those services are tied to the places where people live, the evidence of the effectiveness of supportive housing is overwhelming

Haggerty pointed to a recent 3-year Seattle study of a supportive housing development for homeless alcoholics which found that the development saved taxpayers more than $4 million in its first year - funds that would otherwise have gone toward emergency care, the criminal justice system, and other services. The savings began to appear within the first six months despite the start-up costs.  Another study found that the costs of housing a homeless person for one year were nearly the same as the systemic costs of the individual remaining homeless for a year.

The idea of supportive housing, Haggarty said, "Is an approach to housing that is relevant to so many more people and families than the homeless. All of us at some point are going to need supportive housing - to have options other than nursing homes or being a burden to our kids. Individuals and families are able to lead more stable and productive lives when they have a secure home and the help that they need to manage challenges, whether they be related to health or employment."

 

READ MORE: Builder Report Offers Reminder. Affordable Rental Units Needed

READ MORE:  HUD Focused on Rebuilding America's Dilapidated Housing Inventory

READ MORE:  Affordable Housing Units Needed for Low Income Renters

READ MORE: The Dearth of Affordable Rental Housing

READ MORE:  Gimme Shelter: Homelessness Rate Climbing. Low Income Rental Units Needed

...(read more)

 (Editor's Note:  This is the second in a series of articles summarizing material in the latest edition of "Evidence Matters" the new digest of housing research first published in February by the Department of Housing and Urban Development (HUD).  The current issue is devoted to rental housing as it was discussed at the Next Generation Housing Policy Conference held in October 2010.) 

The Next Generation conference featured three presentations on the topic of the future of the mortgage interest tax deduction (MID).  This feature of the tax code allows homeowners to deduct interest paid on one or more mortgages on up to two homes and its elimination is suggested in current attempts to reduce the budget deficit.  It is, in fact, the only tax increase to have come under wide discussion. The three economists who made presentations were:

• Edward Glaeser, Ph.D., Fred and Eleanor Glimp Professor of Economics at Harvard University.
• Todd Sinai, Ph.D., Associate Professor of Real Estate and Business and Public Policy at the University of Pennsylvania's Wharton School, Visiting Scholar at the Federal Reserve Bank of Philadelphia and Faculty Research Fellow at the National Bureau of Economic Research.
• David Crowe, Ph.D., Chief Economist and Senior Vice President at the National Association of Home Builders (NAHB).

Two of the three speakers argued forcibly for curtailing the deduction although their reasons differed.  Only Crowe, speaking for an industry group which benefits from home ownership, favored its continuation. 

Glaeser called the deduction a regressive one that artificially distorts behavior, including pushing people toward single-family detached houses, while at the same time being poorly designed to actually promote homeownership. He maintained that the government should not be encouraging people to use leverage to gamble on "the vicissitudes of the housing market," particularly in the wake of a housing crisis.  

The deduction, he said, also encourages people to buy bigger homes and he believes that Americans already live in homes that are too big for their budgets or for the environment.  Homeownership is generally equated with single-family structures so, by encouraging ownership rather than rentals the government is pushing people away from multifamily dwellings and thus from urban areas where they are more common.  "We should not be bribing people to leave our economically productive urban cores," he said.

Homeownership, Glaeser said, has often been pushed as a path to middle-class prosperity, but in the wake of the housing boom he calls this "dubious."  It is also credited with other desirable social outcomes but the deduction is actually poorly designed to encourage homeownership because it disproportionately benefits the wealthy who are likely to own anyway.  Glaeser quoted research from James Poterba and Sinai that the MID is ten times more beneficial to upper income individuals than the family earning $40,000 to $75,000 and stated that many poorer households "on the margin between owning and renting do not even itemize."

Reform is needed but with the market still in distress eliminating the deduction all at once would be too extreme.  He suggested reducing the upper limit from $1 million to $300,000 over the next seven years.  "Eventually, policymakers could replace the deduction with a straight owner's credit that provided some incentive for ownership (if absolutely necessary) but did not encourage extra borrowing or larger homes."

Sinai opted for referring to the MID as a subsidy rather than a deduction and says it is only one component of the total tax subsidy for owner-occupied housing. "In an undistorted tax code, taxpayers would be allowed to deduct their expenses (mortgage interest) when they pay tax on their income (rent). Because the United States does not tax estimated rental income for owner-occupiers, the interest deduction should not be allowed." This constitutes a subsidy. "However, the tax code also does not permit many actions that could offset the effects of untaxed rental income, such as taxing the estimated return to equity invested in owner-occupied houses."

The deduction costs an estimated $93.8 billion in each year which constitutes nearly 9 percent of the 2011 budget deficit as projected by the Congressional Budget Office.  However, Sinai said that his and Poterba's research concluded that in 2004 the total tax subsidy for owner-occupied housing was $330 billion. The MID is just a subsidy that uses mortgage debt to finance home purchases. Curtailing it leaves behind a host of subsidies, the most important being a subsidy for using equity to buy a house.  "Many positive aspects of homeownership exist, but the inappropriate use of mortgage debt negated nearly all of them in the latest downturn."

Eliminating MID would not eliminate the tax subsidy for owner-occupied housing. High-income households might substitute equity finance for debt, allowing them to retain their housing subsidy. Older homeowners with little mortgage debt and low-income households that do not itemize do not benefit from MID, so curtailing it would have the biggest impact on middle-class families and would discourage wealthy households from using leverage. "Is a partial reduction in the housing subsidy worth these distortions to household capital allocation and progressivity? Because the government can change other parts of the tax code to restore progressivity, the answer is likely yes."

The solution depends on implementation; reducing MID requires corresponding reductions in the income tax burden and any changes must be phased in to mitigate an adverse impact on home prices.

Crowe outlined what he called the fundamental role of homeownership in American society including improved educational outcomes, better health, reduced crime, and in the long run, homeownership a path to wealth accumulation.  The net worth of the average homeowner, he said, is more than 45 times that of the average renter.

Homeownership for most is impossible without debt financing and the MID provides parity with the tax treatment of interest expense associated with other forms of debt-financed investment, including financial assets and rental housing and lowers the effective interest rate making homeownership accessible to more households.  "The MID is well justified as housing policy given the documented positive externalities associated with homeownership."

Crowe said that among the misleading or incorrect information used to attack the MID is that few homeowners actually benefit because they do not itemize on their tax returns.  In fact, Crowe said, 86 percent of all mortgage interest paid over the past decade was claimed as an itemized deduction.

He also argued that it is not regressive, citing a Congressional committee which estimated that about 70 percent of the benefits from MID go to households earning less than $200,000 and figures NAHB that show middle-class households earn the largest benefits as a share of income. That these benefits are greatest during the early years of a mortgage when most of a monthly payment is interest provides significant help to younger homebuyers when their household budgets are the tightest and wealth accumulation is beginning.

Another NAHB analysis indicates that families with children collect larger tax benefits so, rather than causing homebuyers to buy a larger home, the MID helps growing households finance the larger home they need.

Crow disputed that the MID played a role in the recent housing crisis as it has been part of the tax code since 1913 and widely used by the middle class since the 1940s, with no evidence of having created a housing bubble.  If the MID were responsible for recent problems, "you would expect a positive relationship between the use of the MID and foreclosures, but none exists."

"Given the macroeconomic damage that weakening the MID would cause," Crowe said, "the MID must retain its place as a cornerstone of U.S. housing policy."

...(read more)

 (Editor's Note:  This is the second in a series of articles summarizing material in the latest edition of "Evidence Matters" the new digest of housing research first published in February by the Department of Housing and Urban Development (HUD).  The current issue is devoted to rental housing as it was discussed at the Next Generation Housing Policy Conference held in October 2010.) 

The Next Generation conference featured three presentations on the topic of the future of the mortgage interest tax deduction (MID).  This feature of the tax code allows homeowners to deduct interest paid on one or more mortgages on up to two homes and its elimination is suggested in current attempts to reduce the budget deficit.  It is, in fact, the only tax increase to have come under wide discussion. The three economists who made presentations were:

• Edward Glaeser, Ph.D., Fred and Eleanor Glimp Professor of Economics at Harvard University.
• Todd Sinai, Ph.D., Associate Professor of Real Estate and Business and Public Policy at the University of Pennsylvania's Wharton School, Visiting Scholar at the Federal Reserve Bank of Philadelphia and Faculty Research Fellow at the National Bureau of Economic Research.
• David Crowe, Ph.D., Chief Economist and Senior Vice President at the National Association of Home Builders (NAHB).

Two of the three speakers argued forcibly for curtailing the deduction although their reasons differed.  Only Crowe, speaking for an industry group which benefits from home ownership, favored its continuation. 

Glaeser called the deduction a regressive one that artificially distorts behavior, including pushing people toward single-family detached houses, while at the same time being poorly designed to actually promote homeownership. He maintained that the government should not be encouraging people to use leverage to gamble on "the vicissitudes of the housing market," particularly in the wake of a housing crisis.  

The deduction, he said, also encourages people to buy bigger homes and he believes that Americans already live in homes that are too big for their budgets or for the environment.  Homeownership is generally equated with single-family structures so, by encouraging ownership rather than rentals the government is pushing people away from multifamily dwellings and thus from urban areas where they are more common.  "We should not be bribing people to leave our economically productive urban cores," he said.

Homeownership, Glaeser said, has often been pushed as a path to middle-class prosperity, but in the wake of the housing boom he calls this "dubious."  It is also credited with other desirable social outcomes but the deduction is actually poorly designed to encourage homeownership because it disproportionately benefits the wealthy who are likely to own anyway.  Glaeser quoted research from James Poterba and Sinai that the MID is ten times more beneficial to upper income individuals than the family earning $40,000 to $75,000 and stated that many poorer households "on the margin between owning and renting do not even itemize."

Reform is needed but with the market still in distress eliminating the deduction all at once would be too extreme.  He suggested reducing the upper limit from $1 million to $300,000 over the next seven years.  "Eventually, policymakers could replace the deduction with a straight owner's credit that provided some incentive for ownership (if absolutely necessary) but did not encourage extra borrowing or larger homes."

Sinai opted for referring to the MID as a subsidy rather than a deduction and says it is only one component of the total tax subsidy for owner-occupied housing. "In an undistorted tax code, taxpayers would be allowed to deduct their expenses (mortgage interest) when they pay tax on their income (rent). Because the United States does not tax estimated rental income for owner-occupiers, the interest deduction should not be allowed." This constitutes a subsidy. "However, the tax code also does not permit many actions that could offset the effects of untaxed rental income, such as taxing the estimated return to equity invested in owner-occupied houses."

The deduction costs an estimated $93.8 billion in each year which constitutes nearly 9 percent of the 2011 budget deficit as projected by the Congressional Budget Office.  However, Sinai said that his and Poterba's research concluded that in 2004 the total tax subsidy for owner-occupied housing was $330 billion. The MID is just a subsidy that uses mortgage debt to finance home purchases. Curtailing it leaves behind a host of subsidies, the most important being a subsidy for using equity to buy a house.  "Many positive aspects of homeownership exist, but the inappropriate use of mortgage debt negated nearly all of them in the latest downturn."

Eliminating MID would not eliminate the tax subsidy for owner-occupied housing. High-income households might substitute equity finance for debt, allowing them to retain their housing subsidy. Older homeowners with little mortgage debt and low-income households that do not itemize do not benefit from MID, so curtailing it would have the biggest impact on middle-class families and would discourage wealthy households from using leverage. "Is a partial reduction in the housing subsidy worth these distortions to household capital allocation and progressivity? Because the government can change other parts of the tax code to restore progressivity, the answer is likely yes."

The solution depends on implementation; reducing MID requires corresponding reductions in the income tax burden and any changes must be phased in to mitigate an adverse impact on home prices.

Crowe outlined what he called the fundamental role of homeownership in American society including improved educational outcomes, better health, reduced crime, and in the long run, homeownership a path to wealth accumulation.  The net worth of the average homeowner, he said, is more than 45 times that of the average renter.

Homeownership for most is impossible without debt financing and the MID provides parity with the tax treatment of interest expense associated with other forms of debt-financed investment, including financial assets and rental housing and lowers the effective interest rate making homeownership accessible to more households.  "The MID is well justified as housing policy given the documented positive externalities associated with homeownership."

Crowe said that among the misleading or incorrect information used to attack the MID is that few homeowners actually benefit because they do not itemize on their tax returns.  In fact, Crowe said, 86 percent of all mortgage interest paid over the past decade was claimed as an itemized deduction.

He also argued that it is not regressive, citing a Congressional committee which estimated that about 70 percent of the benefits from MID go to households earning less than $200,000 and figures NAHB that show middle-class households earn the largest benefits as a share of income. That these benefits are greatest during the early years of a mortgage when most of a monthly payment is interest provides significant help to younger homebuyers when their household budgets are the tightest and wealth accumulation is beginning.

Another NAHB analysis indicates that families with children collect larger tax benefits so, rather than causing homebuyers to buy a larger home, the MID helps growing households finance the larger home they need.

Crow disputed that the MID played a role in the recent housing crisis as it has been part of the tax code since 1913 and widely used by the middle class since the 1940s, with no evidence of having created a housing bubble.  If the MID were responsible for recent problems, "you would expect a positive relationship between the use of the MID and foreclosures, but none exists."

"Given the macroeconomic damage that weakening the MID would cause," Crowe said, "the MID must retain its place as a cornerstone of U.S. housing policy."

...(read more)

Two lawmakers have introduced bipartisan legislation that would eliminate Freddie Mac and Fannie Mae while still keeping a government presence in the housing finance marketplace.

HR 1859, "The Housing Finance Reform Act of 2011", is sponsored by Congressmen Gary Peters (D-MI) and John Campbell (R-CA).   According to the official release from Rep. Peter's office, the legislation would do the following:

• Ensure the availability of reasonably priced conventional mortgages.
• Provide incentives for private sector capital to support the secondary mortgage market.
• Limit the role of the government in the secondary mortgage market; and
• Provide for a gradual wind down of Fannie and Freddie.

Peters/Campbell have aimed this bill at overhauling the federal mortgage finance system and winding down the embattled mortgage giants, Fannie Mae and Freddie Mac, while establishing a new system of private mortgage associations - funded by private capital.  Sponsor's believe the legislation will ensure liquidity in the secondary mortgage market because mortgage investments would still be backed by a government guarantee, which the plan has mandated strict standards around to safeguard taxpayers.

The Mortgage Bankers Association quickly weighed in on the Peters-Campbell bill.  Michael Berman, the organization's Chairman said in a press release, "The bipartisan legislation introduced by Congressmen Campbell and Peters to reform our secondary markets closely mirrors the proposal of MBA's Council on Ensuring Mortgage Liquidity, which was the first to put forward a comprehensive blueprint for the future of our housing finance system. (This is) legislation that reforms our housing finance system in a way that encourages the return of private capital while also providing for a limited but explicit government role in backing the availability of affordable mortgage products through all market conditions."

HR 1859 authorizes the Director of the Federal Housing Finance Administration (FHFA) to issue charters for "Housing Finance Guaranty Associations" with the power to "deal in conventional mortgages only for the purpose of creating a secondary market for these mortgages, facilitating mortgage securitization, and supporting multifamily housing." 

These entities would not be allowed to discriminate against any originator, but the "Associations" could be formed for the general purposes of serving a particular mortgage market or category of mortgage lenders such as community banks.  The legislation does allow banking organizations to acquire an interest in such categories of lenders.

The housing finance guaranty associations would issue securities collateralized by conventional mortgages only and would establish a trust not subject to the claims of creditors in order to provide  for the sale of interests in mortgages pool and the accumulation of guarantee fees (Reserve Fund). The bill creates the Office of Securitization within FHFA to issue the federal guarantee, impose and collect the fee, and administer and service the FHFA securities.

The new entities will not be allowed to originate or service non-conventional mortgages, offer a guarantee for any security backed by a non-conventional mortgage, speculate or underwrite or sell insurance.  They will only be allowed to invest in conventional or government-backed MBS. Beyond the term "conventional mortgage" which will defined as a "qualified mortgage" as determined for the purposes of Dodd-Frank, the legislation limits the type of mortgage the guaranty associations can securitize as those with a loan-to-value (LTV) ratio of 80 percent and a loan amount not exceeding the larger of either 150 percent of the average U.S. home price or 150% of the median home price in the property's local area.  An association can purchase a mortgage with an LTV higher than 80 percent if the seller retains a 10 percent stake in the loan, agrees to repurchase the mortgage on the demand of the association or private mortgage insurance is used to cover the balance of the loan above 80 percent.

The associations would be supervised by FHFA which will conduct examinations at least once a year, set capital standards, and issue capital classifications.  FHFA will also establish standards for management and operation including management of interest rate exposure, market risk, asset and risk management, and maintenance of records.  The agency will also establish standard forms and contractual terms for the securities that will include details on the payment of interest and principal, address servicing standards and other terms.  FHFA's costs in managing the program will be covered by a fee charged to the associations.

The "Catastrophic Federal Guarantee" deems failure of an association to make timely payments of interest or principal as grounds for placing an association in conservatorship or receivership. That is the only way to trigger the federal guarantee.  The fee that supports the guarantee fund will be reevaluated on a regular basis and if the fund is depleted FHFA will impose a special assessment to recoup all its costs related to the guarantee.

The bill's "Transition Section" terminates the GSE's housing goals and requires Freddie and Fannie to reduce their asset portfolios to a maximum of $250 billion within 5 years and increase their guarantee fee over a period of three years to reflect the risk posed by the guarantee.   FHFA has six months to provide a transition plan to wind down the GSEs and must determine within one year after five associations have been chartered whether the GSEs can be safely placed into receivership, an event that must occur no later than three years after two associations have been chartered. 

One last note...

Unlike most of the informal proposals that have been floated, HR 1859 does not allow the temporary higher conforming loan limits to expire this fall but continues them as long as the GSEs remain in conservatorship

...(read more)

An update on the housing market, with CNBC's Diana Olick and insight on where housing is going from here, with Stephen Meister, Meister, Seelig & Fein and Brett Arends, The Wall Street Journal....(read more)

CNBC's Diana Olick reports on this Spring's disappointing housing market and the resurgence in foreclosures....(read more)

In a telephone press conference this afternoon U.S. Housing and Urban Development Secretary Shaun Donovan awarded more than $216 million to nearly 700 homeless programs that have never received HUD homelessness funding. The awards are expected to provide services ranging from emergency shelter to transitional housing as well as supportive services for 21,000 persons nationwide.  The Secretary said that the awards come in the midst of a remarkable period during which homelessness has been ended for over 900,000 Americans.

HUD's Continuum of Care grants fund transitional and permanent housing programs as well as supportive services such as job training, case management, mental health counseling, substance abuse treatment and child care. Street outreach and assessment programs to transitional and permanent housing for homeless persons and families are also funded through these grants.  The grants announced today are $26 million more than last year's grants.  In January HUD awarded more than $1.4 billion in Continuum of Care grants to renew existing funding to 7000 local homeless programs.  The two awards combined represent the most homelessness assistance ever awarded by HUD.

The programs supported by the grants include the Supportive Housing Program (SHP) which offers housing and supportive services to allow homeless persons to live as independently as possible; a Single Room Occupancy Program which provides rental assistance for homeless persons in one person housing units with small kitchens and/or baths.  A third program, Shelter Plus Care is a long-term housing and supportive services program for homeless persons with disabilities such as mental illness, substance dependency, AIDS and related diseases and their families as an alternative to shelters or the streets.

Donovan said that people may question the expenditure during a period in which the President has stressed the necessity for setting priorities.  However, he said, when we combine homeless programs with supportive services as these programs do, the number of police reports, ambulance calls, emergency room visits, hospitalizations, and other costly services decline.

Though homelessness is largely an urban phenomenon, Donovan said HUD is reserving record amount of the funding to meet the unique challenges faced by homeless individuals and families living in rural areas.  He noted that homelessness has a different face in rural than in urban areas.  There are fewer shelters and other resources for the homeless so they tend to take shelter in cars or double up in possibly substandard housing. 

"Today, we build on the Obama Administration's goal to prevent and end homelessness in America," said Donovan. "This funding will make a significant impact in the lives of thousands of people and provide resources to bring them towards the road of independence."

HERE is a list of programs that will receive funding.

...(read more)

There have been six major banking crises in developing countries since the mid-1970s, all were associated with housing booms followed by busts according to an International Monetary Fund (IMF) Global Financial Stability Report to be issued next week. 

The degree to which these cycles have been associated with financial instability differs among countries due in part to important differences in countries' housing finance systems, including the role of government.  However, where recessions are linked to housing booms and busts, those recessions are on average more severe and last longer than those that are not.   

IMF released two chapters in its report titled Durable Financial Stability: Getting There from Here.  One chapter is devoted to the role of a country's housing sector on the stability of its economy as a whole. The IMF study looks at characteristics of the housing markets in dozens of countries, both "advanced" and "emerging" to determine what characteristics correlated with instability in the housing market and found that boom/bust cycles were caused or at least magnified by several factors:

• Excessive competition and aggressive lending often associated with deregulation;
• Capital inflows that sustain the supply of credit to households while leading to vulnerable funding for lenders and borrowers;
• An extended period of low monetary policy rates

The relationship between rising house prices and mortgage credit growth, particularly in advanced economies, was amplified by government participation in housing finance.  Subsidies to first-time home buyers, tax deductibility of capital gains on housing, and government provision of mortgage guarantees or credit tend to amplify house price swings by exacerbating both the boom and the subsequent bust.  There are indications that certain tax breaks to homeowners are particularly likely to distort demand and lead to volatility in house prices.  The report chides the Obama Administration for failing to recommend elimination or modification of tax deductions for home mortgage payments in its recent plan to reform the housing finance system, calling that policy "both expensive and regressive."   

The study specifically faults the U.S. for the role private label securitization played in the housing crisis because of its association with deterioration in underwriting standards and incentive problems.  Once the crisis began, it also led to a situation in which servicers have had little incentive to renegotiate loans because of the compensation model in their contracts.  The report suggests that the US might do well to adopt the covered bond model which has contributed to safer mortgages in Europe and could complement securitization as capital market mortgage financing.

Going forward, the report suggests that both advanced and emerging economies would do well to return to basics; solid underwriting standards consistent across various types of lenders; prudential limits on loan-to-value ratios and debt-to-income ratios, and "better-calibrated" government participation.

The report says that the later means that government participation should have less focus on direct provision of credit and more concern about system effects and externalities.  It would also rely on more targeted measures to achieve social objectives such as affordable housing for low-income households.  Some countries, the report says, might want to reconsider their focus on homeownership; good-quality rental housing could be a better option for low-income households.  This could be accompanied by more level tax treatment across owner-occupied and rental housing and reassessment of tools such as mortgage interest deductibility "which should be capped and apply only to first mortgages on primary residences"

IMF makes some additional suggestions for housing finance reform specific to the U.S including enhanced internal risk management at financial institutions and improved underwriting standards and supervision.  Housing related tax expenditures should be reviewed and the role of the government sponsored enterprises (GSEs) reassessed so as to create a more level playing field in the mortgage markets.  It applauds most of the administration's recent recommendations including winding down the GSEs by gradually raising their insurance guarantee fees, reducing their investment portfolios, and lowering the conforming loan ceiling.  The report also comes down solidly in favor of one of the three options for government involvement in housing finance suggested by the Administration - a privatized system plus public catastrophic reinsurance with first-loss insurance coverage from private sources  "The option is likely to provide the lowest-cost access to mortgage credit and would make government participation (and taxpayer exposure) explicit.  However, pricing the catastrophic insurance will be challenging given the need to avoid overinvestment in housing that would exacerbate distortions and contingent liabilities.

Government guarantees for securitized mortgages need to be continued for the near term given the significant remaining uncertainty in the mortgage markets and substantial swings in the cost of financing could be particularly damaging  However, government guarantees should be explicit and fully accounted for on the government's balance sheets.  Over the medium term the GSEs should be wound down to make way for private-label securitization to reemerge as a viable option.

...(read more)

Freddie Mac is now publishing YouTube videos to share information with the public about foreclosure myths and scams. 

In each video a  housing consumer presents a myth which a Freddie Mac housing counselor then responds to with facts and concrete guidance.  In the third video for example, the counselor tells a borrower that one late payment will not trigger a foreclosure. He then advises the borrower to immediately contact his lender if missing a payment was inevitable.  He offers a short explanation about what will be discussed on that call, a list of the information the consumer should have available when making that call, and also directs the consumer toward a HUD-approved housing counselor for more information.

Myth 1:  If my house is foreclosed I can never buy a house again; the foreclosure will stay on my record forever.

Myth 2:   I should stop paying my mortgage so I can get assistance with my mortgage payments.

Myth 3:  If I miss even one payment I could lose my house. 

Myth 4:   I am getting many offers for help from a variety of people. They are probably all scams.

Myth 5:  My lender is not responding to my inquiries.  I should probably just give up and face foreclosure.

...(read more)