The Housing Market Cannot Fully Recover Without a Robust Rental Policy

There is no one explanation for why access to mortgage credit remains so tight this far into the housing recovery, nor is there a consensus on why our national homeownership rate has fallen to a fifty-year low, but one thing is clear: the homeownership and rental markets are two sides of the same coin. As such, policymakers must understand that pressures and problems in one have implications for the other. As we disentangle and address the interwoven causes of our credit access and homeownership challenges, we do have a set of affordable rental policies and programs, proven effective and informed by ongoing research and best-practice executions. Free from legacy obligations, and with fresh eyes, new ideas, and a modest investment, the new administration has a tremendous opportunity to meet our most urgent affordable rental needs right out of the block. What should constitute that package of policies and programs is the focus of this article

The CRA: outstanding, and needs to improve

Community Reinvestment Act of 1977

"Mortgage Default Among Rural, Low-Income Borrowers"

In this working paper, Quercia, McCarthy, and Stegman use data obtained on 874 low income, rural borrowers participating in the Section 502 Home Ownership program administered by the Farmer's Home Administration (FmHA), and apply two multivariate proportional hazard models in order to analyze default decisions among these borrowers over time. The authors cite two key findings relating to default literature: (1) that contrary to prior findings, the size of the mortgage payment relative to borrower income plays a significant part in the default decision; and (2) borrower characteristics traditionally deemed risky (including minority status or being a female head of household) had no significant effect on borrower default. Rather, borrower-related factors--such as a change in marital status or the exodus of children from the household--played a larger part in the default decisions of borrowers participating in the FmHA program.

NC's Anti-Predatory Lending Law: Doing What It's Supposed To Do: A Reply

We reply to criticisms of our recent study about North Carolina's Anti-Predatory Lending Law reducing predatory loan terms and preserving access to credit (NC's Anti-Predatory Lending Law: Doing What it's Supposed to Do). To examine whether the decline in overall subprime lending in North Carolina, following passage of the predatory lending law, was due to a decline in loans with legitimate terms or to a reduction in loans with abusive terms, we examined specific market segments and market practices using loan level data from the Loan Performance Asset Backed Securities (ABS) database. Our study revealed that, although the total volume of subprime originations in North Carolina declined, the number of home purchase loans was unaffected by the law. Given the robustness of the LP data, we are baffled by the criticism and disappointed by confusion that has arisen over mistaken data interpretation. For reasons discussed in this paper, we stand by our descriptive study and will continue to use LP data in our future work.Technology and Industry, Regulatory Reform

Reflections on the Low Income Housing Issue (Commentary)

Between fiscal years 1979 and 1986, the low income housing sector has borne the brunt of the "Reagan revolution." During this time, annual funding for low income housing programs declined by more than twothirds in current dollars (from $32 billion a year to$9.9 billion), and by three-quarters in inflation-adjusted dollars. Housing advocates across the country have been numbed by these draconian cuts in low income housing programs, by repeated Administration claims that housing resources are best produced and allocated through the market mechanisms, and by government plans to privatize the FHA and get out of the housing business. Not surprisingly, much of the energies of these housing advocates have been devoted to preserving whatever programs they can rather than systematically rethinking what an appropriate federal housing role should be in the contemporary policy environment. What creative thinking is taking place among low-income housing advocates tends to be premised on the need for an even greater federal commitment to low income housing than existed either before the Reagan victory or during the 1960s, the height of liberal housing policy-making and program implementation. Rather than addressing the more practical and difficult issues of how increasingly scarce federal housing resources should be strategically allocated among a number of competing uses, housing advocates behave as if a Democratic administration in 1988 would eagerly embrace their ambitious housing agenda. Unfortunately, this is just wishful thinking

Low Income Home Ownership: Now More Than Ever

In late 1989, members of the American Society ofReal Estate Counselors participated in a survey about the major forces that will influence real estate over the next two decades. The respondees agreed overwhelmingly that the economic environment of the United States would determine the vitality of the real estate market. Despite a soft economy, there was substantial optimism. Nearly half felt that interest rates would stabilize at about 9 percent over the next 10-20 years. Of the remainder, however, almost twice as many expected interest rates to increase as expected them to fall. The more optimistic expectations were based on a belief, shared by nearly two-thirds of the experts, that the United States would become more competitive in world markets during the next twenty years, resulting in an improvement in the U.S. balance of trade

Payday Lending

A "payday loan" is a short-term loan made for seven to 30 days for a small amount. Fees charged on payday loans generally range from $15 to$30 on each $100 advanced. A typical example would be that in exchange for a$300 advance until the next payday, the borrower writes a post-dated check for $300 and receives$255 in cash -- the lender taking a $45 fee off the top. The lender then holds on to the check until the following payday, before depositing it in its own account. When the fee for a short-term payday loan is translated into an annual percentage rate, the implied annual interest rate ranges between 400 and 1000 percent. Virtually no payday loan outlets existed 15 years ago; today, there are more payday loan and check cashing stores nationwide than there are McDonald's, Burger King, Sears, J.C. Penney, and Target stores combined. For economists, several interesting issues arise in the study of payday loans: Is this just a situation in which willing customers and firms interact in the market for ready access to high-cost, short-term credit? Or does the payday loan industry encourage habitual borrowing and the snowballing of unaffordable debt in such a way that the state has a role to play in limiting consumers from their own excesses? Would a ban or overly restrictive regulations on payday lending just revive the market for loan-sharking? And what of a similar practice by mainstream banks, who regularly allow their customers to overdraw their checking accounts if they pay a fee comparable in size to a payday loan charge

Coordinating Housing and Social Services: The New Imperative

Historically, liberals and conservatives have disagreed over the causes of poverty. Recently, however, their attitudes toward existing public programs to assist the poor have converged. Liberals and conservatives alike have criticized these programs for failing to move people out of poverty. More specifically, public housing and other programs such as Aid to Families with Dependent Children (AFDC) have been faulted for having built-in incentives that discourage recipients from increasing their incomes. The lack of coordination among the various social assistance programs has also been criticized. A person may receive job training, for example, but have to drop out because child care is unavailable. Overall, the current array of housing and social services has not effectively assisted poor families in attaining self-sufficiency. An important goal of housing and social programs should be to help individuals and families achieve self-sufficiency. This notion is reflected in recent housing and social service legislation, including the Family Support Act of 1988 and the National Affordable Housing Act of 1990. These acts seek to restructure housing and social services to provide incentives and support for self-sufficiency, rather than simply maintaining recipients at a minimum standard of living