Update 267 — If Charity Begins at Home,
Tell it to the Congressional Majority First
This month marks the fiftieth anniversary of the Fair Housing Act’s signing. That landmark Act authorized the Department of Housing and Urban Development (HUD) to limit discrimination in housing. While HUD has helped millions of Americans find stable, affordable housing, millions of others face crisis conditions in the housing market and housing discrimination persists as a problem for many minority communities.
Republicans in Congress and the administration are attempting to worsen already difficult circumstances for those without secure housing. Now comes HUD Secretary Carson with the helpful idea of tripling rents. We provide an overview of less novel legislative and administrative developments on the housing market and housing finance below.
Good weekends, all.
Context: Continued Crisis Conditions
The foreclosure crisis plunged national homeownership to new lows. In the aftermath, millions of Americans still face draining housing expenses. In many parts of the country, these pressures have yet to abate at all. For over 11 million Americans, rental payments take up more than half their paycheck. 2.5 million Americans annually are evicted and pushed out of the communities in which they work.
Mortgage rate costs are putting homeownership out of reach for too many, a problem that is felt particularly acutely in communities of color. Increasing numbers of Americans are being forced to leave home and find a place, whether with family members, friends, in cars, or on the street.
All of this occurs in the context of drastic resource shortages. Of the $200 billion in federal resources devoted to all housing programs, only $50 billion goes to low-income families. Just a quarter of those who qualify for Section 8 public housing support ultimately receive it.
Fannie Mae and Freddie Mac, the government-sponsored enterprises responsible for housing finance, have been held under Federal conservatorship since the financial crisis, when they carried $5 trillion in mortgage-backed securities and debt on their balance sheets. Negotiations have long been underway to end this conservatorship and determine the structure of a new guarantee.
Senate Hurting Low-Income Borrowers?
Legislative action by this given Congress could only put low-income people into a deeper bind. While S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act was touted as helping the little guy, a look at its provisions reveals the bill is a gift to banks that turns a blind eye to practices that harm financially vulnerable borrowers.
S.2155 – A handful of provisions in S.2155 reintroduce risk to the housing market by:
• Permitting steering by manufactured-home companies to affiliated lenders, increasing cost and risk to financially vulnerable borrowers.
• Eliminating escrow requirements for high-cost mortgages made by banks with assets between $2 billion and $10 billion, removing a protection designed to prevent the likelihood a borrower loses their home due to an unpaid tax lien.
• Exempting loans held in portfolio by these same banks from Qualified Mortgage requirements (they would no longer have to assess a borrower’s ability to repay).
• Exempting 85 percent of lenders from having to report the age, credit scores, and racial and ethnic breakdowns of borrowers. This would end a protection that prevents borrowers from being overcharged or discriminated against.
• Ending appraisal rules for high-risk mortgages in rural areas, introducing risks for rural borrowers.
GSE Reform — Senate Banking Committee members have been working for some time on a Government-Sponsored Enterprise (GSE) reform package that differs from the Federal Housing Finance Agency recommendations. Legislative time before the midterms is likely too short for Congress to craft a genuine bipartisan deal on GSE but here are the issues at the core of the negotiations:
Building on a 2014 bill passed by the Senate Banking Committee, the Senate agreement that leaked earlier this spring would place Fannie Mae and Freddie Mac into receivership and repeal their charters to replace them with 10 private market guarantors. The 2014 bill:
• Created the FMIC to ensure continued, widespread availability of an affordable mortgage rate, such as the 30 year fixed-rate mortgage.
• Set eligibility at a credit score around 750 and a 30-year fixed rate mortgage in which borrowers achieve an 80 percent loan-to-value ratio.
• Note: less than 50% of Americans have a credit score that qualifies them.
The deal introduced now would eliminate affordable housing goals in favor of an incentive system to encourage lending to low-and middle-income borrowers. In addition, Republicans and Secretary Mnuchin have affirmed the importance of the 30-year mortgage, Sen. Warren has said she will not support a housing finance reform unless “it addresses the affordable housing crisis in this country.”
The specifics of the Senate Banking GSE reform package are:
• The 10 private-guarantors model differs from FHFA model, which recommends a limited number of guarantors.
• The agreement would turn these institutions into utilities with access to an explicit government guarantee against catastrophic loss.
• Tension exists regarding affordable housing concepts of “duty to serve” as opposed to a “mortgage assistance fee approach.” A mortgage assistance fee is the conservative alternative to the Agencies’ mandate to serve underserved areas.
Secretary Carson’s Rent Hike
On Wednesday, Housing and Urban Development (HUD) Secretary Ben Carson, introduced a sweeping housing subsidy reform. This follows the executive order that President Trump signed earlier this month directing federal agencies to expand work requirements for low-income Americans receiving Medicaid, food stamps, public housing benefits and welfare. The administration cynically dubbed these administrative efforts “Welfare Reform 2.0.”
Sec. Carson’s initiative would raise rent for tenants in subsidized housing to 35 percent of gross income, up from the current standard of 30 percent of adjusted income. HUD officials estimate that about half of the 4.7 million families receiving housing benefits would be affected by this change. In some cases, rent for the nation’s poorest families would triple, increasing from a minimum of $50 per month to $150 per month.
This increase, which HUD argues is necessary to streamline its operations, would amount to about $3.2 billion in slashed benefits from the rent increase. This rediscovered Republican concern with spending rings hollow in the wake of their $1.5 trillion tax giveaway to corporations and the ultra wealthy. To the GOP, deficits are only a concern when they benefit the country’s most vulnerable.
HUD’s Rampage on Rental Assistance
While Sec. Carson is busy raising the financial burden on the most vulnerable Americans, he has been derelict in his duty to execute legislation that has been passed by Congress. Most notably, Carson is delaying the implementation of the Housing Opportunity Through Modernization Act of 2016 (HOTMA), which was passed with bipartisan support. The measure would streamline the formulas for calculating rents, deductions, and other factors for housing aid, ensuring that rental assistance continues to make housing affordable for low income families.
The House Joins In
Carson’s delayed implementation of HOTMA provisions buys time for congressional Republicans to undercut the act. On Wednesday, a House Financial Services, Housing Subcommittee hearing was held to discuss draft legislation, the Promoting Resident Opportunity through Rent Reform Act (PROTRRA). PROTRRA would significantly weaken housing choice vouchers and sweep aside many HOTMA reforms by creating a tiered rental system that could raise minimum rent 11 times higher than under current law.
Looking Ahead through the Midterms
Democrats have developed proposals around housing that they can campaign on this fall. Last year, Rep. Ellison introduced the Common Sense Housing Investment Act. This legislation would change the mortgage interest deduction to a 15 percent credit and increase the amount of homeowners who receive the credit from 43 million to 60 million. The bill lowers the deductible cap on allowed interest expense paid on a mortgage from $1 million to $500,000, which would help to ensure that wealthy homeowners no longer get such disproportionate favored treatment.
It is unlikely that significant housing legislation will advance during this Congress. Republican GSE reform seems to be on the back burner while housing programs passed by the House are redundant next to Sec. Carson’s actions to triple rental costs. With housing facing a severe crisis, Republican leadership makes itself vulnerable as voters weigh the impact of their policies.