Affordable Housing – Where Do We Go From Here?
For generations, Americans have acquired wealth primarily through homeownership. However, in the wake of the Great Recession, far too many families of color have found themselves barred from homeownership by high FICO and down payment requirements. If Urban America is to recover its wealth and begin to rebuild economically, policymakers must act to provide greater access to the traditional housing market. Instead of legislating based on a false narrative that connects the housing crisis to families of color buying homes beyond their means, policymakers must recognize the inextricable link between homeownership and economic growth. Making homeownership possible has been must always remain an important government priority
The National Urban League’s 2025 Housing Empowerment Goal is “To ensure every American has access to safe, decent, affordable and energy efficient housing, on their terms”. The National Urban League has a long-standing commitment to ensuring communities of color have access to affordable housing, through our robust programming infrastructure and tireless advocacy efforts. We provide homebuyer education and counseling and advocate for fair and equitable access to the housing market for all responsible and qualified borrowers.
As a consequence of uneven government policies and predatory lending practices, African Americans and Latinos have had unequal access to the traditional housing market:
- While the current homeownership rate for African Americans is approximately 43 percent and 46 percent for Latinos, it is approximately 69 percent for Whites.[i]
- Only 37,000 of the 1.6 million conventional loans that were originated in 2013 (2.3 percent) went to African Americans and only 71,000 (4.4 percent) went to Latinos, compared to White Americans who were approved for nearly 1.2 million conventional loans (73.2 percent). African Americans and Latinos were denied for conventional loans at nearly three times the rate of White Americans.[ii]
- Approximately 70 percent of African Americans and 63 percent of Latinos took out FHA loans in 2013, compared to 35 percent of White Americans. This is concerning because FHA loans are generally much more expensive than conventional loans.[iii]
- White families buy homes and start acquiring wealth an average of 8 years earlier than African American families.[iv]
- While it takes the typical White family 14 years to save for a 5 percent down payment, plus closing costs, it takes the typical Latino family 17 years and the typical African American family 21 years.[v]
- Borrowers currently need a 740 credit score for most conventional loans, on average, and a 680 for FHA loans.[vi] Less than 25 percent of African Americans have a prime credit score.[vii]
- African Americans and Latinos were 3 times more likely to be steered into subprime loans than White Americans, even when they qualified for conventional loans.[viii] At the height of the housing bubble, in 2005 and 2006, approximately 54 percent of African Americans received subprime loans compared to approximately 17 percent of White Americans.[ix] African American and Latino families making more than $200,000 a year were more likely to receive subprime loans than White families making less than $30,000 a year.[x]
- Approximately 25 percent of African American and Latino families suffered foreclosures or struggled with serious delinquencies as a result of the subprime crisis, compared to only 12 percent of White families.[xi]
- In the five cities with the highest rates of underwater homes, at least 80 percent of residents were African-American or Latino. In two-thirds of the 395 zip codes with the highest rates of underwater homes, at least one-half of the residents were African-American or Latino.[xii]
- African Americans have only 6 percent, and Latinos have only 7 percent, of the wealth of White Americans.[xiii] The wealth gap between African Americans and White Americans quadrupled from 1984 to 2007.[xiv] “Half of the collective wealth of African American families was stripped away during the Great Recession.”[xv]
The National Urban League Offers Signature Housing Programs to Address These Challenges
- Comprehensive Housing Counseling program: For over 40 years, the National Urban League has been one of the nation’s premier providers of housing counseling services. Nearly 50 of our 95 affiliates provide pre-purchase housing counseling services to ensure communities of color are well informed of their options and their rights in the housing market. Funded primarily by the U.S. Department of Housing and Urban Development’s (HUD) Housing Counseling Assistance Program, our Comprehensive Housing Counseling Program levels the economic playing field for minority homeowners, renters and the homeless by making housing opportunities accessible and sustainable. The National Urban League has served nearly 180,000 clients since 2008 under this program. Nearly 26,000 clients received pre-purchase education, over 14,000 received financial management education and nearly 4,200 purchased a home.
- Restore Our Homes: Said plainly, the purpose of the National Urban League’s Restore Our Homes is to help homeowners stay in their homes. Funded primarily by the National Foreclosure Mitigation Counseling (NFMC) program and the HUD Housing Counseling Assistance Program, Restore Our Homes aims to improve the services of our Urban League affiliates through technical assistance ensuring they have the necessary capacity and resources to serve the communities’ housing needs. We have served nearly 97,000 clients under the program since 2008. Approximately 82 percent resulted in positive outcomes. Less than 2 percent of our clients loss their homes due to foreclosure.
Outlook for 2015 and the 114th Congress
The National Urban League strongly favors the following policies to ensure communities of color have equal access to the traditional housing market:
- Increase Federal Funding for the HUD Housing Counseling Assistance Program and the NFMC program. Research indicates borrowers who receive housing counseling services are one-third less likely to be seriously delinquent on their mortgage than non-counseled borrowers.[xvi] Homeowners in default or in danger of defaulting who consult a housing counselor are almost 3 times more likely to receive a mortgage modification (with an average payment reduction of nearly $5,000 annually) and 60 percent less likely to re-default after a serious delinquency.[xvii] Further, housing counseling plays a critical role in preventing mortgage abuses such as those that took place during the subprime mortgage boom. Funding for the HUD Housing Counseling Assistance Program and the NFMC program should be increased to ensure the maximum amount of prospective borrowers and homeowners have the opportunity to benefit from the advantages of housing counseling.
- Integrate Housing Counseling into the Mortgage Application Process and Allow Housing Counseling to be used as Compensating Factor to Make Up for a Borrower’s Low Down Payment, Low Credit Score and/ or High Debt-to-Income Ratio. The National Urban League knows firsthand how housing counseling helps ensure a positive home buying experience. We support affording first-time homebuyers and other prospective borrowers the opportunity to take housing counseling to help make up for low down payments, low credit scores and/ or high debt-to-income ratios. Adding a housing counseling data field to mortgage applications and allowing borrowers to receive credit for homebuyer education to account for a weaker than average application is a safe and sound way to increase access to the traditional housing market for communities of color.
We support HUD’s Homeowners Armed With Knowledge (HAWK) Pilot and its Back to Work Extenuating Circumstances program and the Federal Housing Finance Agency’s (FHFA) efforts to integrate housing counseling and allow it to be used as a compensating factor.
- Discourage Arbitrarily High Down Payment Requirements. Saving the necessary down payment to purchase a home is one of the biggest obstacles to attaining the American Dream, this is undisputed. Because African Americans and Latinos typically have lower incomes and are less likely to receive an inheritance or help from their parents than White Americans, it is much more challenging for communities of color to save a down payment. The National Urban League has long supported a reasonable and affordable “skin in the game” down payment requirement however, being able to make a large down payment is not an indicator of a borrower’s ability to repay a loan. There’s no correlation between the ability to save a lump sum of money and the ability to pay a monthly mortgage. High down payment requirements reduce access to the housing market and force underserved communities to purchase FHA or subprime loans, which are generally much more expensive for borrowers than conventional loans. Similar to private mortgage insurance (PMI), housing counseling should be used as a compensating factor to help borrowers who do not have the requisite down payment to become homeowners.
We support FHFA’s efforts to allow lower down payment requirements, using compensating factors such as housing counseling services.
- Lower Credit Score Requirements to Reasonable Levels. The current credit score requirements needed for conventional and FHA loans are unnecessarily high. Credit score requirements should be lowered to ensure all qualified borrowers have access to affordable and sustainable loans. The executives from FICO and Vantage Score believe that “lenders’ credit-score requirements for home purchasers are too high and out of sync with the actual risks of default presented by today’s borrowers.”[xviii] Since 2012, 1.2 million additional loans could have been made if the normal lending standards before the crisis were in place.[xix] Easing of credit score requirements would allow more low-income families and communities of color to qualify for affordable home loans.
Lowering credit score requirements would not jeopardize the safety and soundness of the housing industry, especially if housing counseling is used as a compensating factor. Low credit scores were not the overarching cause of the financial crisis.[xx] Most of the subprime loans that were approved during the subprime boom were for people who were already homeowners, those with above average credit scores.[xxi] Over 60 percent of the subprime loans approved between 1998 and 2006 went to refinances, not new purchases.[xxii] The foreclosure crisis wasn’t caused by irresponsible borrowers; it was caused by irresponsible products.
- Maintain and Strengthen Fannie Mae and Freddie Mac’s Affordable Housing Goals. The National Urban League will continue to support and seek to strengthen Fannie Mae and Freddie Mac’s affordable housing goals. Pursuant to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, the affordable housing goals require Fannie Mae and Freddie Mac, the nation’s largest sources of mortgage capital, to provide affordable mortgage credit to underserved families and neighborhoods. Many people blamed the financial crisis on the affordable housing goals because of this mandate. The National Urban League and numerous experts including the St. Louis Federal Reserve Board and the Fiscal Crisis Inquiry Commission disagree with this false narrative.
The affordable housing goals did not cause the crisis. The affordable housing goals helped qualified borrowers purchase affordable homes. We opposed Johnson-Crapo, because the bill terminated the affordable housing goals without providing a viable substitute. The affordable housing goals must remain intact and be strengthened unless a better alternative is presented.
FHFA’s final rule for the 2015 – 2017 affordable housing goals should realistically set forth and assess the prospective and retrospective benchmarks to ensure the largest number of eligible borrowers gain access to the traditional housing market, which is the purpose of the affordable housing goals.
 The Fiscal Crisis Inquiry Report, http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf. Did Affordable Housing Legislation Contribute to the Subprime Securities Boom, Federal Reserve Bank of St. Louis, http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CCoQFjAB&url=http%3A%2F%2Fresearch.stlouisfed.org%2Fwp%2F2012%2F2012-005.pdf&ei=amlZVM6fO7fIsATOjoCQBg&usg=AFQjCNEIrzzjTsZUyR_A5w_bnIhrxCsYqA&sig2=oPY27AB3RYWI14PV8qMEyw&bvm=bv.78677474,d.cWc.
[i] 2013 Home Mortgage Disclosure Act: Data Show People of Color Being Left Behind in Slowly Recovering Mortgage Market, Center for Responsible Lending, September 2014, pg. 1, http://www.responsiblelending.org/mortgage-lending/policy-legislation/CRL-2013-HMDA-data-policy-brief.pdf.
[ii] Id. at pg 1.
[iii] The 2013 Home Mortgage Disclosure Act Data, Federal Reserve Bulletin, October 2014, pg. 10, http://www.federalreserve.gov/pubs/bulletin/2014/pdf/2013_HMDA.pdf.
[iv] The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide, Institute on Assets and Social Policy, pg. 3, http://iasp.brandeis.edu/pdfs/Author/shapiro-thomas-m/racialwealthgapbrief.pdf.
[v] The Negative Impact of a Government-Mandated 10 Percent Down Payment For Qualified Residential Mortgages (QRM), Center for Responsible Lending, page 7, http://www.responsiblelending.org/mortgage-lending/policy-legislation/regulators/QRM-10percent-issue-brief-Aug16-1-2.pdf.
[vi] Wells Fargo Joins Lenders Lowering Credit Standards, Bloomberg, http://www.bloomberg.com/news/2014-05-01/easier-homeowner-credit-compelling-wells-fargo-mortgages.html.
[vii] For Black Americans Financial Damage From Subprime Implosion is Likely to Last, Washington Post, http://www.washingtonpost.com/business/economy/for-black-americans-financial-damage-from-subprime-implosion-is-likely-to-last/2012/07/08/gJQAwNmzWW_story.html
[viii] Lost Ground 2011: Disparities in Mortgage Lending and Foreclosures, Center for Responsible Lending, http://www.responsiblelending.org/mortgage-lending/research-analysis/Lost-Ground-2011.pdf.
[ix] Discriminatory Effects of Credit Scoring, National Fair Housing Alliance, http://nationalfairhousing.org/LinkClick.aspx?fileticket=yg7AvRgwh%2F4%3D&tabid=3917&mid=5418.
[x] The Crisis in Black Homeownership, How the Recession Turned Owners into Renters and Obliterated Black American Wealth, Slate.com, http://www.slate.com/articles/news_and_politics/politics/2014/07/black_homeownership_how_the_recession_turned_owners_into_renters_and_obliterated.html.
[xi] Latinos Bearing the Brunt of the Foreclosure Crisis, Policies to Alleviate the Pressure for Responsible Homeowners Needed, Center for American Progress, http://www.americanprogress.org/issues/housing/news/2012/04/19/11416/latinos-bearing-the-brunt-of-the-foreclosure-crisis/
[xii] Communities of Color Remain Under Water While the Tide Rises, American Civil Liberties Union Blog of Rights, https://www.aclu.org/blog/racial-justice/communities-color-remain-underwater-while-tide-rises.
[xiii] 2014 State of Black America Equality Index, National Urban League, http://iamempowered.com/sites/all/themes/newiae/SOBA/SOBA2014_HTML5/SOBA2014-SinglePgs/index.html
[xiv] Skin Color wealth Gap: Whites Average $95k Richer than Blacks, ABC News, http://abcnews.go.com/Business/study-finds-wealth-gap-blacks-whites-quadrupled/story?id=10670261.
[xv] The Crisis in Black Homeownership, How the Recession Turned Owners into Renters and Obliterated Black American Wealth, Slate.com, http://www.slate.com/articles/news_and_politics/politics/2014/07/black_homeownership_how_the_recession_turned_owners_into_renters_and_obliterated.html.
[xvi] The Benefits of Pre-Purchase Homeownership Counseling, Freddie Mac, http://www.freddiemac.com/news/blog/pdf/benefits_of_pre_purchase.pdf.
[xvii] National Foreclosure Mitigation Counseling Program Evaluation, Final Report, Rounds 3 through 5, NeighborWorks and the Urban Institute, http://www.neighborworks.org/Documents/HomeandFinance_Docs/Foreclosure_Docs/ForeclosureCounseling%28NFMC%29_Docs/2014_NFMC_UrbanInstituteReport.aspx.
[xviii] Easing Credit Score Rules May Be a Low Risk Way to Expand the Pool of Homeowners, Washington Post, http://www.washingtonpost.com/realestate/easing-credit-score-rules-might-be-a-low-risk-way-to-expand-the-pool-of-home-buyers/2014/05/07/87b263b6-d46f-11e3-95d3-3bcd77cd4e11_story.html.
[xix] Is the Government Making it Harder for the Middle Class to Buy Homes?, Washington Post, http://www.washingtonpost.com/news/storyline/wp/2014/09/05/when-the-government-makes-it-harder-for-the-middle-class-to-buy-houses/.
[xx] Buying a Home: The American Dream That Won’t Die, MSNBC, http://www.msnbc.com/msnbc/homeownership-credit-access-minority-low-income-mortgages.