[Senate Hearing 117-213]
[From the U.S. Government Publishing Office]
S. Hrg. 117-213
HOME=LIFE: THE STATE OF HOUSING IN AMERICA
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HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING HOW LOCATION AND QUALITY OF HOUSING CAN DETERMINE HOW
RESILIENT OR VULNERABLE WE ARE TO NATURAL DISASTERS
__________
MARCH 16, 2021
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Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-081 PDF WASHINGTON : 2022
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Beth Cooper, Professional Staff Member
Megan Cheney, Professional Staff Member
Dan Sullivan, Republican Chief Counsel
Jonathan McKernan, Republican Detail
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
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TUESDAY, MARCH 16, 2021
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 41
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
WITNESSES
Christopher Herbert, Managing Director, Harvard Joint Center for
Housing Studies................................................ 6
Prepared statement........................................... 42
Responses to written questions of:
Chairman Brown........................................... 149
Senator Cortez Masto..................................... 151
Senator Warnock.......................................... 154
Diane Yentel, President and Chief Executive Officer, National Low
Income Housing Coalition....................................... 8
Prepared statement........................................... 57
Responses to written questions of:
Chairman Brown........................................... 157
Senator Cortez Masto..................................... 159
Senator Warnock.......................................... 161
Nikitra Bailey, Executive Vice President, Center for Responsible
Lending........................................................ 9
Prepared statement........................................... 78
Responses to written questions of:
Senator Cortez Masto..................................... 162
Senator Warnock.......................................... 168
Edward J. Pinto, Director, Housing Center, Resident Fellow,
American Enterprise Institute.................................. 11
Prepared statement........................................... 122
Edward J. DeMarco, President, Housing Policy Council............. 12
Prepared statement........................................... 142
Responses to written questions of:
Senator Cortez Masto..................................... 175
Senator Sinema........................................... 181
Additional Material Supplied for the Record
Letter from Center for Urban Renewal and Education............... 183
(iii)
HOME=LIFE: THE STATE OF HOUSING IN AMERICA
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TUESDAY, MARCH 16, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 1:58 p.m., via Webex, Hon. Sherrod
Brown, Chairman of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Committee on Banking, Housing, and
Urban Affairs will come to order. This hearing, as we see, is
in the virtual format. A few reminders as we begin.
Once you start speaking, there will be a slight delay
before you are displayed on the screen. To minimize background
noise, please click the mute button until it is your turn to
speak or to ask a question.
You should all have one box on your screens labeled
``Clock'' that will show how much time is remaining. For
witnesses, you have 5 minutes for your opening statement. And
for Senators, the 5-minute clock still applies to your
questions.
At 30 seconds remaining for both statements and questions,
you will hear a bell ring to remind you your time has almost
expired. It will ring again when your time has expired.
If there is a technology issue, we will move to the next
witness or Senator until it is resolved. To simplify the
speaking order process, Senator Toomey, the Ranking Member, and
I have agreed to go by seniority for this hearing.
Thank you to the witnesses. Mr. DeMarco, I have not greeted
you yet. How are you? Nice to see you. Thank you to all the
witnesses for joining us today.
The title of today's hearing--Home = Life--comes from
Matthew Desmond, the author of the book ``Evicted''. He
scribbled that in the front cover of my copy of the book, which
I bought. It tells you really all you need to know about
housing. Where you live determines where your kids go to
school, how far you have to go to get to work, and what kinds
of jobs you can get.
It determines where you do your grocery shopping and
determines whether your children are exposed to mold or
hazardous lead. We saw over the past year that our housing
certainly affects our health. That is only going to be even
more true in an era of a changing climate.
The location and quality of our housing can determine how
resilient or vulnerable we are to natural disasters. That is
why this hearing is long overdue.
For the past 6 years, we have had numerous hearings on GSEs
and the effects of housing on Wall Street, but we have ignored
how our entire housing system is working for homeowners looking
to buy a lower-cost home, seniors on a fixed income, and
renters working a minimum wage job. We will have lots of
discussions about the GSEs and their role in our housing
finance system for sure.
I have put forward a set of principles on the role the GSEs
should play in our housing market. But that is not what today's
hearing is all about.
It has been some 9 years since this Committee held a
hearing on the state of all housing in America. That is what we
are here to discuss today. When we held that hearing in 2012,
we were still trying to clean up the mess that Wall Street and
predatory lenders had made. We might expect things to get
better as we moved out of that recession.
As Wall Street reminds us daily, the stock market is up;
interest rates have been near record lows. And for many
Americans, things have gotten better.
Home prices have increased, giving some homeowners a
valuable asset and the ability to finance home repairs and send
their children to college. But that surely does not tell the
whole story. People's paychecks have not kept up with the cost
of living--we know that--particularly the cost of rent. The
typical nursing assistant or janitor or retail worker--the very
people we have called ``essential workers'' during this
pandemic, the people that go to work every day exposing
themselves to all of us and come home, anxious at night, hoping
they did not spread this virus to their children. The essential
workers--the nursing assistant, the janitor, the retail
worker--they are not paid enough to afford a two-bedroom
apartment anywhere in the country.
Even before the pandemic, 11 million renters--that is one
in four renters--were paying more than half their income for
housing before the pandemic. For more than half of Black and
Latino renters, there is little left over each month for food
and medication, let alone saving for a rainy day.
When a hard day's work does not even pay your bills, saving
for a downpayment to buy a house, of course, is not a reality.
It is not just renters. Today more than one in five homeowners
still pay more than one-third of their income for housing.
The number of lower-income homeowners continues to shrink.
Most concerning of all, perhaps, the Black home ownership rate
is as low as it was--think about this--is as low as it was when
housing discrimination was still legal.
Former HUD Secretary Romney--the father of our colleague
Senator Mitt Romney--tried to fully implement the Fair Housing
Act when it first passed, just days after Dr. King's
assassination, to combat systemic discrimination in our housing
markets. He was sidelined by the Nixon administration and its
new-found Southern strategy, and the law has never been fully
enforced, making it harder to ensure equal access to housing.
And while we are the wealthiest country in the world, we
have more than half a million people--including more than
100,000 children--without a place to stay on a given night.
Behind every one of these numbers is a family with a story.
Last year, before the pandemic began, I asked Ohioans to tell
me about their housing stories. Stories flooded in.
I heard from seniors who just were not sure how they could
stay in their home on a fixed income.
I heard from people in their 40s and 50s who, in their
entire adult life, had never been paid enough to make rent
without more than one job. I heard from parents who would love
to own a home for their children, but knew they would never be
able to beat out an investor looking to buy the same property
for cash. This is what families were facing a year ago.
This pandemic, of course, made it worse. Ten million
renters were behind on rent at the beginning of January.
If they were paying more than half their income on rent
before the pandemic, it is tough to see how they could ever
hope to catch up. As some homeowners are bombarded with ads to
refinance at the lowest cost on record, the homeowners who need
help the most do not have the same opportunities. Meanwhile,
millions of homeowners are behind on their payments or facing
foreclosure.
Homeowners of color are more likely to have fallen behind
because of the pandemic. The American Rescue Plan will help. It
will get shots in arms to get the virus under control. It will
speed additional help to renters, homeowners, and people
experiencing homelessness.
But the Rescue Plan was just that--a rescue, to mobilize
our resources to get through an emergency. Returning to the
same broken system, where hard work simply was not paying off
for so many workers, and still is not, is not good enough.
We have an opportunity on this Committee to make people's
lives better through better housing policy--to expand access to
affordable rentals, to make it easier to purchase a home, to
put trades people to work building housing. and making it safer
and more resilient.
Fundamentally, we pretty much want the same thing: a place
that is safe, in a community we care about, where we can get to
work and our children can have a good school, with room for our
family -whether that is three kids, or an aging parent, or a
beloved dog. You should get to define what home looks like for
you. You should be able to find it and afford it without
crippling stress every single month.
That is our charge on this Committee, to make it so for
everyone. Thank you.
Ranking Member Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. Thanks for calling
this hearing, and thank you to our witnesses for testifying
today.
Last week, we took another step toward socializing housing.
Last week, Congress nearly doubled the $40 billion in housing
support it had already appropriated since the pandemic. Calls
for additional assistance were being made before almost any of
the December spending was ever distributed to households.
Billions in stimulus checks, unemployment insurance, often
exceeding work income, and other welfare meant most households
at risk of homelessness had already received more money from
Government than they had lost in income. We have likely
exceeded the point where someone who has worked hard, made
sacrifices, paid their bills, cared for their families, but
received little of this Government largesse is asking
themselves: How is any of this fair?
And last week's bill added to an already vast Government
role in housing. The number and cost of the many housing
subsidy programs just boggles the mind. The mortgage interest
deduction, capital gains exclusion on home sales, tax deduction
on property taxes, FHA, VA, USDA, mortgage insurance, and
Ginnie MBS guarantees, Government- induced downpayment
assistance programs, LITHC, an overlapping array of HUD
programs. There is project-based rental assistance, tenant-
based rental assistance, public housing funding; Section 2002,
housing for the elderly; Section 811, housing for persons with
disabilities; Section 521, rural rental housing; CDBG, home
block grants, homelessness. It is unbelievable. And then, of
course, we have the GSEs which have historically subsidized
mortgages.
Folks, Government is the problem here, not the solution.
Fifty years and countless hundreds of billions of dollars in
Federal housing support have had no meaningful impact on home
ownership rates. In 1970, the home ownership rate in America
was 64 percent; in 2020, 65.28. And as one of our witnesses
will testify, Black home ownership levels are similar to when
the Fair Housing Act was passed in 1968. In 1960, Black home
ownership was about 38 percent; in 2019, just 42 percent.
Why is this? It is because Government policies mostly are
making housing more expensive. Local zoning laws restrict the
supply of housing, which drives up home prices and rents. The
GSEs, FHA, and VA subsidize the debt financing component of
home purchases, and those subsidies are passed on into the form
of higher home prices.
Subsidized debt also encourages people to take on more debt
than they can handle. We saw how badly that turned out in 2008.
The state of housing in America affirms the urgency of
financing reform. As we will heard today, the housing market is
cyclical. It is a question really of when, not if, there will
eventually be a housing downturn, and the GSEs and the housing
finance system are just not prepared. FHFA Director Calabria in
the last administration made significant progress in reforming
the system. Thanks to their good work, the net worth sweep has
been suspended. The GSEs finally have begun to build capital
under a constructive new capital rule.
For more than 12 years after the financial crisis, Congress
has still not addressed the fundamental flaws in the system
that led to the crisis. The system is still dominated by the
GSE duopoly, and these $6 trillion behemoths actually have an
even larger market share than they had before the crisis. They
certainly remain too big to fail.
The GSEs and the system also remain gravely
undercapitalized. Just as before the financial crisis, these
flaws in the system continue to encourage excessive risk
taking. They risk future taxpayer bailouts, and they threaten
financial stability. And just as before the financial crisis,
these flaws also continue to undermine the availability and
affordability of housing in America.
The solution is not to double down on the old ways by
simply easing underwriting standards, lowering FHA premiums, or
further subsidizing mortgage debt. We need to try something
new. We need to scale back the role of Government and leverage
the power of free enterprise to promote housing for all
Americans.
For more than 30 years, Chairmen and Ranking Members from
both sides of the aisle on this Committee have worked together
on an ongoing basis to improve our housing market. I am
committing to working with you, Mr. Chairman, and other members
of this Committee to continue that tradition in this Congress.
And in that spirit, yesterday I released principles for
reforming the housing finance system. Now, these principles
build on the bipartisan efforts of current members of this
Committee from both sides of the aisle.
And, Mr. Chairman, I think these principles also share
considerable overlap with the principles you laid out in
September of 2019. I think we need to end the ``too big to
fail'' GSE model of privatizing gains and socializing the
losses by permitting the chartering of competitors to the GSEs.
We need to recapitalize the GSEs and end the conservatorship.
And these reforms need to be done in an incremental and
realistic manner that continues to foster a liquid secondary
market for mortgages and the continued availability of the 30-
year mortgage, while promoting equitable access for mortgage
lenders of all types. These reforms should represent the rule
of law and rights of the GSE shareholders that were infringed
by the Third Amendment.
I know we have significant differences about the role of
Government in the housing market, but I do believe that a
compromise is possible. There is a lot of work that can be
productively done on a bipartisan basis this Congress, and as
part of that work, I look forward to hearing from Treasury
Secretary Yellen soon, since that is required by the latest
changes to the PSPAs, and then I hope we will act together.
Thank you.
Chairman Brown. Thank you, Ranking Member Toomey.
I will introduce today's five witnesses.
Dr. Chris Herbert is the managing director, Harvard Joint
Center for Housing Studies, which publishes an annual report
examining the state of the rental and home ownership markets.
He is also a lecturer at the Department of Urban Planning and
Design at the Harvard Graduate School of Design. He serves on
the Board of Director of Freddie Mac and is a member of the
Milken Institute Center for the Future of Aging. Welcome, Dr.
Herbert.
Ms. Diane Yentel is the president and CEO of the National
Low Income Housing Coalition. She served as vice presidents of
public policy and government affairs at Enterprise Community
Partners and Director of the Public Housing Management and
Occupancy Division at U.S. Department of Housing and Urban
Development. Welcome, Ms. Yentel. She is having some technical
problems. She may end up doing this by phone. It is not clear.
Ms. Nikitra Bailey is an executive vice president at the
Center for Responsible Lending. She leads mortgage policy
advocacy. Ms. Bailey currently serves on the Consumer Financial
Protection Bureau's Consumer Advisory Board, is vice chair of
the North Carolina Housing Coalition, and a board member of the
North Carolina Institute for Minority Economic Development.
Welcome, Ms. Bailey.
Mr. Ed DeMarco has been in front of this Committee before,
is president of the Housing Policy Council. Prior to joining
them, he was a senior fellow and resident at the Milken
Institute Center for Financial Markets and for 5 years served
as Acting Director of the Federal Housing Finance Agency. He
also served as Chief Operating Officer and Senior Deputy
Director of FHFA and its predecessor agencies, held positions
at Social Security, the Treasury Department, and the GAO. Mr.
DeMarco, welcome.
And is that everybody? I am sorry. Mr. Pinto I skipped
over. Sorry about that. Mr. Pinto is resident fellow and
director of AEI Housing Center at the American Enterprise
Institute. He oversees the publication of AEI housing market
indicators. Mr. Pinto formerly served as Executive Vice
President and Chief Credit Officer for Fannie Mae and as senior
legal counsel and capital markets program manager for the
mortgage insurer MGIC.
Dr. Herbert, please begin.
STATEMENT OF CHRISTOPHER HERBERT, MANAGING DIRECTOR, HARVARD
JOINT CENTER FOR HOUSING STUDIES
Mr. Herbert. Thank you, Senator Brown. Chairman Brown,
Ranking Member Toomey, Members of the Committee, thank you for
inviting me to testify at this hearing.
I am Chris Herbert, the managing director of Harvard Joint
Center for Housing Studies. For more than three decades, the
center has published the annual State of the Nation's Housing
report, so I am pleased to share our views on the Nation's
principal housing challenges today.
In addition, I serve on the Board of Director of Freddie
Mac. Although I am here in my capacity with the Joint Center, I
just want to note that, as with my responsibilities on the
board, there will be some limit on things I might be able to
comment on about the GSE operations.
This past year's tumultuous events have illuminated and
exacerbated our Nation's many housing challenges. The pandemic
has put further stress on millions of Americans who were
already struggling to pay for their housing. The national
reckoning with racial justice has put a spotlight on glaring
racial disparities in access to decent and affordable housing.
And the devastating series of earthquakes, hurricanes,
wildfires, and extreme cold have done extensive damage to homes
across the country.
But the past year has also highlighted the importance of
the housing sector to the broader economy, having been a bright
spot in an otherwise troubled year.
In my testimony today, I will highlight five key housing
challenges we face across all areas of our country-- urban,
rural, suburban--that call for action by the public, private,
and nonprofit sectors to address.
First is the need to expand rental assistance programs to
help the 10.6 million renters spending over half their incomes,
many of whom have extremely low incomes, making even the lowest
market rents unaffordable. This heavy burden increases housing
instability, undermining the ability of people to work and
study, and forces them to cut back on food, health care, and
savings. Expanding support for these renters would greatly
enhance their well-being and help the economy.
Second is the need to address barriers to housing
construction, and particular of modest-cost homes. Many things
contribute to our current shortfall in housing supply: labor
shortages, the rising cost of materials, and restrictive
regulations that constrain efficient land use by limiting
density, creating costly and complex approval delays and adding
excessive fees. The Federal Government should leverage the
tools it has to encourage State and local regulatory reform and
to support more efficient means of building homes.
Third, given the significant financial and social benefits
of owning a home, there is a compelling need to expand access
to sustainable home ownership, particularly for people of color
that historically have been shut out. The shortfall in home
ownership among Black and Hispanic households, 31 and 26
percentage points, respectively, is simply shameful. We need to
expand homeowner education and counseling to help people
navigate this complex process, increase critically important
financial supports for downpayments and closing costs, provide
access to safe and affordable credit, and expand supports post-
purchase to help sustain home ownership.
Fourth, we need to address the stubbornly high levels of
segregation across America, which are perhaps most evident in
the concentrations of people of color in high- poverty
neighborhoods. Research provides compelling evidence that
childhood exposure to high levels of poverty reduces lifetime
earnings, lowers college attendance, and increases
incarceration rates. In response, we need to expand affordable
housing options in a broader range of communities to
affirmatively further fair housing and to coordinate
investments in housing with improvements in schools, public
safety, and economic development in historically marginalized
communities.
Finally, we need to invest in existing homes to make them
more resilient, healthy, and age-friendly. Not only is climate
change increasingly causing damage to our homes, it also calls
for improved energy efficiency as weather becomes more extreme.
Older, poorly maintained homes expose residents, particularly
people of color and those with low incomes, to carbon monoxide,
radon, lead, asbestos, and allergens, with significant health
consequences. And with the population over age 75 poised to
double over the next two decades, we need to modify millions of
homes to allow older adults to age safely in their homes and
their communities.
Let me conclude by saying that as the title of this hearing
indicates, having a good-quality, affordable, and secure home
in a thriving community is foundational for a healthy and
productive life for every person in America. Addressing our
country's housing challenges will take concerted action for the
public, private, and nonprofit sectors, but this investment
would pay substantial dividends to these individuals and to
society at large.
Thank you for turning your attention to these critical
issues and for your invitation to share this information with
you today. I look forward to your questions. Thank you.
Chairman Brown. Thank you, Dr. Herbert.
Ms. Yentel, you are recognized for 5 minutes. Welcome.
STATEMENT OF DIANE YENTEL, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, NATIONAL LOW INCOME HOUSING COALITION
Ms. Yentel. Thank you. Chairman Brown, Ranking Member
Toomey, and Members of the Committee, thank you for the
opportunity to testify on the state of housing in America.
The COVID-19 pandemic and economic collapse of 2020
devastated millions of families, and people with low incomes
and people of color have been disproportionately impacted
through greater financial hardship or increased illness and
death.
Racial disparities in housing contribute to the inequitable
health outcomes during the pandemic. Decades of structural
racism in multiple systems, including housing, leave Black
people, Native Americans, and Latinos much more likely to be
renters, to be rent-burdened, and to experience homelessness
than white people. And people of color in homes are more likely
to live in overcrowded housing, all risk factors for increased
likelihood of contracting or spreading COVID-19.
The pandemic made clear that affordable homes are necessary
for individual and public health, but renters and unhoused
people have struggled to remain safely and stably housed
throughout the pandemic due to the underlying affordable
housing crisis that existed pre-pandemic. Pre- pandemic, there
was a shortage of nearly 7 million affordable and available
rental homes for America's lowest- income renters. For every
ten of the lowest-income renter households, there are fewer
than four homes that are affordable and available to them.
Without affordable options, 10 million very-low-income
households were severely housing cost-burdened, spending more
than half of their incomes on rent and utilities, leaving them
one financial shock away from missing rent and facing evictions
or, in worst cases, becoming homeless.
So for many of these same renters, the coronavirus and its
financial fallout was that financial shock. They lost jobs and
wages. They have increased Internet, child care, health care,
food expenses, and they struggled more than ever to pay the
rent.
A patchwork of Federal, State, and local resources and
protections, including a broad Federal eviction moratorium
implemented in September 2020 by the CDC, kept many people
stably housed during the pandemic, but renters struggled to
keep up with the rent. The latest estimates are that about 10
million renter households owe over $50 billion in rent and
utility arrears, and they remain at high risk of losing their
homes.
In response, in December Congress extended [no audio] large
part due to Chairman Brown's leadership, Congress provided a
total of $47 billion for emergency rental assistance to assist
low-income renters and landlord address these rent and utility
arrears.
These are other resources in the American Rescue Plan are
critically needed and will go a long way to helping renters
remain in their homes and to keep people experiencing
homelessness safe, healthy, and housed during COVID-19.
Policymakers must now ensure that emergency rental assistance
funds are quickly and equitably distributed to households
facing the greatest needs. And President Biden must defend,
extend, strengthen, and enforce the Federal eviction moratorium
to keep renters in their homes while this historic allocation
of rental assistance is distributed.
As the Nation recovers from the pandemic, Congress must
turn its attention to advancing long-term solutions to resolve
the Nation's housing crisis. These solutions include:
One, expanding rental assistance to make it universally
available to all eligible households in need and improving the
program to ensure that it meets the needs of the people with
the lowest incomes and people of color.
Two, we must increase the supply of homes that are
affordable to people with the lowest incomes through the
preservation and construction of public housing, a major
expansion of the National Housing Trust Fund, and incentives or
requirements to reduce restrictive local zoning.
Three, we should create a permanent emergency rental
assistance program to keep families stabilized during a crisis,
[no audio] everyday financial shocks and crises that low-income
people face.
And, four, we must lessen ongoing evictions and their long-
term harm with robust renter protections like right to counsel
and expunging eviction records.
This Committee and Congress have a historic opportunity to
ensure both that unprecedented emergency resources are used for
their intended purpose and to advance and enact solutions to
address and end the affordable housing crisis in our country.
And I look forward to working with you on this important work.
I look forward to your questions, and thank you again for the
opportunity to testify today.
Chairman Brown. Thank you, Ms. Yentel.
Ms. Bailey is recognized for 5 minutes.
STATEMENT OF NIKITRA BAILEY, EXECUTIVE VICE PRESIDENT, CENTER
FOR RESPONSIBLE LENDING
Ms. Bailey. Good afternoon, Chairman Brown, Ranking Member
Toomey, and Committee Members. Thank you for the opportunity to
testify in today's hearing.
I am an executive vice president at the Center for
Responsible Lending, an affiliate of Self-Help, one of the
Nation's largest community economic development lenders.
Home ownership is the bedrock of the American middle class.
It is the way that most Americans build wealth. It is the
economic engine that fuels the greater economy. But we have to
be honest about our country's inequitable investments in home
ownership. We have left entire taxpaying communities behind.
COVID-19 has brought these injustices into full view.
On the one hand, some people can shelter in place, benefit
from a roaring stock market, and watch their homes increase in
value. On the other, essential workers face economic
uncertainty and service positions that make them more likely to
contract the virus. Many families suffer reduced wages,
unemployment, and needing to wait at food pantry lines that
circle entire city blocks and stretch down rural roads.
Our Nation's housing policies are a core cause of these
interconnected inequities. We all know that a home is much more
than just its four walls.
Federal policies, especially the Homestead Act and the New
Deal, subsidized land and home ownership, literally the
foundation of the American middle class. But redlining admit
these benefits were primarily available for white Americans and
explicitly excluded most Black Americans and other people of
color. These laws created wealth that could be passed forward
to successive generations and cemented a white middle class
that could use their wealth to provide for a child's education,
seed money for a business, a secure retirement, and a buffer
against economic setbacks.
The opportunities for many white Americans contrasts
sharply with those for Black and brown families who have been
systemically denied the ability to buildup the capital needed
to obtain a mortgage and build equity.
Yes, today's Black home ownership rate is at levels similar
to 1968 when the Federal Fair Housing Act was passed and even
the 1890s. The law's formal outlawing of discrimination belies
the fact that housing discrimination remains widespread to this
day. There is a direct connection between this legacy and the
inhumane events over the summer that led to the people-led
protests demanding justice. We must act to eliminate racist
structures and create inclusive communities.
In the run-up to the Great Recession, predatory lenders
targeted communities of color with toxic and risky mortgage
loans. Black and Hispanic families unnecessarily lost more than
$1 trillion in wealth as a result. Since then, Fannie Mae and
Freddie Mac have woefully underserved Black and Hispanic,
Native and Pacific Islander communities. There could have been
770,000 more Black homebuyers if mortgage credit was not
unnecessarily tight and lenders were willing to make small-
dollar mortgage credit available.
Like the last economic recovery, today's is K-shaped and
uneven. Once again the relief is failing to reach the hardest-
hit families. While it seems the mortgage market is booming, a
closer look at the data reveals a market dominated by
refinances that mostly benefit the wealthiest.
Typically, refinancing accounts for only a third of the
market, but in 2020 they were over half. Historically low
interest rates and the Federal Reserve's monthly purchases of
$40 billion in agency mortgage-backed securities are keeping
the market strong, yet many hardworking families are unable to
secure a simple rate refinance that would save them a couple
hundred of dollars per month that would help them to stay out
of foreclosure and remain housed as the health pandemic
continues.
Given our national crisis and inequitable housing finance
system, a new substantial public investment in home ownership
is needed to bring in first-generation homebuyers. The future
of the market is now, and its success depends on its ability to
serve the 3 million Black and more than 5 million Hispanic
mortgage-ready potential homebuyers.
Addressing inequities can create shared prosperity by
adding potentially $1 trillion per year to the economy,
generate billions in local revenues, and create thousands of
jobs. It would bring us closer to an America as good as her
ideals where the promise of America can reach all of our
children.
Thank you for the opportunity. I look forward to answering
questions.
Chairman Brown. Thank you, Ms. Bailey.
Mr. Pinto is recognized for 5 minutes.
STATEMENT OF EDWARD J. PINTO, DIRECTOR, HOUSING
CENTER, RESIDENT FELLOW, AMERICAN ENTERPRISE INSTITUTE
Mr. Pinto. Thank you, Chairman Brown, Ranking Member
Toomey, and other Members of the Committee, for the opportunity
to testify today.
Notwithstanding 70 years of Federal efforts, neither the
goal of making homes affordable for lower-income households nor
the goal of achieving generational wealth for lower-income
homeowners has been met. Yet this year is the 100th anniversary
of an even more troubling event: In 1921, the Federal
Government began implementing zoning and land use policies
designed to make it too expensive for racial and ethnic groups
to be able to live in newly built homes and neighborhoods. I
have estimated that since 1940 this has prohibited the
construction of some 8 million homes. Therefore, it comes as no
surprise that we have a broken housing ladder, with home prices
rising much faster than incomes, pricing many out of the first
rungs. We have an overheated housing market today with rapid
home price appreciation, the result of extremely low interest
rates, combined with the tightest supply in history. Last
month, inventory was down 47 percent from 2 years before.
We also have a market that is far, far from equilibrium.
The Federal Housing Finance Agency's metric shows that we
currently have prices 14 percent above the long-term trend, and
this trend is rising rapidly.
When we compare home prices to the fundamentals such as
construction costs, wages, and rents, we find that since 2012
home prices have gone up two to three times faster than those
fundamentals. We know from history the bigger the gap, the more
painful the correction, with lower-income and minority
homeowners being slammed the most.
Consider this thought experiment. Let us say rates go up to
5 percent by the end of next year. This last happened just 2-1/
2 years ago, and home prices go up the expected 35 percent from
the beginning of 1920 to the end of next year. We are already
well on our way to that 35 percent. And the monthly payment
would increase by 85 percent. This would sharply reduce demand,
turning an overheated market into a buyer's market. The
resultant price declines would inflict the most harm on low-
income and minority homeowners, who are ill equipped to handle
such price volatility.
The distortions that we have had due to zoning and other
land use regulations have driven up home construction costs and
land prices unevenly across the entire United States. For
example, a home in Phoenix today sells for about a third as
much per square foot as one in San Jose. Supply constraints and
the inflationary effects of the Federal Government's 1921
zoning and land use regime that I described earlier continues
in force today. It is embodied in thousands of State and local
land use codes.
Since 1994 low-tier home prices have risen 39 percent
faster than high-tier ones and have had much greater price
volatility. This has had a detrimental effect on entry- level
buyers. Further, high leverage, when combined with a
constrained supply, is the key driver of higher home prices. It
merely permits one borrower to bid against another would- be
buyer for scarce goods.
The 1994 to 2020 period has seen extreme home price
volatility in the low-price tier. Let us take Phoenix. There
was an increase starting in 1994 of 225 percent in nominal
prices. Then, in 2007, prices collapsed in the following years
by 70 percent followed by a climb in 2012 to today of 225
percent. All of this in 27 years.
One of the most pernicious effects of rapidly increasing
house price appreciations on lower-income households is that it
creates the illusion of wealth. Earlier when I mentioned prices
rising 225 percent followed by the decline of 70 percent, it
was the land price, not the structures, that exploded and then
collapsed. So we put low-income homeowners who purchased in
2004 and 2007 into the unknowing speculation in land.
How might we sustainably build generational wealth for
lower-income households and minority households through home
ownership? Financial assistance might be provided to buy down
the rate on a wealth-building 20-year loan. This would provide
potential equal buying power for the 20-year loan versus the
30-year loan. The 20-year loan reliably builds generational
wealth, reduces defaults, and limits capitalization into higher
prices. It could be narrowly targeted to lower-income, first-
generation homebuyers. It would sustainably expand the credit
box and growing home ownership opportunities, especially for
minorities.
There are many other suggestions in my written testimony,
but I will leave it here, and thank you for the opportunity for
testifying today.
Chairman Brown. Thank you, Mr. Pinto.
Mr. DeMarco is recognized for 5 minutes.
STATEMENT OF EDWARD J. DEMARCO, PRESIDENT, HOUSING POLICY
COUNCIL
Mr. DeMarco. Very good. Thank you, Chairman Brown, Ranking
Member Toomey, Members of the Committee. Thank you for inviting
me here today.
My written statement covers four broad topics: the
pandemic, the racial ownership gap, housing supply, and housing
finance reform.
The housing finance system generally, and mortgage services
in particular, responded effectively to the needs of homeowners
who saw their income disrupted by business shutdowns. Servicers
quickly established processes to offer homeowners mortgage
payment forbearance, even as their own employees were
converting to work from home. By mid-April, more than 2 million
families had received forbearance, and by late May, that number
was up to 5 million.
Over the past year, nearly 7 million families have been on
forbearance. More than half of these households, though, have
resumed making their payments or paid off their mortgages.
Today about 2.6 million households remain in forbearance, and
most of them are approaching 1 year in forbearance.
Recently, FHFA and the Government-insured loan programs
indicated that forbearance could be extended up to 6 more
months. Despite this tremendous response by homeowners and
mortgage servicers, a lot of work remains. By this fall,
homeowners will need to resume payments. For those whose
incomes have been permanently lost or reduced due to the
pandemic, servicers will use all the tools available to them to
find an appropriate solution.
Beyond the pandemic, we face a pressing challenge
addressing the racial gap in home ownership, and I would like
to thank my fellow panelists for all their thoughtful comments
on this already.
While this is a challenging priority, it is also an
opportunity. It is an opportunity to think differently about
the most effective ways to promote sustainable home ownership
for individuals and families who have the means to own a home
but have been unable to realize that dream. HPC encourages more
focus on downpayment assistance to give homebuyers some amount
of equity in the property or that create rainy-day reserves to
address future needs. Homebuyer counseling and education before
starting the home purchase process would also be a big assist
to many families. Since the long-term public policy goal is
wealth building, we should focus on building and preserving
homeowner equity.
My written statement also touched on the following points:
First, any discussion of broadening home ownership
opportunities should include FHA.
Second, a critical factor to consider when pondering new
approaches to expand home ownership opportunities is the
changing characteristics of household income. It is becoming
more volatile.
Third, we should not measure success simply by observing
positive changes in home ownership rates. Any such gains must
be sustainable through the economic cycle.
One key element in meeting both the racial ownership gap
and the more general challenges of affordable housing is this:
We need to build more housing. The lack of supply is both a
rental and an ownership challenges. The barriers are well
known, if difficult to surmount. Land use restrictions, zoning
laws, building codes, and other requirements often slow or
preclude home construction, particularly of more affordable
dwellings. Beyond all these concerns, we cannot lose sight of a
huge challenge that has been with us now for more than a dozen
years: housing finance reform.
The good news is that there is broad agreement on the
principles of reform, and HPC welcomes the latest contribution
yesterday from Senator Toomey. In 2013, Senators Corker and
Warner identified the basic policy compromise that remains the
foundation for bipartisan reform: restore reliance on
meaningful private capital to bear mortgage credit risk,
backstop the system with a Federal guarantee to ensure deep
liquidity in all markets, and charge fees both for that
Government backstop and to fund affordable housing needs.
The 10 basis points affordable housing fee they proposed
became part of virtually every reform bill since. Over the past
10 years, such a fee could have raised over $30 billion for
affordable housing. Think of the opportunity cost of our
failure to act. We still have significant taxpayer exposure and
systemic risk, and we missed the opportunity to expand funding
to support affordable housing and housing supply.
Thank you for inviting me today.
Chairman Brown. Thank you, Mr. DeMarco.
The questioning will begin with Senator Ossoff from
Georgia. He will be recognized for 5 minutes.
Senator Ossoff. Thank you, Mr. Chairman, for convening this
hearing and for your flexibility with my schedule. Thank you to
our panel.
I would note, Mr. Chairman, that when the Chair of the
Federal Reserve recently testified before this Committee, he
noted that well-targeted fiscal policy is a more effective way
of relieving economic distress and relieving poverty than loose
monetary policy, and, accordingly, the American Rescue Plan
includes not just very significant cash relief for working- and
middle-class families, more than $12,000 between tax credits
and stimulus checks for a typical working-class family of four,
but, also, mortgage assistance, housing vouchers, rental
assistance that people need during this crisis. And I think
these and other provisions help explain why there is
overwhelming bipartisan support for this stimulus bill. And I
suggests that, moving forward, we should think about
bipartisanship as a measure of the breadth of public support,
whatever politicians in Washington may view, and three-quarters
of Americans support this bill.
I want to ask you, Ms. Bailey, about the housing vouchers
included in the American Rescue Plan. In my discussions with
local housing authorities, I have heard that these are highly
effective at helping lower-income households afford housing
near good schools and good jobs.
In your view, during this pandemic, during this crisis,
should HUD allocate those new vouchers that Congress just
authorized to the housing authorities that are serving
communities with the most acute housing crises rather than just
distributing them according to population?
Ms. Bailey. Thank you so much. One of the lessons of the
Great Recession is that we need to have targeted relief, and
that that relief must reach the hardest-hit communities. So
anything that we do must really get to those socially and
economically disadvantaged communities to make sure we do not
miss them this time.
I would pause and turn it over to Ms. Yentel so that she
can chime in on this answer, but I also want to thank you and I
want to thank this entire Committee for the great work that
Congress just did in passing the additional $10 billion to help
struggling homeowners. Without that support in the home
ownership Assistance Fund, we would not have an ability to
really help consumers who are nearing a wave of foreclosures.
So I will stop there and turn it over to Ms. Yentel.
Senator Ossoff. And thank you so much. And, Ms. Yentel, I
may come to you in just a moment. Ms. Bailey, I appreciate that
answer as we consider how to advocate that HUD proceed. But I
have a question for you, Mr. Herbert, if I might, and
considering the affordable housing crisis we have had in
Georgia, cities like Atlanta, for example, predated this
pandemic, the dynamic of gentrification whereby Black
communities deeply rooted in the urban core of Atlanta,
Georgia, and cities like them have been displaced as rapid
economic growth has driven up rent and property taxes.
Just going back to Econ. 101, Mr. Herbert, housing is
unaffordable in part because demand is outstripped supply. So
how can Congress reduce impediments to density and support a
sustainable expansion of housing supply, especially in those
urban environments where gentrification is displacing Black
residents?
Mr. Herbert. Thank you, Senator Ossoff, for the question.
It is absolutely the case that land use controls are a State
and local purview, so it does put the Federal Government in a
bit of a bind in how it can control that. But the Federal
Government does have the power of the purse, so one method I
would suggest is, looking at investments in housing and
investments in infrastructure, that the availability of that
funding be tied to evidence that localities and States are
allowing for density of housing and communities where it is
needed, communities of opportunity, areas near transit.
Certainly there are other ways in which the regulatory
authority of the Federal Government could also be used to
incentivize States to reduce these barriers to make it possible
to build more affordable housing where it is needed.
Senator Ossoff. Thank you, Mr. Herbert, and a follow- up
there. I mentioned that Chairman Powell had noted in a recent
discussion before this Committee that fiscal measures are a
superior way of relieving poverty than monetary expansion. On
the subject of monetary policy, I noted with interest that New
Zealand's Prime Minister, Jacinda Ardern, recently announced
she would instruct New Zealand's central bank to target home
price stability as part of the central bank's mandate.
Interestingly, New Zealand was the first country in the world
to order its central bank to target consumer prices in 1989.
Since this Committee has jurisdiction over the Federal
Reserve System, I would be curious for your reaction, Mr.
Herbert, to that New Zealand policy initiative?
Mr. Herbert. Well, certainly runaway house prices are a
challenge for affordability and do damage both in the near term
in terms of people being priced out of homes and in the long
term. I think it is challenging given that the interest rate is
also being used to support the economy, to know how you can
thread the needle between providing the interest rate boost
that will provide that needed boost to the economy, at the same
time also providing a boost to home prices.
So I think while it is a worthy goal, I am not sure how to
square that circle myself.
Senator Ossoff. Thank you, Mr. Herbert. Well, perhaps it is
by utilizing fiscal policy more on the expansion side. To be
continued.
And, Mr. Chairman, thank you for your indulgence and
recognition.
Chairman Brown. Thank you, Senator Ossoff.
Ranking Member Senator Toomey is recognized for 5 minutes.
Senator Toomey. Thank you, Mr. Chairman. You know, when we
think about the state of housing, I do think it is important to
think about housing prices compared to other economic
fundamentals.
Mr. Pinto, you addressed this. I just want to make sure we
have got this distilled down to its essence here.
First, let me say, isn't it true that in recent years
housing prices have increased faster than income in many
markets? Mr. Pinto, are you there?
Mr. Pinto. Yes.
Senator Toomey. Can you hear me?
Mr. Pinto. Yes, that is true, Senator.
Senator Toomey. OK. And is it also true that home prices
just cannot rise faster than personal income indefinitely? That
is not sustainable. Is that right?
Mr. Pinto. That is also correct. It is not sustainable.
Senator Toomey. Right. So since that is what has been going
on for some time, does it follow that at some point in the
foreseeable future housing prices are going to have to converge
back toward income and other fundamentals? There is going to
have to be a return to a convergence there, right?
Mr. Pinto. That is my opinion, yes.
Senator Toomey. OK. Dr. DeMarco, Mr. Pinto has confirmed
that, to put it briefly, the housing market, at least in some
places, is overheated. That is my term, but I think that is
true. My question for you: Does this current state of the
housing market reinforce the case for GSE reform, or does it
weaken the case? What is your sense?
Mr. DeMarco. I think the case is there today. It was there
yesterday, and I believe it really needs to be dealt with now.
There are a number of things affecting market conditions now
that would be improved with housing finance reform.
Senator Toomey. So yesterday I released principles for
housing finance reform, and you alluded to them. I do want to
reiterate that I look forward to working with the Chairman, my
colleagues on this Committee, and the administration to try to
move the ball forward on that.
Let me ask you this, Dr. DeMarco, because I know you have
done a lot of work in this space. The principles that I
released yesterday include reforms that are meant to preserve
access to the 30-year mortgage, increase the role of private
capital, protect taxpayers against future bailouts. Are all of
these possible in combination, or are they mutually exclusive?
Mr. DeMarco. I believe they are quite possible, Senator,
and I believe there have been a number of reform proposals that
have aligned with the sort of principles that you put out, that
Chairman Brown put out, and I believe that housing finance
reform can do those things.
Senator Toomey. And despite the fact that the economy has
not fully recovered from last year's shutdowns, you believe
that now is as good a time as any to begin this process. Is
that a fair statement?
Mr. DeMarco. It is, Senator. It is going to take a number
of years to do this, and there is no reason to be delaying. We
have been delaying for 12 years.
Senator Toomey. And my last question, then, and I think I
am going to run out of time, but if we were to go down this
road in a bipartisan fashion, we could achieve something very
close to the problems that, as you point out, have been
discussed for some period of time. Could you discuss some of
the advantages that people would find, some of the advantages
for taxpayers, for homeowners, for future homeowners? What is
your sense of some of the advantages of these reforms?
Mr. DeMarco. I think reform can bring greater competition
to the housing market, and that competition would spur greater
innovation. All of the witnesses today have talked about some
of the challenges for the racial ownership gap and so forth,
and I believe that more innovation would really help. It would
also lead to a reduction in systemic risk. Today we have got a
lot of systemic risk by concentrating risk, you know, on the
backs of the taxpayer through these Government-backed entities,
and I believe housing finance reform can disseminate that risk
through the system, which would lower risk to the whole
financial system.
Senator Toomey. Thank you, Dr. DeMarco.
Thank you, Mr. Chairman.
Chairman Brown. Thank you. Senator Reed is back, but I
promised Senator Smith, because I did not know if Senator Reed
was going to get back in time. Senator Smith is recognized for
5 minutes and then back to you, Jack, if that is OK.
Senator Smith. OK.
Chairman Brown. Sorry about this.
Senator Smith. Thank you, Chair Brown, and thank you,
Senator Reed. I appreciate that.
Chair Brown and Ranking Member Toomey, I really, really
appreciate this conversation and the vital importance of
addressing the underlying fundamental challenges that we have
in the housing system in this country. And while I certainly
agree that there is a need for us to look at what we do with
GSE reform, I would just like to point out that the challenges
that we have are really systemic and have existed for a long,
long time.
This is what it looks like in Minnesota. In rural areas,
small-town areas, big cities, the housing market is not
working, and it especially is not working for working people. I
hear this from mayors. I hear this from business owners who
cannot find people to work in their companies because there is
no affordable place for them to live. I hear about this from
college presidents and students. It was a challenge before
COVID, and now, of course, the systemic inequities in our
system have just been made so much worse.
So I would like to start with the question of home
ownership, and, Ms. Bailey, I am going to come to you on this.
One of the issues that I am very interested in addressing on
this Committee is the persistent gap in home ownership between
white households and households of color. In my home State of
Minnesota, we have one of the largest home ownership gaps in
the whole country; 77 percent of white households in Minnesota
own their own home, but only 24 percent of Black households own
their own home.
So the question is: How do we fix this? I think we know a
lot of this has happened. It is a combination of federally
sanctioned redlining and unequal access to investments in
infrastructure and discrimination in the housing service, the
financial service industry. But what do we do to fix this?
I want to ask you about this. So Minnesota Housing Agency,
our housing finance agency, has run an enhanced downpayment
assistance program that has reduced barriers to home ownership
for people of color. In the first few years, 68 percent of the
borrowers who received this assistance were households of
color, highly effective.
Ms. Bailey, can you just talk a little bit about how
strategies like this can help to reduce disparities in home
ownership and what else we ought to be considering as we think
about this systemic challenge?
Ms. Bailey. Thank you for the question. Those are exactly
the type of strategies that we should consider. We know that
targeting downpayment assistance can go a long way in bringing
in underserved communities into home ownership. We also know
that if we target this resource to first-generation homebuyers,
we really are going to get those communities of color that have
that history of underservice.
Another thing that we should really consider doing is using
the Equal Credit Opportunity Act's special purpose credit
programs. We often think about our fair lending laws as things
that are penalties, but here we have a tool that we are not
using that could really help us target individual solutions for
specific financial institutions to really reach the consumers
that they are underserving, that really create them in such a
way that we could actually grow home ownership by millions of
people and really generate the overall economic economy in
localities all across the country.
Senator Smith. So powerful, and it also allows us to really
do something systemic to address the wealth gap that we have in
this country.
Mr. Herbert, I would like to follow up on some of your
comments. One of the challenges that we have in Minnesota and I
know we have in other parts of the country is a real shortage
of affordable housing, workforce housing, as well as, really,
the whole gamut of housing in rural communities. I am excited
to be the new Chair of the Housing Subcommittee, and Senator
Rounds is my Ranking Member. We will be working together. We
are both quite interested in addressing some of these rural
housing needs.
So could you talk a little bit about what the barriers are
to building new workforce housing in rural communities and what
we should do to be addressing this challenge?
Mr. Herbert. Thank you, Senator. You know, I think the
challenges facing rural communities are quite similar to urban
areas in the sense that housing costs have outpaced incomes.
And so certainly if we are going to build workforce housing for
some of our poorest residents, we are going to need to think
about subsidy systems.
One of the challenges our rural communities face is that
our current delivery mechanisms, primarily the low- income
housing tax credit, end up requiring a certain scale of
investment in order to make those deals work because of the
huge complexity of them. So we need to think about other
channels, I think, that are more effective at reaching rural
communities. We have a number of programs through the USDA and
have the Rural Housing Service that have been effective. I
think it is more of a question of putting more resources
through some of those channels to reach these communities than
we have been doing in recent years.
Senator Smith. Thank you so much for that. I could not
agree more. I think about communities like Thief River Falls in
northwestern Minnesota where Digi-Key, a very important
employer, is literally struggling to fill the jobs that they
have because they cannot find places for people to live. It
strikes me that if we really want a housing system that works
for working families, there are some specific problems that we
can solve, and I think that you all have done a good job of
laying out what some of those challenges are.
So thank you very much, Mr. Chair. I will yield back.
Senator Reed. [presiding]. Thank you very much.
Normally I would recognize a Republican member to go back
and forth, but I am not aware of who is on camera or ready to
go on camera, so I will go ahead and take my questions, and
then hopefully be given a response as to who is on camera.
So let me start with Ms. Yentel, if I may. Ms. Yentel, last
Congress we appropriated more than $46 billion in emergency
rental assistance. States are working hard to spend it. Can you
please tell us what the resources will mean for the families
that you represent for the National Low Income Housing
Coalition? Who will be helped and how?
Ms. Yentel. Yes, thank you for the question, Senator Reed.
So there is an estimated about 10 million renter households who
during the pandemic have accrued about $50 billion in rent and
utility arrears. So these emergency rental assistance dollars
will be a tremendous relief to them and to the landlords, some
of whom have also struggled to pay the bills.
Throughout the pandemic many renters have had to make
difficult tradeoffs to keep up with their bills, often having
to forgo health care, school supplies, or food in order to keep
their home. As a result, we have seen food pantry requests
increase by 2,000 percent in some communities, and we have had
as many as 30 million households say that they do not have
enough to eat.
So at the National Low Income Housing Coalition, we hear
from dozens of people every day who are in this situation. They
are struggling. They are hungry. They are homeless. Or they
cannot sleep because they are so worried that they are going to
be evicted and lose their homes.
I included some of these stories in my written testimony
that I hope you have an opportunity to review, stories from
people like Stephanie in New Orleans who lives with her
daughter and her infant granddaughter, and they owe about
$7,000 in back rent and late fees from when she lost her job
during the pandemic. She is terrified of having to go to a
homeless shelter with her baby granddaughter if she loses her
home. Her landlord is threatening to evict her, and she is on
the waiting list, waiting for that emergency rental assistance
to come through.
Or Stacy, who is a 46-year-old woman with chronic health
issues. She lives in Nevada. She is homeless with her adult son
after he lost his job during the pandemic and was not able to
access unemployment benefits. And before they were evicted,
they had to pay a couple months' rent on their credit card. So
now in addition to being homeless, they are also in debt, and
they are desperate for help to get back into housing.
So these families and millions more like them will get
relief from this emergency rental assistance and from the funds
that are going to local communities to help address the needs
of people experiencing homelessness.
Senator Reed. Thank you very much. And, Ms. Bailey and Dr.
Herbert, as you know, the American Rescue Plan includes
legislation that I initially introduced with a funding of $10
billion, a homeowner assistance fund, to help keep families in
their homes. Can you please discuss how homeowners have been
impacted by COVID-19 and why these resources are necessary
investments? Ms. Bailey, why don't you start?
Ms. Bailey. Yes, thank you so much for the question. I
would also like to point out another really great thing that
your legislation did was provide support for housing counseling
and also for fair housing initiatives, which is so critical as
we see so many Asian American families increasingly
experiencing discrimination during this time of COVID-19. So
thank you so much for your leadership.
So it is critically important because, even before COVID-
19, we knew that 40 percent of Americans did not have $400 to
cover an unexpected expenses. Families were already on the
verge. So we needed these resources so that we can do
everything that we can to really keep hardest-hit families in
their homes. Sadly, the hardest-hit funds from the last crisis
actually came to communities of color well too late. We
actually started to see our foreclosures happen in 2006. The
market did not crash until 2008. So having these funds and
explicitly the resources for the equitable targeting for
communities that have been socially disadvantaged is going to
be critical in making sure all communities have a chance at
recovery.
Senator Reed. Thank you.
Dr. Herbert, please.
Mr. Herbert. So I would just add to what Ms. Bailey said,
which is, you know, right now the forbearance of support that
has been provided through the Federal Government has been
incredibly helpful. As Mr. DeMarco noted in his comments, 2.6
million homeowners are still in those forbearance plans. So in
many ways, you have been insulated, I think, from the impacts
of this pandemic on homeowners because of that protection. But
as we look forward to September, when the 18-month forbearance
period will end, we have to worry about the fact that many of
those homeowners will now have accumulated substantial deficit
in payments. Black Knight estimates that about one in five
homeowners will owe more on their homes with their mortgage
debt and the accumulated arrears than their homes are worth.
One out of three FHA homeowners are in that situation. And all
of this presumes that homeowners will go back to the income
they had before the pandemic, and we know that loss of jobs
will persist. We know that many loved ones who supported the
homes have also been lost to the pandemic.
So as we look forward, dealing with these arrears and
dealing with this permanent loss of income that will result is
going to be important if we are going to sustain home
ownership. I think one thing we learned from the last crisis is
that if we do not sustain home ownership, the gap between
whites and people of color in home ownership will only grow.
And so this investment in making sure those homeowners are able
to keep their homes and benefit from today's rising prices is
critical.
Senator Reed. Well, thank you very much, Dr. Herbert.
Now, on behalf of Chairman Brown, let me recognize Senator
Rounds.
Senator Rounds. Thank you, Mr. Chairman.
First of all, I would just like to say thank--I appreciate
the fact that we are actually having this discussion today on
housing. I have a real interest in rural housing, as Senator
Smith has indicated, and one area that I want to at least look
at with some particular focus is that with regard to affordable
housing on Native American reservations. Tribal communities
have many unique challenges from economic and housing
standpoints that make them distinct from other rural areas.
Ms. Yentel, where do you think Congress should focus its
efforts when it comes to housing on tribal lands with all of
its concerns, the fact that we have got low economic income to
begin with, we have got real challenges with regard to the
poverty that is there, and at the same time we have tribal
trust lands which makes it even more difficult for someone to
actually have land to build a house or put housing on?
Ms. Yentel. Absolutely. Thank you, Senator Rounds, for the
question. As you know very well, Native Americans in tribal
areas face some of the worst and most acute housing needs in
the country. They have such high poverty rates, low incomes,
overcrowding, in some cases--in many cases there is a lack of
plumbing, lack of heat, and very unique development issues. And
despite this growing need for safe and decent homes on tribal
lands, Federal investments in housing for Native Americans on
reservations and off reservations has been underfunded for
decades. And certainly centuries of structural racism that
stripped land and wealth from Native Americans combined with
ongoing discrimination today also result in Native Americans
being dramatically overrepresented in the homeless population.
Prepandemic, I had the privilege of visiting your State and
going to Pine Ridge reservation with a member of the Oglala
Sioux Tribe who is also a member of the National Low Income
Housing Coalition, Pinky Clifford, and I saw firsthand just the
tremendous overcrowding and poor housing conditions.
So to meet the needs, Congress should expand the National
Housing Trust Fund. Much of that fund can be used to develop
and preserve affordable housing on tribal lands and for Native
Americans in urban areas. And also in recent years, Congress,
as you know, passed a Competitive Tribal Housing Program that
went especially to tribes that have the greatest need and
capacity to use those funds. This was a really important
improvement and development, and we think that program should
be continued and expanded.
Senator Rounds. I know that some of the reservations in
South Dakota have some of the greatest degrees of poverty any
place in the Nation. One of the challenges that we find there
is that their land is held in trust, and since it is held in
trust, it is very difficult for them to be able to actually
have the asset to begin with and to allow people to actually
make a mortgage to them.
We found the same problem when it came to VA loans where
you have veterans coming back onto reservations, but they
literally have a very difficult time getting set up to bust
through that issue of the land that they are going to be using
is tribal trust land. I look forward to working with different
organizations to work our way through that.
Mr. DeMarco, I would like to start with you on a question
that I have, and then I would like a follow-up with Ms. Bailey
and Mr. Pinto in terms of their quick thoughts on it.
Late last year, FHFA finalized its capital rule, which
seeks to increase the amount of capital that GSEs hold. I
applaud steps that FHFA is taking to reduce the GSEs' leverage,
but I am concerned about the capital rule's punitive treatment
of credit risk transfer, or CRT. CRT can be an important tool
used to offload and competitively price risk. And given that
the capital rule demands that Fannie and Freddie raise capital
that is several times greater than the largest IPO ever, it is
important for the GSEs to have every tool in the toolbox
available to manage that risk.
My question for you, Mr. DeMarco, is: How much more
difficult will it be for the GSEs to raise capital given the
capital rule's treatment of CRT? And does the rule need to be
revised? And then just as a quick follow-up for Ms. Bailey and
Mr. Pinto, I understand that both you and your organizations
have filed comment letters expressing concern about the
treatment of CRT, and I would like any thoughts that you may
have in my remaining time.
Mr. DeMarco, would you begin, please?
Mr. DeMarco. Certainly. Thank you, Senator. Look, I think
FHFA did a nice job putting out a comprehensive capital
framework and worked hard to align it with other regulated
financial institutions. But a real weakness is exactly what you
identified, and that is the treatment of credit risk transfer
is such that it means that GSEs will have to build more capital
in order to meet the capital requirements. It also means that
we are going to be concentrating more risk on the GSEs because
we are reducing the incentive to do CRT. CRT is an opportunity
to really disperse risk across the market, and not giving it
fair capital treatment reduces the probability that that
happens.
Senator Rounds. Thank you.
Ms. Bailey.
Ms. Bailey. Thank you for the question. Our concern is that
the rule does not do enough to really distribute systemic risk
broadly, which is the foundation of the housing finance system.
So I would be happy to talk with you when we have a few more
minutes in detail about all our details.
Senator Rounds. Thank you.
Mr. Pinto.
Mr. Pinto. The concern that I have had with the credit risk
transfers is that if there is a market meltdown at some point--
and we experienced that with the GSEs back in 2008-- the credit
risk transfer market is going to disappear. And so just when--
while I would have put some [audio disruption] earlier, they
would have the ability [no audio] future, and that is going to
limit their ability at that point.
Senator Rounds. Thank you.
Thank you, Mr. Chairman. I believe my time has probably
expired.
Senator Reed. Thank you, Senator Rounds.
And on behalf of the Chairman, Chairman Brown, let me
recognize Senator Warren.
Senator Warren. Thank you, Mr. Chairman, or Acting
Chairman.
So today millions of families are behind on their rent,
millions of families who lost jobs during the pandemic, who had
their pay reduced, or who lost a loved one.
Now, we fought hard to make sure those families will have
access to emergency rental assistance and protection from
eviction. But the fear of not being able to make rent has been
a daily reality for too many families since well before the
COVID-19 pandemic. Rents are high because supply is low.
Ms. Yentel, right now is there rental housing available for
every family who needs it at a cost that they can afford?
Ms. Yentel. No, Senator Warren, there is absolutely not.
There is a pervasive and longstanding shortage of homes,
affordable and available to the lowest-income renters, such
that for every ten of the lowest-income renter households,
there are fewer than four apartments that are affordable and
available to them.
Senator Warren. So, in other words, this is just Econ. 101.
Finding adequate affordable housing is a challenge because we
have a nationwide housing shortage. One problem with the supply
has been Federal law.
Ms. Yentel, why hasn't our country built more affordable
places for people to live?
Ms. Yentel. I would say that there are a few reasons. In
the private market, certainly the local restrictive zoning
inhibits the supply of apartments, and especially affordable
apartments, and that drives up costs for everyone.
For the lowest-income renters, there has been an ongoing
underfunding of Federal investment in programs like the
National Housing Trust Fund that could develop and preserve
affordable apartments for the lowest-income renters. And for
public housing, specifically the Faircloth amendment limits the
total number of public housing units that can be built to
levels that existed back in 1999. So it prohibits any increase
of public housing above units that existed back then.
Senator Warren. So every time we talk about putting a unit
of new Federal housing on the market, we have to take a unit
off, which means we have needlessly restricted the creation of
affordable housing.
So we are in a housing crisis. Is there any reason that we
shouldn't repeal the Faircloth amendment?
Ms. Yentel. No, there is no reason. And just to be clear,
that prohibition is on public housing units alone.
Senator Warren. Yes.
Ms. Yentel. There is no reason, and repealing the Faircloth
amendment is part of a comprehensive solution to the housing
crisis, yes.
Senator Warren. OK, good. So that is at least a part of
addressing that shortage. We can repeal the cap on the number
of federally funded housing units. In addition, we can build
more housing.
Now, President Biden has called for increasing the Housing
Trust Fund, a fund dedicated to building, rehabilitating,
preserving, and operating rental housing, and I have a bill on
this ready to go. By adding nearly $45 billion every year for
the next decade in the Housing Trust Fund and making other
necessary investments, my bill would create more than 3 million
new housing units.
Ms. Yentel, let me ask you--that is how we build new
housing, but let me ask one more quick question before we quit
here, and that is about the condition of our existing stock of
public housing. Is it in good shape?
Ms. Yentel. So first to say we strongly support your bill
to provide $45 billion from the Housing Trust Fund. That is
just what we need. And for public housing, you know, some
developments that have acquired resources to redevelop in
recent years, they are in OK shape. Some are in good shape. But
most of the public housing stock is not in good condition, and
some of the public housing stock is really in deep disrepair.
The housing stock is old, and decades of Federal investment by
the Federal Government has resulted in today where we have an
estimated $70 billion of capital repairs that are needed to
stop the loss of units to obsolescence and decay and also to
restore it to livable conditions for the people who live there
today and to preserve it for future generations.
Senator Warren. Yes, make an investment. You have got to
take care of what we own.
I just reintroduced a bill with Representative Nydia
Velazquez to do exactly that, to invest $70 billion in
addressing the repair backlog. It is not a mystery why we have
an affordable housing crisis. Through decades of
underinvestment and unnecessary restrictions, Congress has
helped create this crisis. That means that Congress can help
fix it by making serious investments in increasing the supply
of affordable housing and expanding public housing for the
first time in decades. We need to do this as soon as possible.
Thank you very much for being here today.
Thank you, Mr. Chairman.
Senator Reed. Thank you, Senator Warren.
We are in a complicated situation, so let me do this: If
there are Republican members who are on, I would ask you to
turn your camera on so that you can be recognized. And if we do
not see that materialize very quickly, then I will just go down
the roster of Republican members and see if we can get our next
speaker.
So I do not a Republican member on the screen, so Senator
Shelby? Senator Crapo? Senator Scott of South Carolina? Senator
Tillis? Senator Kennedy? Senator Hagerty? Senator Lummis?
Senator Moran? Senator Cramer? Senator Daines?
Having exhausted the Republican list, I shall now go to--
ah, Senator Menendez, you are recognized.
Senator Menendez. Well, thank you. Thank you all.
Ms. Bailey, New Jersey has some of the toughest housing
challenges of any State in the country. A new report by Adams
Solutions shows that of the 50 U.S. counties who housing
markets are most vulnerable to the impact of the COVID
pandemic, eight of them are in New Jersey. One of those is
Essex County, home to the city of Newark, where nearly two-
thirds of renters are paying more than 30 percent of their
income toward rent, according to a recent Rutgers University
report.
These and other statistics suggest that after the current
moratorium ends, we might be facing an eviction and foreclosure
wave even worse than what we saw in the Great Recession.
The American Rescue Plan that Congress just passed includes
one of my major priorities, $100 million in housing counseling
funding that can help renters and homeowners avoid a worst-case
scenario. What impact will this new housing counseling funding
have on preventing evictions and foreclosures?
Ms. Bailey. It will do a great deal, and thank you for the
question. We have to be honest. Servicers are not housing
counselors. We know that people who get pre- and post-housing
counseling actually perform much better in home ownership. So
the $100 million that you pushed for in the last bill will go a
great way in really helping those communities get the kind of
information that they need to really weather this economic
calamity and be able to hold onto their homes. It is money that
is definitely needed and money that will help us avoid that
cliff of foreclosures that you talked about. It will just keep
them far, far away.
Senator Menendez. I appreciate that. The plan also requires
at least 40 percent of housing counseling funding go to
minority or low-income households. Do you believe this targeted
funding can help ensure that the COVID economic recovery is a
more equitable one than the 2008 crisis?
Ms. Bailey. Indeed. As I stated earlier, foreclosures
happened in Black and Latino communities in 2006, far sooner
than any of the relief showed up. We also know that Black and
Latino families were disproportionately steered into risky and
toxic mortgage loans even when the data showed that they
qualified for loans that were cheaper and more affordable. In
fact, I believe there was a piece, a research piece that was
published by the Wall Street Journal that showed that up to 80
percent of those families actually qualified for mortgage loans
that were much cheaper than the ones that they actually ended
up receiving.
As a result of people in our communities receiving these
disproportionate levels of toxic and risky mortgages, we have
seen a disproportionate amount of foreclosures, and we have
seen communities really suffer from losing a whole trillion
dollars of wealth as a result of those foreclosures being
disproportionately in communities. So having these resources in
the hands of housing counselors who actually are closest to the
members of the communities, the people who are going to
naturally get the first phone call for help, will go a long way
in giving our community members access to people who can really
help them weather this economic challenge and get the answers
and solutions that they need.
Senator Menendez. Thank you for that.
As we consider ways to work out of the current crisis and
ensure a sustainable and equitable recovery, we need to start
thinking about how we coordinate housing and transit
development so that our communities can improve economic
resiliency, expand transportation and housing options, and
promote job creation for all segments of our society.
We had a great example of this after the last recession
when--in my home State, we have something called the ``Hudson-
Bergen Light Rail System'' that came online to connect the
North Jersey communities of Bayonne, Jersey City, Hoboken,
Weehawken, Union City, North Bergen. That project revitalized
the region and spurred new development and helped local
businesses. It was a catalyst for economic growth and brought
new jobs to the neighborhoods along the line.
So I would like to ask Dr. Herbert, do you think this type
of coordinated development is important when considering the
various challenges and preferences, for example, seniors who
may rely on transit for their independence, low-income [no
audio] with transit that helps them get to work, and
millennials, many of whom want to drive less and live in more
walkable communities?
Mr. Herbert. Absolutely, Senator, and thank you for the
question. In particular, you mentioned seniors. The need to
have accessible housing so that people who cannot drive can get
access to services, amenities, and family and friends is
critical. And certainly given the issues around climate change
and the need to reduce our carbon footprint, having housing
that is accessible to transit and tying development of our
transit system to housing development is critically important.
Earlier I mentioned the idea that, to the extent that we do
invest in transit, if we can tie that to localities, having
requirements about making density allowable in those
communities in order to get access to the funding will go a
long way to make sure housing is tied to transit.
Senator Menendez. Well, thank you. I have legislation
called ``Livable Communities,'' and that is exactly the concept
behind it, and I look forward to exploring it with the Chairman
and my colleagues on the Committee.
Thank you, Mr. Chairman.
Chairman Brown [presiding]. Thank you, Senator Menendez. I
wanted to say thank you to Senator Reed for taking time during
this.
I have not asked my questions yet. I am going to go last.
Senator Tillis is next and then Senator Tester. Senator Tillis,
you are recognized for 5 minutes. The microphone is not on.
[Pause.]
Chairman Brown. Senator Tillis, your microphone is not
working or you have been muted the whole time.
Want to try again? Still cannot hear you.
Cameron, do you want to work on this? And I will go on to
Senator Tester. Senator Tester from Montana is recognized for 5
minutes.
Senator Tester. Thank you, Mr. Chairman. And thank you, Tom
Tillis.
So this is a question for the whole panel, and I just want
to know what your view of housing is in rural America and if it
is any different in rural America than it is in urban America.
And you can just start in the order that you testified.
Mr. Herbert. Senator Tester, I will go first as the first
person to speak. You know, I would say that the issues in rural
America are very similar in many respects to urban America.
There are rural communities that are impoverished. There are
rural communities that are thriving. There are rural
communities that are gentrifying. And so as we think about
rural areas, I think we do not think about separate housing
problems but very similar housing problems.
We need to expand access to rental housing. As we talked
earlier with the Senator from Minnesota, there is a need for
workforce rental housing in rural areas, and many of our
Federal delivery systems do not work well on a smaller scale.
There is also a need for affordable home ownership. There
is a need for investment in housing that is of low quality,
that we need to increase the quality of housing in rural areas.
So as much as I think there are some unique aspects of
rural areas, in many respects the challenges and issues are
similar, given the diversity of rural areas.
Senator Tester. Does anybody have anything to add to that
or disagree with what he said?
Mr. Pinto. Senator Tester----
Ms. Bailey. The thing that I would add--and thank you for
the question--is that we have got to make sure when we are
reaching out to rural communities we are doing so in a way that
they can actually get the information that they need.
Oftentimes when we think about them, we do not understand that
they have all been limited to access, so we propose these
solutions and we put the information out and we use the
Internet, but we might be missing people who do not have that
access. So anything that we do needs to make sure we can
communicate with those communities.
And then, finally, there are many families of color that
are in rural communities all over our Nation, and oftentimes we
do not talk about that increased diversity there, and that is a
really critical component of all the solutions that we have to
have across rural communities.
Senator Tester. Thank you.
Mr. Pinto, you were going to say something?
Mr. Pinto. Yes, I agree with Chris that the challenges are
very similar in rural communities and urban communities. I
would say that some sensible steps at the local level and at
the State level would be to increase supply. There has been a
lot of discussion about the limitations of zoning and the
history of that, to increase supply, reduce income
stratification by legalizing two-, three-, and four-unit
structures in single-family areas, single-family attached
housing in single-family neighborhoods; increased density for
single-family and multi-family zoning. A lot of that is not
applicable in true rural areas, but the small towns have plenty
of areas where there is more density that that can be taken
advantage of, and by right zoning, just allow the marketplace--
mobile homes to be used, manufactured housing. These are all
things that could add tremendously to the supply.
I would add that what is going on with the work-from-home
phenomenon is rural communities, we are seeing demand has
increased quite a bit in rural communities. So rural
communities are going to need more supply than they have in the
past 10 or 15 years.
Senator Tester. So anybody want to add to the supply issue
very quickly? Because that is an important issue also. Anybody
want to add to that?
Ms. Yentel. Yes, I would add quickly that, in addition to
what was said, just to recognize that the shortage of homes for
the lowest-income people is pervasive, whether it is rural,
suburban, or urban areas. There is no community that has a
sufficient number of homes affordable to its lowest-income
renters. So, again, expanding the National Housing Trust Fund
to meet that need, and also to point out how essential
preservation is everywhere and in rural areas. Preserving the
Section 515 loan program homes where, you know, the people who
live within them earn maybe $13,000 a year, and there is very
little housing stock in their communities where they could go
if their homes expire, the affordability expires. So the
preservation of those homes is critical as well.
Senator Tester. I am just going to--Mr. DeMarco, go ahead.
Mr. DeMarco. Just very briefly, Senator. To add to
everything my colleagues said, there are two things that have
not really come up. One is rural areas really have a
predominance of low-balance loans, and there are some different
challenges with low-balance lending. I think if we could
encourage the CFPB, other Government agencies, to develop loan
products or accommodations to help lenders with low-balance
loans be able to sell them. There are also certain appraisal
challenges, as you well know, that need some attention.
Senator Tester. I am going to leave it at that because
there are only 20 seconds left. But I will say I want to thank
all the witnesses for being here today. I can tell you that the
housing challenges in a State like Montana--I do not think they
are any different than anywhere else--have really created some
economic problems where there is no workforce housing, there is
no affordable housing, businesses cannot expand. That is a real
challenge.
Thank you all for being here.
Chairman Brown. Thank you, Senator Tester.
Senator Tillis is recognized for 5 minutes. He will be
followed by Senator Warner.
Senator Tillis. Mr. Chairman, can you hear me?
Chairman Brown. Yes, perfectly now. Thank you.
Senator Tillis. I think Senator Tester has perfected some
way of muting me at a perfect time so he can skip ahead of me,
but I am glad I am back.
Just a real quick question for all the witnesses. I am
trying to get my head around disparity in estimates on back
rent and utilities. I know Moody's had the report out at $57
billion. The National Multi-Family Housing Council rental
tracker has an estimate, and the National Council of State
Housing Agencies is about half of Moody's. And then the
Philadelphia Reserve put the number at a fraction of either of
those two estimates.
So, in your opinion, what sort of metrics should we be
using to accurately depict the back rent, back expenses
situation? And I would also be curious in your answer if you
can tell me with respect to the COVID response, separate from
the housing issue, if you think Congress' actions up to this
point have been adequate? We can start with Mr. Pinto and go
down the line.
Mr. Pinto. Well, thank you for that question, Senator
Tillis. Let me respond to your second question in particular.
The initial actions that Congress took in the CARES Act would
then be picked up by the Federal agencies-- FHA, VA, Rural
Housing, Ginnie Mae, and eventually Fannie and Freddie--put in
place the forbearance program that was authorized by Congress,
put in a program that focused on how to provide relief to the
homeowners, and provided an exit plan for many of those
homeowners by allowing those amounts that were forborne to be
added at the end of forbearance to their balances without
interest.
And so all those steps that were taken very rapidly in
March and April really saved us from a crisis, and we have been
able to take advantage of that forward thinking since that
time.
Ms. Bailey. Thank you for the question. One of the things
that I would add is the point that we have to make sure that
for privately backed mortgages, that those protections extend
there. And what would be great would be to see the direction
that private lenders actually follow those same protections.
Doing so will help us keep the kind of uniformity that
consumers need who are struggling under the weight of potential
foreclosure.
Senator Tillis. And to go through the responses, I am
trying to get my head around how we could have vastly different
estimates. Are they measuring the same challenge? In any of
your opinions, does one of the studies--is there a metric that
we should follow? Or is there something else we can to balance
out what are disparate estimates and what the real need is?
Ms. Yentel. So I think it is very difficult to have a
concrete estimate of rent arrears. There is no way to measure
that with certainty. All of the estimates that you named I
think have different pros and cons. I believe the $57 billion
estimate of rent and utility arrears that accrued during the
pandemic is likely the most accurate. One measure of that is
seeing programs for emergency rental assistance that opened
with their initial allocation from December's $25 billion of
emergency rental assistance, that very quickly after opening,
they had to close their programs and no longer accept
applications because they were overwhelmed with need.
What we do know right now is that Congress has appropriated
$46.5 billion for emergency rental assistance, and our work now
I think is to ensure that those funds get out as quickly as
possible and to the people who have the greatest needs, the
lowest-income and most marginalized people. And certainly we
and the Federal Government and others will be tracking very
carefully as we go whether and how those rental assistance
dollars are meeting the need or whether continued need exists.
Certainly it will exist for the longer-term stability of these
low-income renters who struggled to pay the rent even before
the pandemic.
Mr. Herbert. And if I just might add, Senator, I think the
challenge is that we have good information about different
pieces of the market; we do not have information about the
whole market. So when we look at professionally managed
apartment associations who have good access to data, they are
also getting information on the most well-to-do renters.
The other thing I think we have to bear in mind is that
when we are looking at missed rent payments and how far the
renters are is that renters have been doing all they can to tap
every resource possible. So if they look at how much maybe rent
has been collected, that does not take into account that they
have borrowed that from friends, they took it from retirement
savings, they got it from other resources that ultimately have
to be paid back.
And so it is a complicated measure in many respects, but I
think the estimate that puts this at the upper end is really
reflecting the financial hardship that has been imposed on
renters from their loss of income.
Mr. DeMarco. If I may just add with regard to the other
part of your question, I do, I think Congress has done a great
job with the CARES Act, and I think that servicers, Government
agencies, and so forth have also done their part to see that it
has been implemented well. And with regard to loans not covered
by the CARES Act, private lenders are actually providing that
same kind of forbearance, the same assistance to borrowers that
are not in Government-backed loans, and I think that is a
credit as well.
Senator Tillis. Thank you, Mr. Chairman.
Chairman Brown. I just lost you. Thank you, Senator Tillis.
Senator Warner from Virginia is recognized for 5 minutes.
Senator Warner. Thank you, Mr. Chairman.
I think we all agree with need to expand the housing market
without increasing credit risk or, frankly, inflating home
prices. I also think we realize--and other experts on this
panel are very well aware of this--that in many ways when we
look at the wealth gap in this country, 10:1 white families
over Black families, a lot of that is due to the failure of
families of color to be able to afford home ownership.
So working with a group of experts, is have been working on
a proposal that would help first-generation homeowners by
offering shorter-term mortgages, literally 20- year mortgages
rather than 30-year mortgages, but by decreasing and a little
bit of subsidy on these already low interest rates, you would
still be making payments approximately the same as you would on
a 30-year loan. But the benefit here is because of the equity
accumulation, these families would be accumulating equity in
these homes at a 2:1 rate over a 30-year loan. This really does
subsidize wealth building without driving up home prices, and
in the current low interest rate environment, I think it is a
proposal, Mr. Chairman, that really warrants some review.
Mr. Pinto, would you agree that investing in equity rather
than debt to help close the ownership gap might be a proposal
worth looking at?
Mr. Pinto. Absolutely, Senator. I mentioned that in my
remarks. I believe that we do, as you indicated, need to
subsidize wealth building and stop subsidizing debt, more and
more debt. This would go a long way to building generational
wealth. It would go a long way toward providing the cushions
that homeowners need. I mentioned that they do not have the
ability to withstand the ups and downs of the market. This will
be a very large equity cushion. At the end of 5 years--and it
happens just about every year along the way--you end up with
twice as much equity at the end of 5 years with a 20-year loan
as a 30- year loan. So I endorse it.
Senator Warner. Mr. DeMarco, do you agree with Mr. Pinto?
Mr. DeMarco. I do, Senator, and I agree with what you are
proposing. The other thing I would add that is really well
constructed about what you are doing is it is structured in a
way not to bring a new subsidy into the market at a time in
which house prices are already inflated, and that is a very
thoughtful feature, as well as the focus on supporting equity
building as opposed to supporting families becoming highly
levered.
Senator Warner. And, Dr. Herbert, if we do this, there
would be some Government involvement in subsidizing the
interest rate on these loans to bring it down so that the
equivalent--that you would be making the same payment you would
make on a 30-year basis, but it would be on a 20-year loan. And
the truth is if we--I think the idea of limiting this to first-
generation homebuyers really gets at some of the racial equity
issues that exist in our country.
Dr. Herbert, isn't this issue in terms of home ownership
one of the big drivers of the racial wealth gap? And I would
love to have Ms. Bailey and Ms. Yentel in the last minute and
45 weigh in on that subject as well.
Mr. Herbert. Senator, absolutely. The disparity in wealth
you mentioned tend to run between whites and Black households
is largely due to differences in home ownership, and the
targeting of a program to first-generation homeowners would be
an effective way of ensuring that people of color who have been
left out of the opportunity to own a home for generations have
that opportunity.
One of the things that is often overlooked is that people
like myself, when they buy a home, often turn to our parents
who benefited from home ownership as a way to pay for that
downpayment and get over the hump. People of color do not have
that opportunity, and so targeting first-generation homeowners
in particular would be a great way to target those benefits and
also to make sure that the program is at a scale that is
benefiting people who most want to help and not inflating the
market. So I think it is a well-designed program.
Senator Warner. Ms. Bailey and Ms. Yentel, would you like
to make comments?
Ms. Bailey. Thank you. I actually agree with the targeting
of first-generation homebuyers as a specific way to really get
at those socially and economically underserved communities
that, as has been explained already, struggle with
intergenerational transfers of wealth, which has allowed people
to really save for a downpayment, along with broader societal
discrimination where we see inequity in pay. So I am looking
forward to seeing your bill and just working with it and
working through it with you.
Senator Warner. Thank you so much.
Ms. Yentel, please. I have had a good streak going. You get
the last 20 seconds.
Ms. Yentel. Yeah, I would echo and reinforce that certainly
it was decades of [audio interruption] in housing and
transportation policies that created this yawning wealth gap
that exists today, and in large part it is intentional housing
policies that can help bridge that gap, and policies like yours
sound like the kind of creative approach that we need to move
forward.
Senator Warner. Thank you, Mr. Chairman. I look forward to
sharing this with the whole Committee. Thank you so much.
Chairman Brown. Thanks, as do we.
The Senator from Montana, Senator Daines, is recognized for
5 minutes.
Senator Daines. Thank you, Chairman.
I want to jump in on concerns I am hearing across our State
in Montana, and that is conversations with realtors, home
builders, developers, they agree there is simply not enough
inventory to keep pace with demand, and we are seeing some
significant, in fact, historical increases in property values
and homes.
I grew up the son of a contractor. My dad founded the
Southwest Home Builder Association in Montana, in fact, and so
my summers were spent on construction crews. So I have been
watching this for many, many years, since the early 1970s, in
fact. But we all remember our economics classes in high school.
When demand outpaces supply, prices rise, and right now housing
in many parts around our State frankly is not even affordable
for most.
As you look at COVID-19 forbearance programs, they have
been a lifeline for millions of families. House price
appreciation has helped homeowners build equity in their homes
these past years. The problem is when somebody decides to sell
their house and move somewhere else, the question is: What do
you move next to in terms of replacing it, even though you get
a big value for what you might sell your current home for.
I am pleased to see the number of people in forbearance
totally decrease, but I am worrying about some of these trends
we are seeing in the housing market. According, in fact, to the
Federal House Finance Agency, home prices rose nearly 11
percent between the fourth quarter of 2019 and 2020 nationwide.
So if we look at our price appreciation in Montana, it was 15.5
percent, the second-fastest in the Nation, by the way. And it
comes back to, again, this fundamental issue of supply not
keeping pace with demand.
Mr. Pinto, are you concerned about this rapid rate of house
price appreciation we are seeing in our country?
Mr. Pinto. Absolutely, Senator, and thank you for that
question. I have been tracking this for many years. The boon
started in the beginning of 2012, and it has continued
unabated. But it accelerated tremendously last year starting in
May, and now prices are going up, as you indicated, 11 percent
year over year. We think when the April data come out for the
transactions that end up closing in April, we will be seeing
house prices up nationwide about 13 or 14 percent year over
year.
This is going to create a tremendous problem in the future.
As was mentioned earlier, real estate cycles are cyclical, and
we will get back to some level of--return to some sustainable
level, and that is going to require some adjustment in prices.
It will not be anything, in my opinion, close to what happened
in 2007 and 2008 and 2009 and 2010. However, it will hurt when
it occurs, and it will hurt low-income and minority buyers the
most because, as I mentioned earlier, they have the least
ability to withstand these fluctuations in home prices.
Senator Daines. So, you know, the age-old question-- and I
want to get your opinion on this--is: How do we best address
the issue of housing supply while continuing to responsibly
increase home ownership?
Mr. Pinto. I think it comes down to reversing what the
Federal Government put in place back in 1921, which is this
zoning structure that was specifically designed, believe it or
not, to raise house prices, to make them too expensive for
minorities and ethnic groups. And that system is still in place
in the United States, and what is suggested is if you start
building two-unit, three-unit, four-unit structures, some
attached structures--I call it ``light-touch density''--if you
allow some higher density in marketplaces, I personally tried
to build a workforce housing development without subsidies in
the Southeast, and I ended up with a $100,000 cost all in, but
the restrictions that applied in terms of fees and other things
per unit is what made it uneconomical, and, therefore, I had to
abandon it even though I invested a substantial amount of my
own money. I have tried to do this. It is possible to do, but
you cannot do it with the local communities putting roadblock
after roadblock in the way.
Senator Daines. Thank you. I have got a question for Mr.
DeMarco, and this is really looking more at the rental market,
because as we are starting to see home appreciation and the
costs going up, of course, it is taking a lot of folks out of
the ability to buy a home and look at renting if they might
otherwise want to be renting--or buying, I should say. In fact,
one of the jokes in my hometown of Bozeman, where I went to
kindergarten to college, Bozeman, Montana, it is being called
``Boz-Angeles,'' ``Boze-Man Cisco.'' I mean, we are seeing this
huge influx. We are one of the fastest-growing micropolitans in
America, the No. 1, in fact, the last few years. And so it is
putting a lot of pressure on the market, and it is raising
rents as well. In fact, there are places, looking at the rental
market there, that it looks more like a D.C. market than a
Montana market.
So my question, Mr. DeMarco, is: What market-conscious test
might be taken to ease pressure on renters? And how does the
limited supply of homes factor in this equation?
Mr. DeMarco. Well, the first basic is to bring more supply,
and Ed Pinto, what he just went through with regard to some of
the barriers in building, you know, housing for home ownership
also applies with rental. It takes a long time to bring things
into market. The market is slow to respond, and all the costs
that are involved in trying to do that are really quite
something.
So, really, if you want the market to work, we have got to
reduce these sort of regulatory barriers that keep new housing
supply from coming online.
Senator Daines. Thank you. I am out of time. Mr. Chairman,
thanks for your grace. I will turn it back to you.
Chairman Brown. Thank you, Senator Daines.
Senator Cortez Masto from Nevada is recognized for 5
minutes.
Senator Cortez Masto. Thank you, Mr. Chairman. Thank you to
the Ranking Member. I so appreciate the panelists in this
conversation today.
Like everyone else, Nevada has not only an affordable
housing crisis, but we have high, high prices in housing
happening right now because of the lack of supply.
Let me start with a conversation that I think, Dr. Herbert,
you were having with Senator Warner. I know a recent report
that I saw from the National Association of Realtors found that
Black households are more than twice as likely as white ones to
be rejected for mortgage loans.
I also know, Dr. Herbert, in your research you found that,
on average, Black homebuyers pay a higher interest rate than
that of white homebuyers. In fact, I believe your research
finds that high-income Black homeowners pay a higher interest
rate than low-income white homeowners.
My first question to you is: As you did your research to
gather this data and to make this conclusion, did you rely on
the Home Mortgage Disclosure Act data to determine, help you
determine these disparities?
Mr. Herbert. The analysis of interest rates, I believe, was
using the American Housing Survey, which provides information
on the interest rates that homeowners have. So we did not use
HMDA for that, I do not believe, although, Senator, I have to
admit that was done by one of my researchers, not myself
directly.
If it were done using HMDA, that certainly is a
comprehensive data set covering the entire country, and it
represents the vast majority of borrowers in the country. So I
may have to correct the record, and I will get back to you on
that.
Senator Cortez Masto. I appreciate that. So let me ask for
the panelists that do their research how many of you rely on
HMDA data to make your determinations and your research on the
impact to homeowners, particularly homeowners of color. I am
curious. Does anybody else rely on HMDA data?
Mr. Pinto. Yes, Senator. This is Edward Pinto. We really,
at the Housing Center, tremendously on HMDA data along with
much other data that we assemble in conjunction with HMDA data.
We created a data base that allows us to analyze housing
markets at very fine levels, including using HMDA data.
Senator Cortez Masto. Thank you. That is helpful. So I
guess my next question is, you know, we recently passed
legislation that actually limited the HMDA data for the vast
majority of small banks and credit unions that make between 25
and 100 mortgage loans, limited your ability to conduct
research and gather that information. Does that recent change
that we made in limiting the data from these institutions, has
it impacted your ability to conduct research and make a
determination whether there is redlining or discrimination
happening?
Mr. Pinto. We just downloaded the preliminary 2020 data,
and until we get the final data for 2020, we will not know the
exact impact. But the fact of the matter is the housing markets
in the United States are highly concentrated among larger
lenders, and I think it is a question of paperwork burden
versus the data.
There were always some lenders that were not required to
submit HMDA data. It adds up to a very small percentage, and I
would have to look and get back to you on how the change would
affect specifically our research.
Senator Cortez Masto. And that will be helpful. That will
inform legislation for me, and so I really look to the
practical experience, so whatever you can respond to that, that
would be wonderful.
Was somebody else going to respond?
Mr. Herbert. Senator, yes. This is Chris Herbert. I was
just going to add, while it is the case that large lenders
cover the vast majority of the country, we have had several
Senators representing rural States asking about conditions in
their States, and I think it is really important to have
information from small lenders in particular which will be
located in smaller communities. And so if we want to have a
complete picture of lending in this country, which I think we
do, then having data that covers all lenders is important. As
Mr. Pinto mentioned, there is an issue around reporting burden,
but I think we need to balance that against the fact that HMDA
has been enormously consequential in understanding lending
patterns, and to lose that insight is a real loss.
Ms. Bailey. And if I may add, we cannot watch for
discrimination that we cannot see. Or fair lending laws are
critical for letting us understand what is going on in the
marketplace, so it is critical that we have all of the data so
we can understand what is going on.
We also need the CFPB to really connect the dots for us.
They can actually, in issuing their reports on HMDA, really
tell us what is going on with FICO scores and other credit
scores, so we need them to act proactively so that we can have
that information, so that we can really determine if our fair
lending laws are being fully enforced.
Senator Cortez Masto. Thank you. Thank you. That is very
helpful.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Van Hollen from Maryland is recognized for 5
minutes.
Senator Van Hollen. Thank you, Mr. Chairman and Ranking
Member Toomey, and thank you for holding this hearing on these
fundamental housing questions.
We have been bouncing around between votes, but I want to
thank all the members of the panel for your testimony. Lots of
good ideas to a challenging issue, but one where there are some
clear ideas for moving forward.
We know that from 1979 to 2018 real hourly wages grew at
6.1 percent for median-wage workers while the median gross rent
increased by approximately 37 percent. So, obviously, a big gap
in people's capacity to afford rent. There is a big supply
piece, and there is also a shortage of affordable housing
vouchers.
Ms. Yentel, I want to thank you and the Low Income Housing
Coalition for your good work, and I know that Senator Young and
I have been working with you on the legislation that we
introduced, the Family Stability and Opportunity Vouchers Act,
which would create another 500,000 housing vouchers and
focusing on families with young children and moving to areas of
opportunity with wrap-around services. Can you just speak to
how you think this could help meet the challenge?
Ms. Yentel. Yes, thank you, Senator Van Hollen, for the
question, and thank you for your work and your leadership on
this bipartisan legislation, which is so important and we
strongly support.
Housing choice vouchers are a proven solution to ending
homelessness and ending housing poverty and must be expanded?
We need to work toward universal housing vouchers for all those
in need, and creating 500,000 new mobility vouchers would be a
tremendous step forward. These vouchers are targeted to
pregnant women and moms of kids that are younger than 6 years
old for whom the long-term consequences of living in deep
segregated poverty and in unaffordable housing are very clear
in the research.
So it is very important. This legislation, if it were
enacted, could largely eliminate homelessness among families
with young kids, and it could sustainably reduce the number of
children that are growing up in concentrated poverty. So we
strongly support it and believe Congress should enact it soon.
Senator Van Hollen. Well, I appreciate that. I hope we can
work with the Committee to get that done.
You also in your testimony mentioned the emergency rental
assistance that we provided during this COVID pandemic with the
hopes of making something permanent. And I want to thank the
Chairman, Senator Brown, for all his efforts. Our Committee
worked to provide that $25 billion rental assistance fund,
first in the December bill and then in the more recent American
Rescue Plan. But we know--and Matthew Desmond and others have
written on this--that sometimes just a one-time missing payment
of $300 or $500 on the rent can make the difference between
whether a family stays in their home or is put out on the
street through eviction.
So if we are working hard to prevent evictions now, doesn't
it make sense to try to identify a way to create a sort of
permanent rental assistance insurance fund so families are not
tossed out on the street simply because they cannot make a
payment on a one-time basis? I do not know if it is a revolving
fund. Can you just elaborate on that idea?
Ms. Yentel. Yeah, one, I would underscore and agree with
the importance of having some type of emergency rental
assistance permanently available for low-income families who
generally can make ends meet but have a financial shock or a
financial crisis that threatens to drive them deeper into
poverty, which is what results from a single eviction filing.
So, yeah, and it is much more cost-effective in the long term
to pay a small amount relatively always to keep people housed
than to pay for the long-term effects that come from eviction
for those families, for communities, and for our country.
So a rental insurance program is an innovative, interesting
way to move forward. Another way is through the bipartisan
legislation that you are an original cosponsor of, the Eviction
Crisis Act, and to take that national emergency assistance fund
that was envisioned pre-pandemic as a pilot--I would say the
last year has been our pilot of learning how emergency rental
assistance programs work. And we should move forward with
making that program permanent.
Senator Van Hollen. Well, thank you. With the Chairman's
indulgence, if I could just get a short answer from the other
panelists as to whether or not this is an idea worth exploring
in your view.
Mr. Herbert. I will voice my support. I think we could
spend a little money up front and keep people housed, avoid the
cost to them and for society in terms of trying to get them re-
housed. HUD had the Family Options Study a few years ago to
look at the cost of, you know, people who had to go into the
system, the shelters and the like, and it is much more
expensive. So money that would keep people housed is both good
for them and good for society.
Ms. Bailey. I would agree. We know that about a million and
a half people have really transitioned into rental from home
ownership, so I would totally agree.
Mr. DeMarco. It is certainly an idea worth a lot of
exploration because it could really help.
Senator Van Hollen. I appreciate it. Thanks.
Chairman Brown. Anybody else?
Mr. Pinto. Just to say that, as with any program, the devil
is in the details. I listed some things, acts that Congress
passed on multi-family and community development, all of which
were going to do great things, and here we are with these
discussions.
I would point you, Senator, to the State of Massachusetts,
which has a data program on home ownership where they have an
unemployment component built in by the Massachusetts Housing
Finance Agency, built into the mortgage insurance that the
State provides. But it has a lot of provisions in it to make
sure it does not get abused and it actually does what it is
supposed to do. But that is something on the mortgage side that
might be a good example on the rental side.
Senator Van Hollen. I appreciate that. I thank all of you
for your testimony.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Van Hollen.
I will yield myself 5 minutes. I have not yet asked
questions. I put myself last today, so I will start with Ms.
Yentel. Thank you. This has been a fascinating hearing, and I
really appreciate the patience of all five of you and other
committees members, all the back and forth.
Ms. Yentel, it is clear we do not have nearly enough homes
that people can afford, particularly people that corporations
pay small wages to. We need to create more homes people can
afford. We also need to ensure that we do not fall further
behind by failing to maintain the homes we have.
Ms. Yentel, what do we need to do to preserve our existing
affordable housing so that it can still provide a safe home for
the lowest-income families?
Ms. Yentel. Thank you for the question, Chairman Brown.
Yes, there is a tremendous need not only to build more housing
and expand Section 8 vouchers, but to preserve the affordable
housing that we have in our country now. Public housing in
particular needs an infusion of funds to repair and preserve
these units that are home to over 2.5 million low-income people
and predominantly people of color. Because of decades of
disinvestment by the Federal Government, many of these
affordable homes are in severe disrepair. There is an estimated
need for $70 billion in public housing capital repairs, and
project-based rental assistance, too, needs to be adequately
funded for affordable housing preservation.
Without adequate and timely appropriations to renew
project-based rental assistance contracts, some of these rental
homes could be lost to the affordable housing stock. And as I
mentioned earlier, we need sufficient funds to preserve the
affordable housing that is supported through USDA's Section 515
loan program. These are rural tenants with extremely low
incomes, and they live in communities where there is very
little, if any, replacement housing stock. So preservation is
really critical there.
Chairman Brown. Thank you, Ms. Yentel.
Ms. Bailey, my hometown of Cleveland, there were a lot of
homes, and older cities like that, a lot of homes that look
affordable. They are listed for $50,000, $60,000, $70,000, yet
low-income families cannot seem to find lenders to make the
loans. Sometimes we see these lower-cost properties snapped up
by investors paying cash.
What do we do to help more families get affordable, smaller
mortgages in neighborhoods like that?
Ms. Bailey. Absolutely. Thank you for the question. One of
the ways to really encourage some of our larger lenders to
actually make these loans--many of them are not making the
loans on the front end, but their investment arms are actually
benefiting from supporting the lenders who are. And then the
next thing that we need to do is really make sure that there is
just this affordable credit. When we look at cities like
Detroit, we know that the only option that many of those people
there have is kind of this exploitative notion around what
credit access is. So we need to make sure we are funding these
mortgages because they are critical for home ownership for low-
wealth families all across the country, including your home
State.
Chairman Brown. Thanks, Ms. Bailey.
Dr. Herbert, I voted to confirm Secretary Carson 4 years
ago because of his interest in and knowledge of the impact that
lead-based paint has on children's brain development. What do
we do? What do we do about that?
Mr. Herbert. Thank you, Senator, for the question. You
know, I think we often overlook the quality of the current
housing stock as an important determinant of health. We often
focus on affordability as the No. 1 problem we face in this
country, but particularly in low-income communities and
communities of people of color, older homes offer a number of
hazards. Lead is one; asbestos, radon, allergens. And so we
really do need to take a concerted effort to invest in these
homes to be able to make them healthy and make them good places
to live.
In your question to Ms. Bailey, the homes in Cleveland that
cost so little are opportunities for home ownership, but they
do need to also be coupled with support for financing to
upgrade those homes and make sure they are healthy, safe, and
sanitary.
Chairman Brown. Thank you. My last question, and just a
comment first. This is the first hearing this Committee has
held, as I said in my opening statement, in nearly a decade on
the full picture of the housing market. It seemed like leaders
in Washington do not want to talk about housing when it affects
people's lives. They only want to talk about it in sort of
grand terms of how it affects Wall Street. So this discussion
is long overdue because housing is about people's lives.
We know if people do not have affordable homes, it is
almost impossible for them to join the middle class, to build
wealth across generations, and pass some of that wealth on to
their children. And we know when a family is thrown out of a
home they love, it just upends their whole lives, and it is
hard for them to recover.
So my last question for both Ms. Bailey and Ms. Yentel.
Just paint a picture for us. When somebody gets evicted or
foreclosed on, what happens to them?
Ms. Bailey. Thank you. One of the things that we know is
that people get pushed out of communities. We have had many
Hurricane Katrinas all over the United States as a result of
the last foreclosure crisis. We have seen family members get
displaced from the very communities that they have had long
foundations in. And if I could just revert back really quickly
to your last question, I think small-dollar-balance mortgages
are really a way for lenders to use the Equal Credit
Opportunity Act's special purpose credit programs. They
actually allow lenders to tailor solutions for the communities
that they are underserving. So in those various communities
across the country, lenders can proactively seek out solutions
to really provide mortgages to the consumers that they are
underserving, and it is really critical that we do so, because
at this time we have many lenders talking about the social
unrest that happened all over the Nation, and so much of that
social unrest is rooted in housing. And many of them have made
really bold pledges around solutions that they want to really
invest, so these tools that the special purpose credit
provisions provide really give them the ability to get at those
solutions that they have talked about.
Chairman Brown. Thank you.
Ms. Yentel.
Ms. Yentel. So evictions risk lives. They drive families
deeper into poverty. During a pandemic evictions further burden
overstretched hospital systems. They make it much more
difficult for the country to contain the virus. Evictions have
been shown to increase the spread of and potentially deaths
from COVID-19. And at any time, evictions are profoundly
traumatizing and destabilizing. They lead to poor health,
especially for children and moms who can report depressive
episodes related to their eviction many years later. Evictions
harm mental health with documented increases of depression and
anxiety and suicide. And they harm physical health, from high
blood pressure to other poor health outcomes. And evictions,
even a single eviction filing, create a spiraling down into
poverty that can be very difficult for a family to climb back
out of. Evictions are expensive. Families have to pay to
reclaim their belongings, another bill that they cannot afford.
And having that eviction filing on their record makes it harder
for them to find landlords who will rent to them, which leads
them to live in housing that is in poorer condition or is in
neighborhoods with lower-performing schools and less access to
jobs or transportation.
So evictions truly can harm all aspects of a person's and a
family's lives, and they certainly harm communities and the
long-term financial health of the country, because evictions
are expensive to the Federal Government as well.
Chairman Brown. Thank you, Ms. Yentel. I never thought of
that, about having to pay to get your belongings back, out of
storage or wherever they are.
Thank you all. All five of you gave us good insight. Thank
you for that. I know that Ranking Member Toomey appreciates the
questions offered by members on both sides. As the hearing's
title states, ``Home = Life.'' It is fundamental to the work of
the Banking, Housing, and Urban Affairs Committee. This hearing
is the start of a long overdue conversation about our Nation's
housing supply, and I appreciate Ranking Member Toomey's
cooperation, and everybody on this Committee.
For Senators who wish to submit questions, those questions
are due 1 week from today, Tuesday, March 23rd. To the
witnesses, you have 45 days to respond to any questions. Thank
you for that.
With that, the hearing is adjourned. Thank you all.
[Whereupon, at 4:03 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
The title of today's hearing--Home=Life--comes from Matthew
Desmond, the author of the book ``Evicted''.
He scribbled that in the front cover of my copy of the book. And it
tells you really all you need to know about housing.
Where you live determines where your kids go to school, how far you
have to go to get to work, and what kinds of jobs you can get. It
determines where you do your grocery shopping, and whether your kids
are exposed to hazardous lead or mold.
And we saw over the past year that our housing certainly affects
our health.
That's only going to be even more true in an era of a changing
climate. The location and quality of our housing can determine how
resilient or vulnerable we are to natural disasters.
And that is why this hearing is long overdue. For the past 6 years,
we've had hearings on the GSEs and the effects of housing on Wall
Street, but ignored how our entire housing system is working for
homeowners looking to buy a lower cost home, seniors on a fixed income,
and renters working a minimum wage job.
We'll have lots of discussions about the GSEs and their role in our
housing finance system. I've put forward a set of principles on the
role the GSEs should plan in our housing market. But that's not what
today's hearing is about.
It's been nearly nine years since this Committee held a hearing on
the state of all housing in America--and that's what we're here to
discuss today.
When we held that hearing in 2012, we were still trying to clean up
the mess Wall Street and predatory lenders had made.
We might expect things to get better as we moved out of that
recession. As Wall Street reminds us daily, the stock market is up, and
interest rates have been near record lows.
And for many Americans, things have gotten better. Home prices have
increased, giving many homeowners a valuable asset and the ability to
finance home repairs and send their kids to college.
But this doesn't tell the whole story.
People's paychecks have not kept up with the cost of living--
particularly the cost of rent.
The typical nursing assistant or janitor or retail worker--the very
people we've called essential during this pandemic--isn't paid enough
to afford a two-bedroom apartment anywhere in the country.
Even before the pandemic, nearly 11 million renters--that's one-in-
four renters--were paying more than half their income for housing.
For more than half of Black and Latino renters, there is little
left over each month for food and medication, let alone saving for a
rainy day.
When a hard day's work doesn't even pay your bills, saving for a
down payment just isn't a reality.
And it's not just renters.
Today, more than one-in-five homeowners are still paying more than
one-third of their income for housing. The number of lower income
homeowners has continued to shrink. And most concerning of all,
perhaps--the Black home ownership rate is as low as it was when housing
discrimination was legal.
Former HUD Secretary Romney--the father of our colleague, Senator
Mitt Romney--tried to fully implement the Fair Housing Act when it
first passed to combat systemic discrimination in our housing markets.
But he was sidelined by the Nixon Administration and its Southern
strategy, and the law has never been fully enforced, making it harder
to ensure equal access to housing.
And while we're the wealthiest country in the world, we have more
than half a million people--including more than 100,000 children--
without a place to stay on a given night.
And behind every one of these numbers is a family with a story.
Last year, before the pandemic began, I asked Ohioans to tell me
their housing stories.
Stories flooded in. I heard from seniors who just weren't sure how
they could stay in their home on a fixed income.
I heard from people in their 40s and 50s who, in their entire adult
life, had never been paid enough to make rent without working multiple
jobs.
I heard from parents who would love to own a home for their
children, but knew they would never be able to beat out an investor
looking to buy the same property for cash.
This is what families were facing a year ago. The pandemic only
made it worse.
An estimated 10 million renters were behind on rent at the
beginning of January. If they were paying more than half their income
on rent before the pandemic started, it's tough to see how they could
ever hope to catch up.
As some homeowners are bombarded with ads to refinance at the
lowest rates on record, the homeowners who need help the most don't
have those same opportunities.
Meanwhile, millions of homeowners are behind on their payments or
facing foreclosure. Homeowners of color are more likely to have fallen
behind because of the pandemic.
The American Rescue Plan will help. It will get shots in arms to
get the virus under control and speed additional help to renters,
homeowners, and people experiencing homelessness
But the Rescue Plan was just that--a rescue, to mobilize all our
resources to get us through an emergency. Returning to the same broken
system, where hard work wasn't paying off for too many workers, isn't
good enough.
We have an opportunity on this Committee to make people's lives
better through better housing policy--to expand access to affordable
rentals, to make it easier to purchase a home, and to put trades people
to work building housing and making it safer and more resilient.
Fundamentally, we all pretty much want the same thing--a place
that's safe, in a community we care about, where we can get to work and
our kids have a good school, with room for our family--whether that's
three kids, or an aging parent, or a beloved pet.
You should get to define what home looks like for you. And you
should be able to find it and afford it without crippling stress every
single month. That is our charge on this committee--to make it so for
everyone.
Thank you.
______
PREPARED STATEMENT OF CHRISTOPHER HERBERT
Managing Director, Harvard Joint Center for Housing Studies
March 16, 2021
Chairman Brown, Ranking Member Toomey, Members of the Committee:
Thank you for inviting me to testify at this hearing.
I am the Managing Director of the Joint Center for Housing Studies
of Harvard University and a Lecturer in the Department of Urban
Planning and Design at Harvard's Graduate School of Design. I am also a
member of the Board of Directors of Freddie Mac. Through its research,
education, and public outreach programs, the Joint Center for Housing
Studies' mission is to advance understanding of housing issues and to
help leaders in government, business, and the civic sectors make
decisions that effectively address the needs of cities and communities.
For more than three decades we have published the annual report The
State of the Nation's Housing and I am very pleased to have the
opportunity to share the work of our Center with the Committee today.
Introduction
The tumultuous events of the past year have both illuminated and
exacerbated our Nation's many housing challenges. The economic and
health impacts of the COVID pandemic have put tens of millions of
Americans who were already struggling to pay for their housing at risk
of eviction and foreclosure. The national reckoning with our long
history of racial injustice has rightly put a spotlight on glaring
racial disparities in access to decent, affordable housing in thriving
communities. And the devastating impact of climate change on housing
security has been evident in a series of damaging hurricanes in the
Gulf Coast, in wildfires in the West, and in the recent frigid weather
in the South that left thousands without electricity, heat, or water
for many days.
At the same time, the pandemic has also highlighted the important
role that housing plays as a key driver of the overall economy. Housing
expenditures typically account for nearly a sixth of economic activity.
But over the last few months, strong activity in the housing market,
including strong existing home sales, high levels of new construction,
and a thriving remodeling market, have been a bright spot in an
otherwise very troubled economy. Thus, public support for the housing
sector is not only critical to improving the well-being of families and
individuals but also has important benefits for the broader economy.
In my testimony today I'll highlight five key housing challenges we
face as a country that in my view call for more concerted public,
private and nonprofit efforts to address.
Millions of Renters Face Severely Housing Cost Burdens
As a rule of thumb, housing is considered unaffordable when a
family spends more than 30 percent of its income for shelter. By this
metric, the share of renters paying an excessive amount of income on
housing, which has been rising steadily for decades, has greatly
increased since the start of this century (Figure 1). In 1960 only 24
percent of renters exceeded this affordability standard. But at last
count in 2019, the share was almost twice as high at 46 percent.
Indeed, this metric is so commonly exceeded that we now also track the
share of households with severe housing cost burdens-spending more than
50 percent of income on housing--and this share alone is now 24
percent. Overall, more than 20.4 million renters are housing cost
burdened, including nearly 10.5 million who are severely burdened, a
number that has remained stubbornly high since peaking in 2014.
While the incidence of renter cost burdens does vary across
markets, there are no areas of the country that are immune to this
challenge. The issue is most severe in Florida, Hawaii, California, and
Nevada where more than half of renters spend over 30 percent of their
income for housing. But even in the states with the lowest rates-states
in the Upper Midwest and Appalachia-nearly four out of ten renters are
cost burdened. \1\ Cost burdens are somewhat lower in non-metropolitan
areas as housing costs tend to be lower, but again even in these areas
38 percent of renters are cost burdened.
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\1\ Joint Center for Housing Studies. ``The State of the Nation's
Housing 2020''. Harvard University, 2020. Available at: https://
www.jchs.harvard.edu/state-nations-housing-2020.
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Notably, since the start of the 2000s renter affordability
challenges have been moving up the income spectrum. The largest
increases in the share cost burdened since 2001 has been among those
earning $25,000-$49,999, up 13 percentage points over this period
(Figure 2). Still, the problem is most concentrated and severe among
lowest-income renters with more than 80 percent of those earning under
$25,000 cost burdened, including 62 percent who are severely cost
burdened. Indeed, roughly two-thirds of all severely burdened renters
are in this lowest-income group.
The consequences of these severe cost burdens are many and
significant. Perhaps most importantly, the burdens lead to housing
instability as renters are one hardship away from being unable to pay
their rent. And since, as Princeton University Sociology Professor
Matthew Desmond has noted, ``the rent eats first'' each month these
families and individuals are forced to make difficult tradeoffs,
spending far less on food, healthcare, and savings than those who are
able to find affordable housing. \2\ Desmond's work also highlights the
profound impact that a lack of stable, affordable housing has on
families, disrupting schooling and undermining the ability to maintain
employment.
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\2\ Desmond, Matthew. Evicted: Poverty and Profit in the American
City. Crown, 2016.
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Conditions for low-income families with children and those headed
by older adults are especially troubling. Among households with
children under age 18 in the bottom expenditure quartile in the 2018
Consumer Expenditure Survey, those with severe cost burdens spent 93
percent less on healthcare (including insurance premiums and out-of-
pocket expenses) and 37 percent less on food than unburdened
households. Differences among households in the bottom expenditure
quartile headed by those age 65 and over are similarly large. Older
adults with severe cost burdens spent 50 percent less on healthcare and
food than same-age households without burdens. \3\
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\3\ Joint Center for Housing Studies of Harvard University. The
State of the Nation's Housing 2020. Harvard University, 2020. Available
at: https://www.jchs.harvard.edu/state-nations-housing-2020.
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The COVID pandemic has greatly exacerbated these existing
challenges, as the loss of income during the pandemic has fallen most
severely on low-income renters and people of color who were already
struggling to pay rent each month. Phase 3 of the Census Bureau's
Household Pulse Survey, conducted since November, finds that while 17
percent of all renter households report being behind on their rent,
these shares are much higher for those earning under $25,000 (24
percent) and for Black (27 percent) and Hispanic (21 percent) renters
(Figure 3).
For these lowest-income households, the private market is simply
unable to supply housing that is within their financial reach. Consider
that at an annual income of $15,000--what someone earns working full-
time at the Federal minimum wage-rents would have to be $375 a month to
be affordable under the 30 percent standard. Even at $25,000, rents
would have to be $625 a month to be affordable. These levels are well
below what a typical home rents for even in the lowest-cost areas of
the country. Rental subsidies are needed to fill the gap between what
these families can afford and these market rents, but, because such aid
is limited, only 29 percent of those earning less than 50 percent of
area median income, and therefore eligible for most federal assistance
programs, are able to secure this assistance. \4\ Given the profound
impact that stable, affordable housing has for those able to secure it,
there is a compelling need for expanded efforts to provide the rental
assistance that millions of households direly need.
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\4\ Watson, Nicole Elsasser, Barry L. Steffen, Marge Martin, and
David A. Vandenbroucke. Worst Case Housing Needs: 2019 Report to
Congress. U.S. Department of Housing and Urban Development, June 2019.
Available at https://www.huduser.gov/portal/sites/default/files/pdf/
worst-case-housing-needs-2020.pdf.
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Constrictions on the Supply of New Housing Contribute to Affordability
Challenges
One important factor behind the deterioration in affordability is
that the supply of new housing has barely kept pace with household
growth, putting upward pressure on rents and home prices. Since the
1970s the addition of new homes through construction has typically
exceeded household growth by about 20 percent, enough to accommodate
not only new households but also to replace of older homes and meet the
demand for second homes (Figure 4). But for much of the last decade,
new construction has barely kept pace with household growth, a streak
that is unprecedented. Research from Freddie Mac examining new housing
supply relative to growth in demand at the state level finds that 29
states have a housing deficit relative to what would be needed based on
historic vacancy levels, totaling 3.3 million units. \5\
---------------------------------------------------------------------------
\5\ Freddie Mac, Economics and Research Group. ``The Housing
Supply Shortage: State of the States''. Economic and Housing Research
Insight, February 2020. Available at: http://www.freddiemac.com/fmac-
resources/research/pdf/202002-Insight-12.pdf.
Furthermore, much of the shortfall in supply has been among homes
of modest size, which, over the last two decades, have declined sharply
as a share of all new units. For example, the share of new single-
family homes under 1,800 square feet has fallen sharply since the start
of the 2000s, down from 37 percent in 1999 to just 21 percent by 2015
(although it has since inched up to 24 percent). Similarly, over the
same period, multifamily housing has been increasingly concentrated in
large structures, which have higher development costs, while so-called
`middle' housing types have dwindled. \6\ In 1999 just over half of new
multifamily housing consisted of small buildings with between 2 and 19
units while just 12 percent had 50 or more. By 2019 these shares had
been reversed with a majority of new units in high-rise buildings. \7\
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\6\ Parolek, Daniel G. ``Missing Middle Housing: Thinking Big and
Building Small To Respond to Today's Housing Crisis''. Island Press,
2020.
\7\ U.S. Census Bureau, Survey of Construction, available at:
https://www.census.gov/construction/chars/.
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A number of factors are behind this trend, but regulatory barriers
in the form of restrictive zoning and other land-use regulations that
limit opportunities to produce housing at greater density, difficult
approval processes, and high impact fees have been important
contributors. \8\ Of course, regulations also generate benefits in
promoting the health and safety of individuals and communities and in
promoting more efficient forms of urban development that must be
balanced against any costs imposed. In a comprehensive review of the
academic literature, Gyourko and Malloy (2014) conclude that
regulations are found to reduce construction, raise prices, and promote
sprawl, although they note it is difficult to gauge the benefits
produced to estimate the net impact of regulation. \9\ While specific
estimates on prices vary widely, one in-depth review by Glaeser,
Gyourko, and Saks (2006) estimates that the magnitude of the regulatory
tax in the single-family market ranges from 0 percent in such
unrestricted markets as Cincinnati and Houston, to as high as 20
percent in Boston, and 30 percent or more in California. \10\
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\8\ Schuetz, Jenny. ``Who's To Blame for High Housing Costs? It's
More Complicated Than You Think''. The Brookings Institution, January
17, 2020. Available at: https://www.brookings.edu/research/whos-to-
blame-for-high-housing-costs-its-more-complicated-than-you-think/.
\9\ Gyourko, Joseph, and Raven Molloy. ``Regulation and Housing
Supply''. In Handbook of Regional and Urban Economics, vol. 5, pp.
1289-1337. Elsevier, 2015.
\10\ Glaeser, Edward L., Joseph Gyourko, and Raven E. Saks.
``Urban growth and housing supply.'' Journal of economic geography 6,
no. 1 (2006): 71-89.
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Given the important contribution of supply-side constraints in
producing our affordability challenge, there is a clear need for
concerted efforts by the public, private and non-profit sectors to
pursue both regulatory reform and more efficient means of production
that will increase the supply of modest housing at lower cost. While
land use regulation is a responsibility of state and local governments,
the Federal Government has the ability to influence these policies
through its own policies and funding requirements.
The Challenge of Attaining and Sustaining Home Ownership
While the housing boom and bust dramatically demonstrated the risk
entailed in owning a home, there is nonetheless strong evidence that
home ownership can provide substantial financial benefits while
providing greater stability and control over one's home. \11\ The
financial benefits of home ownership by itself are quite significant.
According to data from the 2019 Survey of Consumer Finance, housing
equity continues to wealth, account for a large majority of total
wealth for people of color and low-income households, while renters are
found to have accumulated only a few thousand dollars (Figure 5).
Perhaps not surprisingly given the many benefits of home ownership
survey research also finds that young people of all races and
ethnicities have a strong desire to eventually own a home, with more
than 80 percent indicating they would like to own a home someday. \12\
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\11\ See: Herbert, Christopher E., Daniel T. McCue, and Rocio
Sanchez-Moyano. ``Is Home Ownership Still an Eeffective Means of
Building Wealth for Low-Income and Minority Households? (Was it
ever?)'' and Rohe, William M., and Mark Lindblad. ``Reexamining the
Social Benefits of Home Ownership After the Housing Crisis'' both in in
Belsky, Eric S., Christopher E. Herbert, and Jennifer H. Molinsky, eds.
``Home Ownership Built to Last: Balancing Access, Affordability, and
Risk After the Housing Crisis''. Brookings Institution Press, 2014.
\12\ Drew, Rachel Bogardus, and Christopher E. Herbert. ``Post-
Recession Drivers of Preferences for Home Ownership''. Housing Policy
Debate 23, no. 4 (2013): 666-687.
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But home ownership rates today remain well below historical
benchmarks. Indeed, rates of homeowning among adults from their late
20s through their early 40s remain 3-5 percentage points below levels
from the early 1990s, before the housing boom began. \13\
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\13\ Joint Center for Housing Studies. ``The State of the Nation's
Housing 2018''. Harvard University, 2018. Available at: https://
www.jchs.harvard.edu/state-nations-housing-2018.
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But even more concerning than the shortfall in homeowning among
younger adults are enormous disparities in home ownership opportunities
for people of color. As of 2019 home ownership rates for Black
households trailed that of non-Hispanic white households by 31
percentage points, while the shortfall among Hispanic households was
nearly as large at 26 percentage points (Figure 6). Indeed, the
shortfall among Black households is larger today than it was in 1960,
before the passage of the Fair Housing Act. \14\
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\14\ See https://www.urban.org/policy-centers/housing-finance-
policy-center/projects/reducing-racial-home ownership-gap.
There are a range of factors that contribute to these lower home
ownership rates. \15\ These differences in part reflect racial
disparities in economic opportunity that result in lower incomes and
weaker credit profiles. But even accounting for these disparities, an
analysis by the Urban Institute finds that substantial numbers of young
people of color have sufficient income and credit to be ``mortgage
ready'' and could afford a median priced home in their market if they
had the ability to make a 10 percent downpayment. \16\
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\15\ Goodman, Laurie, Alanna McCargo, Edward Golding, Bing Bai,
Bhargavi Ganesh, and Sarah Strochak. ``Barriers To Accessing Home
Ownership: Down Payment, Credit, and Affordability''. Urban Institute,
November,2017. Available at https://www.urban.org/research/publication/
barriers-accessing-home-ownership.
\16\ Goodman, Laurie, Alanna McCargo, Edward Golding, Bing Bai,
Bhargavi Ganesh, and Sarah Strochak. ``Barriers To Accessing Home
Ownership: Down Payment, Credit, and Affordability''. Urban Institute,
November, https://www.urban.org/research/publication/barriers-
accessing-home-ownership (2017).
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One barrier facing these young would-be owners is a lack of
accurate information about the homebuying process, particularly what is
required to qualify for a mortgage. Research by Fannie Mae has found
that renters overestimate how much savings is needed and how high
credit scores need to be, and that people of color are more likely to
lack accurate knowledge of the process. \17\ Perhaps more important,
however, is a lack of savings needed for downpayment and closing costs.
Research has consistently found that cash grants have much greater
potential for expanding access to home ownership than simply lowering
downpayment requirements or interest rates. \18\
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\17\ Fannie Mae. ``What Do Consumers Know About the Mortgage
Qualification Criteria?'' Washington, D.C.: Fannie Mae (2015).
Available at: https://www.fanniemae.com/sites/g/files/koqyhd191/files/
migrated-files/resources/file/research/housingsurvey/pdf/consumer-
study-121015.pdf.
\18\ Wilson, Ellen, and Robert R. Callis. ``Who Could Afford To
Buy a Home in 2009? Affordability of Buying a Home in the United
States''. Current Housing Reports. Washington, D.C.: U.S. Census
Bureau. May (2013). Available at: https://www.census.gov/content/dam/
Census/library/publications/2013/demo/h121-13-02.pdf. See also Herbert,
Christopher E., Donald R. Haurin, Stuart S. Rosenthal, and Mark Duda.
``Home Ownership Gaps Among Low-Income and Minority Households. U.S.
Department of Housing and Urban Development, Office of Policy
Development and Research, 2005. Available at: https://www.huduser.gov/
portal/publications/HOMEOWN/HGapsAmongLInMBnN.html.
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Expanding access to home ownership and closing these sizeable
disparities by race and ethnicity will require a range of policy
supports, including homebuyer education and counseling, access to safe,
affordable credit, and financial supports to address the shortfall in
needed savings. But as important as these approaches would be, it is
equally important to ensure there are also supports to help sustain
homeowners through inevitable challenges that arise in life. These
supports include both counseling for distressed homeowners as well as
financial supports to address changes in life circumstances. Approaches
to financing homes that help build equity quickly would also expand the
benefits of home ownership and expand the financial cushion available
to weather future downturns.
Indeed, the COVID pandemic illustrates the importance of such
efforts. As with renters, homeowners of color and low-income households
are disproportionately likely to report being behind on their mortgage
payments (Figure 7). While 7 percent of non-Hispanic white homeowners
currently report being behind on their mortgage, the rates are more
than twice as high among Black (17 percent) and Hispanic (16 percent)
owners and three times higher among those earning under $25,000. While
forbearance offered to government-backed loans is currently in place
for 2.7 million homeowners, these mortgage payments are still going to
be due eventually. Once forbearance ends, it remains to be seen whether
these owners will be in a position not only to make up what they owe
but also to resume making payments as large as those made before the
pandemic hit. \19\ With house prices rising sharply in many areas of
the country, failing to retain ownership would represent a significant
lost opportunity to both maintain their homes and accrue future wealth.
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\19\ Blackknight, Mortgage Monitoring Report January 2021.
Available at https://www.blackknightinc.com/black-knights-january-2021-
mortgage-monitor/.
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High Levels of Racial and Economic Segregation
The high degree of residential segregation that exists today is
another area of important concern for housing policymakers. Among the
many factors contributing to this pattern are discriminatory housing
practices, the lack of affordable rental and home ownership options in
many communities, and missed opportunities to affirmatively further
racial integration. These patterns of segregation by race and ethnicity
and by income segregation have critically important implications for
who gets access to good quality public services, healthy environments
and economic opportunities.
Segregation of the Black population is particularly high, although
it has declined from extremely high levels in the years following the
passage of the Fair Housing Act in 1968. \20\ At last count (in the
2010 Census), the average level of segregation across U.S. metropolitan
areas indicated that 59 percent of the Black population would have to
move to have an even distribution across neighborhoods. However, in
large metro areas in the Northeast and Midwest this metric remained
near 80 percent, almost as high as levels prevailing decades earlier.
People who are Hispanic or Asian are also highly segregated, with
average measures indicating that 48 percent of Hispanics and 41 percent
of Asians would have to move to achieve an even distribution of these
populations across neighborhoods. The level of segregation for these
both groups has also not improved over time, with levels close to what
they were in 1980.
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\20\ Logan, John R., and Brian J. Stults. ``The Persistence of
Segregation in the Metropolis: New Findings From the 2010 Census''.
Census brief prepared for Project US2010 24 (2011). Available at:
https://s4.ad.brown.edu/Projects/Diversity/Data/Report/report2.pdf.
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Meanwhile, segregation by income has actually increased over time.
One clear metric of this trend is the share of families living in
neighborhoods with median incomes above or below 80 percent or 125
percent of the area median income. In 1970 about two-thirds of families
lived in middle-income neighborhoods with the remaining third split
between lower-income and higher-income areas (Figure 8). By 2009, the
share of households in middle-income neighborhoods had fallen to less
than half, with nearly a third each living in lower- and higher-income
areas. Clearly, American families have come to reside in areas that
include concentrations of either low- or high-income households with a
shrinking set of mixed-income communities.
Racial and income segregation intersect for people of color,
resulting in very high exposure to concentrated poverty (Figure 9).
Nearly two-thirds of the Black, Hispanic, and Native American
populations living in poverty reside in communities with poverty rates
above 20 percent, about twice the share of the non-Hispanic white
population living in poverty. Large shares of relatively affluent
households of color also live in these neighborhoods, including 39
percent of both Black and Native American households and 30 percent of
Hispanic households.
Racial disparities in housing that result from this segregation are
both a cause and a consequence of other social inequalities.
Discriminatory practices have limited the opportunities for people of
color to live in neighborhoods that offer good-quality schools and
public services, while also increasing their exposure to crime and
other environmental hazards. The nation's long history of housing and
mortgage market discrimination has also prevented generations of Black
and Hispanic households from buying homes and accruing wealth. The
impact of this systemic inequality is evident in the lower incomes and
wealth of today's households of color, a legacy that perpetuates their
struggle to obtain decent, affordable housing in safe neighborhoods.
The significant consequences for life chances of growing up in
areas of high poverty has been well documented in a series of research
projects by Raj Chetty, Nathanial Hendren, and John Friedman. \21\
Among the key conclusions of this work are that every year spent during
childhood in highly impoverished neighborhoods lowers lifetime
earnings. In addition, growing up in these areas also has deleterious
effects on incarceration rates, college attendance rates, fertility
rates, and marriage patterns. Given these profound impacts, efforts to
ameliorate the degree of segregation and the stark differences in
neighborhood conditions for people of color needs to be a high priority
of US housing policy.
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\21\ For a listing of related research see https://
opportunityinsights.org/neighborhoods/.
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To promote greater opportunities for racial and economic
integration, housing policy needs to be crafted to expand the supply of
affordable housing options in a broader range of communities, to
support efforts to affirmatively further fair housing, and to
coordinate investments in housing with improvements in schools, public
safety, and economic development to help revitalize disadvantaged
communities.
The Need To Adapt Homes To Be More Resilient, Healthy, and Age Friendly
A final significant housing challenge for the country is to adapt
the existing housing stock to be more resilient in the face of climate
change, to provide healthier living environments, and to meet the needs
of a rapidly aging society.
The impact of climate change on the housing stock is most evident
in the growing number and severity of natural disasters (Figure 10).
According to the National Oceanic and Atmospheric Administration, in
2020 the U.S. experienced 22 distinct billion-dollar disasters, with
the cost of damages from these events totaling $95 billion, both of
which are record highs for a single year.
Disasters of this scale require massive recovery efforts, but such
efforts often overlook the Nation's most vulnerable households,
particularly renters. For example, a National Low Income Housing
Coalition analysis of Superstorm Sandy's impact in three New Jersey
counties found that there were large losses of low-cost rental units in
two of the three counties and that many renters received no disaster
assistance at all. \22\ A 2010 Government Accountability Office report
also showed that only 18 percent of damaged rental units received
federal assistance after Hurricanes Katrina and Rita, compared with 62
percent of damaged homeowner units. \23\
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\22\ National Low-Income Housing Coalition. 2019. ``Long-Term
Recovery of Rental Housing: A Case Study of Highly Impacted Communities
in New Jersey After Superstorm Sandy''. National Low-Income Housing
Coalition. December 2019. https://nlihc.org/sites/default/files/Sandy-
Rental-Recovery-Report.pdf.
\23\ Government Accountability Office. 2010. ``Federal Assistance
for Permanent Housing Primarily Benefited Homeowners; Opportunities
Exist To Better Target Rental Housing Needs''. GAO-10-17. https://
www.gao.gov/assets/310/300098.pdf.
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Climate change has also added to the number of low-income
households facing energy insecurity. When the pandemic forced families
to spend more time at home, residential utility use went up-sometimes
significantly. This was especially true during the record summer heat
last year, when the need for air-conditioning was extreme. For lower-
income households, this forced a tradeoff between paying higher utility
bills or suffering the health risks of excessive heat.
Even before the pandemic, communities of color were especially at
risk of energy insecurity. According to the most recent Residential
Energy Consumption Survey, 54 percent of American Indian or Alaska
Native, 52 percent of Black, and 45 percent of Hispanic households
experienced some form of energy insecurity in 2015-about twice the 25
percent share of non-Hispanic white households. \24\ More recent
studies have also found that formerly-redlined neighborhoods in US
cities experienced more extreme heat events than surrounding areas.
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\24\ Joint Center for Housing Studies. The State of the Nation's
Housing 2020. Harvard University, 2020. Available at: https://
www.jchs.harvard.edu/state-nations-housing-2020.
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Low-income households and people of color are also much more likely
to be exposed to unhealthy environments in the home due to living in
older, poorly-maintained buildings that expose residents to hazards
such as carbon monoxide, radon, lead, asbestos, and allergens. \25\
Indeed, estimates by the American Public Health Association and the
National Center for Healthy Housing find that in 2014 about a quarter
of asthma cases were linked to the home environment, 21,000 lung cancer
deaths were linked to radon in homes, and 24 million homes had lead-
based paint hazards. \26\
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\25\ For a review of literature on these hazards and risks faced
by low-income households see https://www.healthypeople.gov/2020/topics-
objectives/topic/social-determinants-health/interventions-resources/
quality-of-housing.
\26\ As reported in Bailey, Peggy. Housing and Health Partners Can
Work Together to Close the Housing Affordability Gap. Center on Budget
and Policy Priorities, 2020. Available at https://www.cbpp.org/
research/housing/housing-and-health-partners-can-work-together-to-
close-the-housing-affordability.
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Lastly, over the next two decades the number of adults in the US
age 75 and older is expected to double from 14 to 28 million, which
means older adults will account for one out of every five households.
\27\ At this stage of life the incidence of physical limitations on
mobility begin to rise sharply, requiring accommodations in the home to
allow individuals to age safely in their homes and communities. These
accommodations include no-step entries, single-floor living, extra-wide
doorways and halls, accessible electrical controls and switches, and
lever-style door and faucet handles. However, the 2011 American Housing
Survey reports that just 1 percent of US housing units have all five of
these universal design features. And while nearly 90 percent of
existing homes have at least one of these five features, only 57
percent have more than one. \28\
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\27\ Joint Center for Housing Studies. Housing America's Older
Adults 2019. Harvard University, 2019. Available at https://
www.jchs.harvard.edu/sites/default/files/reports/files/Harvard-JCHS-
Housing-Americas-Older-Adults-2019.pdf.
\28\ Joint Center for Housing Studies. Housing America's Older
Adults 2014. Harvard University, 2014. Available at https://
www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-housing-
americas-older-adults-2014.pdf.
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This multitude of deficiencies in the millions of units comprising
the existing stock of housing point to the need for policies to support
investments to make homes more resilient, healthy, and age-friendly,
particular for renters and homeowners of modest means.
Concluding Remarks
I realize that I have outlined a broad set of housing challenges
that are perhaps daunting in their scope and scale. But as the title of
this hearing indicates, having a good quality, affordable and secure
home in aa thriving community is foundational for a healthy and
productive life for every person in America. Addressing our country's
housing challenges will take a substantial commitment from the public,
private and nonprofit sectors. But this investment would pay dividends
in improved quality of life for those who are unaffordably and
inadequately housed. And it would pay dividends to society as well, in
a more productive workforce, lower public spending for healthcare and
other supports, and would enhance economic activity in the important
housing sector.
Thank you for turning your attention to these critical issues and
for your invitation to share this information with you today. I look
forward to answering any questions you may have.
______
PREPARED STATEMENT OF DIANE YENTEL
President and Chief Executive Officer, National Low Income Housing
Coalition
March 16, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF NIKITRA BAILEY
Executive Vice President, Center for Responsible Lending
March 16, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF EDWARD J. PINTO
Director, Housing Center, Resident Fellow, American Enterprise
Institute
March 16, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF EDWARD J. DEMARCO
President, Housing Policy Council
March 16, 2021
Chairman Brown, Ranking Member Toomey, and Members of the
Committee: Thank you for inviting me to testify today. My name is
Edward DeMarco, and I am the President of the Housing Policy Council
(HPC), a trade association comprised of the nation's leading firms in
housing finance and dedicated to advancing responsible and sustainable
home ownership opportunities.
The past 12 months have placed extraordinary stress on families,
our economy, and our society. Despite these stresses, the housing
finance system generally, and mortgage servicers in particular,
responded effectively to the needs of homeowners. Millions of
homeowners whose income was disrupted by the pandemic received
immediate payment relief through mortgage forbearance plans. Still,
there are challenges and risks ahead.
One of the most pressing challenges is addressing the racial gap in
home ownership, which we must do if we are to expand wealth-building
opportunities for individuals and families of color. While this is a
challenge and priority, it also is an opportunity. It is an opportunity
for this Committee, the administration, consumer advocates, and the
housing finance industry to think differently about the most effective
ways to meet this challenge and promote sustainable home ownership for
individuals and families who have the means to own a home but have been
unable to realize that dream.
One key element in meeting this challenge extends beyond the scope
of most federal programs designed to support home ownership: there
simply is not enough housing to meet the needs of new homeowners.
Fundamentally, we need to build more housing.
Beyond these new challenges that are top of mind today, we cannot
lose sight of a huge challenge that has been with us for more than a
dozen years now, one that I have testified on before this Committee
numerous times, in multiple capacities: housing finance reform.
The rest of my written statement will elaborate on these points.
COVID-19 and the Single-Family Mortgage Market
A year ago, the mortgage servicing industry was working furiously
to comprehend and respond to the unknown magnitude of economic
disruption facing us due to the sudden business shutdowns. The whole
country was trying to grasp what we might be facing. The uncertainty
was enormous, and in some sectors of the economy, the job losses were
massive and immediate.
More than half a million Americans have died from the virus and
millions continue to face extraordinary hardship. Yet we can take heart
in the efforts of so many Americans who responded admirably in the face
of such adversity. We have seen medical advances at amazing speed,
producing vaccines that point us to a brighter future. Many businesses
have shifted to remote work and, as a result, many parts of the economy
have rebounded remarkably, while other businesses and parts of the
economy remain shuttered or operate at less than full capacity.
The industry that I represent, mortgage lenders and servicers, has
worked diligently to meet this moment. Servicers quickly established
processes to offer homeowners mortgage payment forbearance plans, while
simultaneously converting their operations to accommodate their
employees working from home. By mid-April, more than 2 million families
had requested and received forbearance. By late May, that number peaked
at nearly 5 million. \1\ Homeowners have been able to request and
receive mortgage payment forbearance simply by contacting their
mortgage servicer and declaring a financial hardship due to the
pandemic.
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\1\ Andy Walden, Economist and Director of Market Research at
Black Knight, Inc. March, 12, 2021 ``Forbearances See Largest Weekly
Decline Since Beginning of 2021''. Washington, D.C.
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While forbearance plans were mandated by the CARES Act, mortgage
forbearance was already part of the servicing toolkit and had been used
previously by servicers in response to natural disasters. Having this
toolkit in place allowed servicers to deploy forbearance assistance
across the country at a previously unseen scale in a matter of days.
Servicers also voluntarily provided the same support for mortgages held
in bank portfolios and private label securities, not just on the
government-backed loans required by the CARES Act. Mortgage insurers
have worked with servicers to align operations and support forbearance
and post-forbearance solutions.
The rapid roll-out of these plans is not just a success story for
mortgage servicers, it reflects the incredible effort of many others as
well. While not a comprehensive list, I particularly want to
acknowledge the leadership and staff at the Federal Housing
Administration (FHA), the Department of Veterans Affairs (VA), the US.
Department of Agriculture's Rural Housing Service, Ginnie Mae, the
Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac (the
GSEs), \2\ and the Consumer Financial Protection Bureau (CFPB) for
responding quickly and appropriately to the challenges faced by
consumers and mortgage servicers. Each of these government agencies and
programs worked diligently with industry representatives and with each
other to tailor responses to the needs of homeowners.
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\2\ For purposes of this testimony, the ``GSEs'' (Government-
Sponsored Enterprises) or ``Enterprises'' refer to the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac).
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Homeowners have also been engaged and are working with their
servicers. Since the peak in forbearance requests, more than half of
homeowners have resumed making their payments or have paid off their
mortgages. Today, about 2.6 million homeowners are still in
forbearance, and most of those are coming up on the 1-year anniversary
of being in forbearance. \3\ Recently, FHFA and the Government-insured
loan programs indicated that forbearance could be extended up to 6 more
months, for a total of 18 months. HPC supports this action.
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\3\ Walden, Forbearances See ``Largest Weekly Decline''.
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Despite this tremendous response by mortgage servicers and
homeowners, much work remains. By this fall, as forbearance begins to
wind down, homeowners will face choices to resume payments. The silver
lining is that the situation is not as dire as the one we faced in the
Great Recession. In most markets, house prices have increased and most
homeowners in forbearance have at least 10 percent equity in their
home. Mortgage servicers remain ready to use all of their resources to
help each homeowner find the best available outcome for their
circumstances.
I also hope the constructive engagement between industry and
government agencies that developed in response to this crisis will
continue. For example, many industry participants, including the
Housing Policy Council, partnered last summer with housing and consumer
advocates and the CFPB to launch an outreach campaign targeted at
homeowners who had missed mortgage payments but were not in forbearance
or were nearing the end of their forbearance period. This type of
public/private partnership improves our collective ability to assist
homeowners in need.
For the remainder of 2021, I expect COVID-related challenges to be
the industry's number one priority. While some of the 2.6 million
households in forbearance today are likely to return to work as public
health and economic conditions improve, others may face a permanent job
loss. Working with those borrowers will be job one.
Racial Ownership Gaps and Demographic Challenges
In 2020, the deaths of George Floyd, Breonna Taylor, Ahmaud Arbery
and others opened a wider and more urgent demand to address racial
disparities, including the racial home ownership gap. Unlike the
pandemic, this gap did not appear overnight nor will it go away
quickly. But there is broad consensus that we must grapple with it. We
face other important challenges ahead as well; significant demographic
changes require housing policy attention in the years ahead, such as
senior housing, multi-generational housing, and the emergence of the
enormous millennial generation into the housing market. \4\
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\4\ The Urban Institute's Housing Finance Policy Center has
produced multiple research articles and blogs on these topics. For
example, see ``Future of Headship and home ownership'', January 2021,
which addresses all these issues: senior households, multi-generational
living, changing demographics, and rising millennials. Other relevant
work includes ``By 2040, the U.S. Will Experience Modest home ownership
Declines. But for Black Households, the Impact Will Be Dramatic, What
Will It Take to Support 5.5 Million More Senior Renters by 2040'', and
``The Number of Hispanic Households Will Skyrocket by 2040. How Can the
Housing Industry Support Their Needs?''
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Two years ago, I testified before this Committee \5\ and set forth
the Housing Policy Council's views on expanding opportunities for home
ownership. Because I believe those views are still relevant today, I
will repeat that testimony:
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\5\ Edward J. DeMarco, President, Housing Policy Council. March
26, 2019. Testimony before the Senate Committee on Banking, Housing,
and Urban Affairs on Chairman's Housing Reform Outline. Washington, DC.
The various housing finance reform proposals put forward over
the last several years have all included a mechanism to
generate funds to stimulate the production and preservation of
affordable rental housing and to bolster targeted home
ownership assistance programs. HPC supports this approach. Our
members recognize that appropriations for housing programs are
not keeping pace with housing need in this country. Therefore,
given the benefits derived from the government guarantee
envisioned in housing finance reform, it is reasonable for
legislation to establish an obligatory contribution of dollars
through transaction fees to expand the supply of desperately-
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needed affordable housing.
HPC also supports funding for specialized home ownership
programs. However, it is the preference of HPC members to
direct new funds for home ownership assistance to programs that
contribute directly to the households in need, reducing the
barriers to entry and financial challenges that these
individuals and families face. HPC would prefer that new funds
not be used to simply subsidize higher-risk loans or to
compensate the industry to make loans that may not perform
using more lenient underwriting criteria.
We believe that funds used to address the areas of risk that
drive the increased pricing, rather than subsidizing that
pricing, would better serve the households in need. Examples of
these types of programs are down payment assistance grants that
enable households to enter home ownership with some amount of
equity in the property; savings programs that offer matching
funds to increase the down payment amount or, equally
importantly, that create ``rainy-day'' reserves to address
future needs; and dedicated accounts that could be tapped by
homeowners in financial distress, to avoid missed payments and
/ or foreclosure. The application of dollars to these types of
programs, as well as critical home ownership counseling and
education services, would help families prepare for and sustain
home ownership, improve access, address the real barriers, and
create a true financial benefit and performance boost for low-
and moderate-income (LMI) households.
Along these same lines, HPC recognizes that there may be
interest by some in preserving the GSE Affordable Housing Goals
and Duty-to-Serve activities. The intent of these programs is
to ensure the secondary mortgage market makes credit available
for more low- and moderate-income households, and targeted
market segments (affordable housing preservation, rural
markets, and manufactured housing) than the private sector may
serve on its own without government support. However, HPC
believes that it is worthwhile to assess and revisit the impact
and outcomes of these programs and consider alternatives that
better achieve the intended objectives. Rather than repeat the
use of methods that have had, at best, mixed results, we should
seek new types of measurable targets and financing goals to
ensure that traditionally underserved segments are targeted for
guarantor support. For example, there may be high-impact ways
to use additional funding, modeled on the Federal Home Loan
Bank System's Affordable Housing Program, which has effectively
served communities nationwide for decades now.
More recently, HPC addressed the matter of affordable housing for
low-and moderate-income families and families of color in a comment
letter to the FHFA on the GSEs' affordable housing goals. In our
comment letter, \6\ HPC noted that there is limited evidence that the
housing goals have expanded low-income home ownership.
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\6\ Edward J. DeMarco, President, Housing Policy Council. February
25, 2021, ``Comments on Enterprise Housing Goals Advance Notice of
Proposed Rulemaking.''
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The driving factor for why the GSE housing goals have been unable
to move the needle on addressing these structural challenges is that
the program subsidizes demand primarily through the cross-subsidization
of mortgage rates rather than directly addressing the barriers many
families face in attaining home ownership. To achieve the goals, the
GSEs offer relaxed underwriting criteria and pricing benefits to some
consumers who might not otherwise qualify for a mortgage. This subsidy
is based on a borrower's credit risk, not race or income or wealth or
financial readiness. It is poorly targeted, and it fails to address the
barriers many Black, Latino, and low income/low-wealth families face in
trying to attain home ownership, such as a lack of downpayment,
financial education, or a rainy-day reserve.
Moreover, with an inelastic housing supply, continued subsidization
of the mortgage rate has the counter-productive effect of boosting home
prices. Simply put, making it less expensive to borrow money to
purchase a commodity in short supply (houses) results in added demand,
increasing the sales price. In effect, the subsidy built in to the GSE
housing goals ends up going to the home seller, not the home buyer.
This has the perverse effect of making housing less affordable, not
more affordable.
In summary, before doubling down on past programs, we should
consider whether such programs have actually helped close the racial
gap in home ownership or otherwise enhanced the home ownership outcomes
for lower- and moderate-income households. We also should be mindful
that, with house prices soaring in the face of limited supply, subsidy
programs that are not properly designed risk enriching current
homeowners, not creating new homeowners.
Let me conclude this section with four final thoughts.
First, any discussion of broadening home ownership opportunities
should include consideration of the FHA. FHA is the country's flagship
program to support home ownership, but it is sorely in need of repair.
While important improvements have been made in recent years, FHA
servicing rules and practices remain a challenge and aligning FHA
requirements with current market practices would be helpful. We look
forward to working with Secretary Fudge on modernization and alignment
initiatives to see them completed. We also hope to work with this
Committee on how FHA can be a meaningful component of efforts to build
wealth through home ownership. Likewise, Ginnie Mae needs to continue
its modernization efforts.
Second, a critical factor to consider when pondering new approaches
to expand home ownership opportunities is the changing characteristics
of household income. In today's economy, household income has become
more unpredictable and volatile. \7\ We underwrite mortgage loans
considering traditional wage income and assets to determine a
borrower's ability to repay. However, income increasingly is subject to
variability, in part due to more households relying on multiple part-
time or seasonal jobs as the so-called gig economy expands. These
changes may need to be considered in underwriting mortgages, especially
for lower-income workers and certain minority communities.
Consideration of these factors may help to create new pathways to home
ownership.
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\7\ Seidman, Ellen, and Ratcliffe, Caroline. 2017 ``Everyone
Benefits When the Financial Sector Serves People With Volatile
Income''. Washington, DC: Urban Institute.
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Third, and related to the previous point, we should not measure
success simply by observing positive changes in home ownership rates.
Any such gains must be sustainable through the economic cycle. We
currently are experiencing enormous house price growth, fueled largely
by historically low interest rates and pandemic-related changes in
demand for housing. We need to ensure we do not encourage marginal
borrowers into highly leveraged mortgages on houses reflecting
temporary house price gains. Otherwise, we may cause serious harm and
set back the long-term efforts to close the racial gap in home
ownership.
Lastly, we need a regulatory environment that accounts for these
considerations. On that score, the CFPB's multi-year process to
evaluate and update the Qualified Mortgage rule was a welcome
development that should help to close the racial gap in home ownership
by responsibly expanding access to credit. Thus, it was troubling to
see the CFPB last month start to backtrack on the new rule just weeks
after finalizing it.
Housing Supply: We Need To Build More Housing
The Chairman's letter of invitation asked me to report on
conditions in the housing market affecting affordability and
availability, and the challenges facing various households. The single
biggest challenge is clear. We do not have enough houses.
Housing construction ground to a trickle with the Great Recession
and its long aftermath. Meanwhile, a demographic wave was building that
would increase demand for housing. Today, the greatest imbalance, and
the greatest challenge, in housing is this supply-demand imbalance. A
relatively fixed supply and growing demand, fueled by historically low
interest rates, and a pandemic-driven change in the demand for housing,
has made it even harder for individuals and families to break into the
ranks of home ownership.
This lack of supply is both a rental and an ownership challenge.
The Housing Policy Council's focus is home ownership, but to assess the
state of housing, it is important to understand the needs of both
renters and homeowners. home ownership remains the most common avenue
to wealth-building, particularly for low and moderate-income families,
and most future homeowners will come from the ranks of renters, so both
matter. \8\ Other witnesses today will expand on the critical housing
issues in the rental market.
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\8\ A recent report published by the Harvard Joint Center for
Housing Studies describes many of the supply issues in the apartment
market and offers strategies that developers and builders could deploy.
See Hannah Hoyt. 2020 ``More for Less? An Inquiry Into Design and
Construction Strategies for Addressing Multifamily Housing Costs''.
Cambridge, MA: Joint Center for Housing Studies of Harvard University.
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As an economic principle, unmet demand should lead to higher prices
and higher prices should induce more supply. However, building housing
in most communities requires navigating a labyrinth of approvals,
restrictions, and building requirements. The combined effect of these
requirements is that fewer houses are built and the ones that are built
are higher cost properties.
The solution to this problem is simple, but politically complex. It
primarily requires thousands of local jurisdictions to evaluate land
use restrictions, zoning laws, building codes, and other requirements
to ensure that home construction is encouraged, not discouraged. It
also requires programs to address labor shortages, particularly in
skilled positions such as carpenters, electricians, and plumbers.
Finally, the supply problem is not just an issue of new
construction but also an issue of rehabilitating existing supply to
extend its useful life. In many parts of the country, we have an aging
housing stock, and some of those properties may not be up to modern
health, safety, and energy efficiency standards. One way to increase
housing supply is to think about preserving and modernizing existing
housing stock as well as identifying other existing structures that
could be repurposed for housing.
The GSE Conservatorships: Still a Story That Needs an Ending
More than 9 years ago, as Acting Director of the Federal Housing
Finance Agency, I submitted a report to this Committee titled ``A
Strategic Plan for Enterprise Conservatorships: The Next Chapter in a
Story That Needs an Ending''. \9\ Here we are, 9 years later and more
than a dozen years since the GSEs failed and were placed in
conservatorships, and that story still needs an ending. On behalf of
the members of the Housing Policy Council, I make the same plea today I
made all those years ago: the end of the story needs to be written by
Congress.
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\9\ Edward J. DeMarco, Acting Director, Federal Housing Finance
Agency. February 21, 2012. ``A Strategic Plan for Enterprise
Conservatorships: The Next Chapter in a Story That Needs an Ending''.
Washington, DC.
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My last testimony before this Committee focused almost entirely on
this issue. \10\ At that time, I testified on a thoughtful reform
outline put forth by then-Chairman Crapo.
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\10\ Edward J. DeMarco, President, Housing Policy Council. March
26, 2019. ``Testimony before the Senate Committee on Banking, Housing,
and Urban Affairs on Chairman's Housing Reform Outline''. Washington,
DC.
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Today, I will reiterate a few key points: Ending the
conservatorships requires permanent change to the inherently flawed
structures that led to the conservatorships in the first place. While
administrative progress is welcome and can help to set a prudential
framework for the GSEs post-conservatorship, we will not achieve true
reform without Congress. Only Congress can revise the statutory
charters of the GSEs, address the need for an explicit federal
guarantee on the mortgage securities issued by the GSEs, and address
other problems embedded in the GSEs' charters. \11\
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\11\ For example, as HPC noted in a recent letter to FHFA, the
current statutory construct for resolving a failure of a GSE would
seriously disrupt the housing finance system. See, Edward J. DeMarco,
President, Housing Policy Council. March 8, 2021 ``Comments on
Enterprise Resolution Planning.''
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Principles for Housing Finance Reform
An appropriate starting point for discussing major legislation that
will affect so many citizens and a large segment of the economy is to
agree to a set of principles that can guide reform. The Housing Policy
Council centers its reform views on the following principles:
1. Fix what is broken and preserve what works in support of
consumers and the market.
2. The transition from the old system to the new one should avoid
disrupting consumers and markets.
3. Private capital should bear all but catastrophic mortgage credit
risk so that market discipline contains risk. The government
should provide an explicit, full faith and credit guarantee on
mortgage-backed securities but with a pre-set mechanism to
ensure any catastrophic losses that call upon taxpayer support
will be repaid fully.
4. The Government regulatory framework must be consistent and
equitable across all participating companies and ensure that
participants in the housing finance system operate in a safe
and sound manner.
The Government-protected GSE duopoly should be replaced with a
structure that serves consumers by promoting competition,
affordability, transparency, innovation, market efficiency, and broad
consumer access to a range of mortgage products. \12\
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\12\ For a more in-depth discussions of these principles and of
the key policy issues involved in housing finance reform, see Edward J.
DeMarco, President, Housing Policy Council. June 29, 2017, ``Testimony
before Senate Committee on Banking, Housing, and Urban Affairs on
Principles of Housing Finance Reform.'' Washington, DC. and Edward J.
DeMarco, President, Housing Policy Council. September 6, 2018.
Testimony before the Housing Financial Services Committee on ``A
Failure to Act: How a Decade without GSE Reform Has Once Again Put
Taxpayers at Risk.'' Washington, DC.
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The good news is that these principles align well with those that
underpin virtually all of the major reform proposals that Congress has
debated over the past ten years. They also align with the reform
principles introduced by Sen. Toomey yesterday. Much work has been done
on this issue, including by members of this Committee, so there is much
to build upon.
Consumers Would Benefit From Enhanced Market Competition
Key benefits of housing finance reform include greater market
competition and greater reliance on private capital to manage mortgage
credit risk. What do we lose when we lack competition in the secondary
mortgage market? I believe we lose a lot--and our failure to appreciate
what is lost keeps our housing finance system from realizing its
potential to fully meet the needs of potential home buyers. \13\
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\13\ For a more in-depth discussion of these issues, see Edward J.
DeMarco, November 2019. Remarks to the Exchequer Club, ``Remember Where
They Were so You'll Understand Where We Are: The State of Housing
Finance Reform'', Washington, DC; November 20, 2019
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Any list of the consequences of inhibiting a competitive housing
finance system should start with these:
1. Systemic Risk: The absence of market competition concentrates
risk among the few market participants, in this case, Fannie
Mae and Freddie Mac. Systemic risk is exacerbated because this
limited competition reduces attention to risk management.
2. Monopoly pricing: The absence of market competition means we get
monopoly or oligopoly pricing, not a competitive market price.
That means consumers may pay more than they need to and that at
least some lenders may realize lower returns than if they had
competitive bids for their loans.
3. Limited innovation: Absent the need to maintain an edge to stay
ahead of the competition, the secondary market lacks incentive
to continuously improve and the results include lack of
innovation to serve emerging borrower needs and slow adoption
of new technology to improve efficiency and customer experience
and lower origination and servicing costs. Note that lower
costs and more innovation will lead to more qualified
borrowers.
4. Misallocation of capital: By regulating Fannie and Freddie to
materially lower capital standards relative to the rest of the
market, we misallocate capital both within the housing finance
system and between housing finance and competing capital uses,
including those that could lead to greater economic growth or
more housing construction.
5. Decreased access for small lenders: It is common sense that if a
market has only one or two buyers, rather than dozens of
buyers, it will be harder for small producers to access those
buyers. In the mortgage world, the largest loan originators are
going to be able to sell their loans into the secondary market
because the secondary market thrives on scale. With only two
buyers, not even mandates on guarantee-fee equivalency can mask
the inherent challenge smaller production shops have selling
their mortgages. Yet, if the market were more competitive, with
numerous outlets to sell mortgages, there would be greater
demand for the loan production of smaller lenders.
6. Decreased demand for affordable products: Congress imposed
housing goals on Fannie and Freddie to ensure that they paid
enough attention to loans in those markets. This is the same
phenomenon that affects smaller lenders. Increased competition
in the secondary market would mean increased competition for
affordable loans as well. Think about this: Would we have
greater access to credit and lower credit prices if we had just
two banks operating nationwide and no community or regional
banks to compete with them?
7. Policy distortions: It would be hard to overstate the political
influence over housing policy wielded by Fannie Mae and Freddie
Mac before conservatorship and the challenge that created to
achieving sound public policy and regulation. These GSEs
distorted our politics as well as our markets and we must
factor that into our calculus of their systemic risk.
Systemic Risk in Housing Finance is Growing not Shrinking
In 2008, FHFA, assisted by Congressionally authorized emergency
funding, placed Fannie Mae and Freddie Mac into conservatorships
because of the immediate and profound systemic risk they posed to the
financial system and to the U.S. housing market. \14\
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\14\ Secretary Henry M. Paulson, Jr. September 7, 2008.
``Statement on Treasury and Federal Housing Finance Agency Action to
Protect Financial Markets and Taxpayers.'' Washington, DC. and FHFA
Director James B. Lockhart. September 7, 2008. ``Remarks on Housing GSE
Actions.'' Washington, DC.
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In conservatorships, these companies have drawn more than $190
billion from the U.S. Treasury Department to cover losses. More than
that, their very ability to operate is due to the direct and ongoing
commitment of taxpayer support that Congress authorized Treasury to put
in place at the start of the conservatorships. While in recent years
FHFA and Treasury have allowed the two companies to begin retaining
earnings to rebuild capital, the taxpayer has ceased receiving
compensation for that support and instead has been receiving an
increasing stack of IOUs in the form of an increased liquidation
preference, to be satisfied whenever the conservatorships are finally
resolved.
At the same time, the two companies loom over the housing finance
system to an even greater degree than they did when they failed in
2008. FHFA has taken steps to establish a set of prudential standards
for the Enterprises post-conservatorship, including a meaningful
capital framework. It has also overseen the restructuring of the
capital framework for mortgage insurance companies and the development
of credit risk transfer structures, each of which has brought new and
strengthened private capital support to this market.
Generally, these are positive and welcome steps. However, it is
puzzling to HPC that the new FHFA capital rule gives limited benefit to
the one reform in conservatorship that has reduced both taxpayer and
systemic risk: credit risk transfer. In addition, while the pandemic's
market disruptions last spring included a temporary shutdown of new
credit risk transfer deals, Freddie Mac has returned to transferring
risk into private markets, but Fannie Mae has not. The result is that
Fannie Mae is reconcentrating mortgage credit risk on its own books,
risk that is supported only by taxpayer-provided capital.
Members of the Committee, you can provide a permanent and reliable
structure for the secondary mortgage market that reduces the systemic
risk posed by the GSEs. Until then, consumers have fewer choices,
racial ownership gaps are the same as they were decades ago, the
mortgage market has less innovation than other markets, and taxpayers
and the financial system are again put at risk of another housing
collapse.
And lastly, in 2013, two Members of this Committee--Senators Corker
and Warner--identified the basic policy compromise that remains the
foundation for bipartisan reform. Restore reliance on meaningful
private capital to bear mortgage credit risk, backstop the system with
a federal guarantee to ensure deep liquidity in all markets, and assess
the system both for that government backstop and to fund affordable
housing needs, including actions that would address our supply
problems. The 10 basis points affordable housing fee the Senators
proposed almost a decade ago became part of virtually every housing
finance reform bill that followed, Democrat and Republican. Over the
past ten years, such a fee could have raised over $30 billion for
affordable housing. Think of the opportunity cost of our failure to
act. We still have significant taxpayer exposure and systemic risk, and
we missed the opportunity to expand funding to support affordable
housing and housing supply.
Thank you for inviting me today. As always, the members of the
Housing Policy Council look forward to working with the members of this
Committee to tackle the challenging issues I have just described. We
can only get this done by working together.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM CHRISTOPHER HERBERT
Q.1. Addressing Neighborhood Segregation--In your testimony,
you highlight the ongoing segregation of housing by race and
income in our neighborhoods and connnunities. What are your
recommendations for how policymakers and communities can
address this issue?
A.1. Broadly speaking, segregation by both race and income is
the result of two factors: (1) a lack of housing options in
many communities across a spectrum of price and type; and (2)
barriers to occupying this housing by people of color due to
discrimination in housing markets and a lack of efforts to
affirmatively further integration.
The principal action needed to address the first barrier is
for local communities to relax existing zoning, building codes
and other regulations limiting residential construction to
allow housing development as of right that includes more
affordable types of housing including multifamily structures,
townhomes, and single-family homes on small lots. Since land
use is largely controlled by local governments, much of the
onus is at this level of government to ensure that their
regulations allow for a broad range of housing types in
suitable locations. State governments have an important role to
play, however, to provide mandates and incentives for local
governments to adopt regulations that are more accommodative of
affordable housing development. Similarly, the Federal
Government can also introduce incentives to adopt regulations
that promote housing development by making funding for housing,
transportation or other related purpose contingent on meeting
key metrics for development types that are allowed as of right.
A simple example of the use of this type of incentive is how
the National Minimum Age Drinking Act of 1984 reduced federal
transportation funding by 10 percent unless states had a
drinking age of 21, which proved quite effective at changing
state law throughout the country.
Beyond changes to land use regulations, the Federal
Government can also help spur greater racial and integration by
including incentives in rental housing subsidy programs (most
notably including the Housing Choice Voucher and Low Income
Housing Tax Credit programs) to encourage the use of these
subsidies in communities with relatively low availability of
these subsidies at present, such as financial support for
mobility programs for housing voucher holders and financial
incentives for siting LIHTC developments in high opportunity
communities.
Finally, policies that expand subsidies for first-
generation homeowners would also expand access to communities
where housing is predominantly owner occupied. Upfront
assistance with downpayment and closing costs afford the
greatest potential for expanding home ownership for
historically disadvantage populations, which should be coupled
with access to home ownership education and counseling and
safe, affordable mortgage products.
To address the second barrier of discrimination and a lack
of efforts to affirmatively further fair housing, the Federal
Government should fully and aggressively ensure that the
provisions of the Fair Housing Act are complied with and
violators held accountable to root out discrimination in
housing markets. There is also a compelling need to take steps
to affirmatively further fair housing to ensure that all racial
and ethnic groups are welcome in a broad range of communities.
The steps taken to ensure a broad range of housing as of right
in local communities and to incentivize the use of housing
subsidies in these communities are key elements of such a
strategy. But in addition, communities also need to adopt
strategies to ensure that people of color are welcome and that
affordable housing opportunities are made known and available
to all racial and ethnic groups in the market area. HUD's
recently reinstated affirmatively furthering fair housing
requirements are an important tool in support of the analysis
and planning needed to develop such strategies and so it is
important that this regulation be fully supported and enforced.
Q.2. Addressing Climate Change and Resilience through Housing--
How can housing investments in single-family and multifamily
housing help address factors contributing to climate change and
make housing and communities more resilient to natural and man-
made disasters?
A.2. According to the U.S. Energy Information Administration,
residential energy use accounts for 20 percent of greenhouse
gas emissions in the U.S., with half of home energy consumption
related just to heating and air conditioning. \1\ \2\ While
stricter building codes are helping to improve energy
efficiency in new housing, much of the opportunity to reduce
residential emissions lies in greening the current stock.
---------------------------------------------------------------------------
\1\ 1 Goldstein, B., Gounaridis, D., and Newell, J.P., 2020. ``The
Carbon Footprint of Household Energy Use in the United States''.
Proceedings of the National Academy of Sciences, 117(32), pp.19122-
19130. https://www.pnas.org/content/117/32/19122#xref-ref-1-1
\2\ U.S. Energy Information Administration, ``Use of Energy
Explained: Energy Use in Homes''. Updated August 4, 2002. https://
www.eia.gov/energyexplained/use-of-energy/homes.php
---------------------------------------------------------------------------
Home improvements that reduce energy usage and decrease
reliance on fossil fuels include adding insultation, improving
air sealing with high-efficiency doors and windows, upgrading
HVAC systems or replacing conventional systems with high-
efficiency heat pumps, and replacing older appliances and
lighting fixtures. In part because of energy-efficiency
retrofits, homes built before 1960 used 14 percent less energy
per square foot in 2015 than they did in 2009, and 1960s-
vintage homes saw a 20 percent reduction in energy use over the
same period. \3\ Yet there is significant need for additional
investments, with many older homes lacking adequate insulation
or relying on inefficient heating and cooling systems. For
example, as of 2015, 17 percent of single-family homes built
before 1980 were reported to have `poor insulation,' compared
to just 1 percent built after 2009.
---------------------------------------------------------------------------
\3\ La Jeunesse, E. ``U.S. Households Are Using Less Energy''.
Harvard Joint Center for Housing Studies, Housing Perspectives, July
11, 2018. https://www.jchs.harvard.edu/blog/us-households-are-using-
less-energy
---------------------------------------------------------------------------
Moreover, changing technology is creating opportunities for
greater improvements in energy efficiency, even in newer homes.
Smart thermostats and other energy monitoring systems can
reduce energy waste and lower utility bills. As of 2015 only 5
percent of new homes had smart thermostats or energy-saving
tankless water heaters, highlighting the potential for
retrofits in homes of all ages. \4\ There are also growing
opportunities to reduce reliance on fossil fuels to power the
home, such as through the use of solar panels. The Consolidated
Appropriates Act of 2016 allows taxpayers to claim a credit of
up to 30 percent of costs for photovoltaic and solar thermal
technologies, while states and municipalities also provide
incentives for renewable and energy efficient systems.
---------------------------------------------------------------------------
\4\ https://www.jchs.harvard.edu/blog/significant-improvements-in-
energy-efficiency-characteristics-of-the-us-housing-stock
---------------------------------------------------------------------------
In addition to reducing housing's contribution to
greenhouse gas emissions, investments are also needed to ensure
that current housing is more resilient to extreme weather
events including severe storms, floods, wildfires, and extreme
heat. According to the National Oceanic and Atmospheric
Administration, in 2020 the US experienced 22 distinct billion-
dollar disasters, a record for a single year. \5\ Retrofits to
mitigate potential losses depend on the specific threat:
increasing a home's resilience to flooding might require
raising heating and cooling systems above potential flood
levels, while those in fire-prone areas might install fire-
resistant roofing and siding. These investments can also
protect against climate-related threats to human health as
well, particularly for lower-income people living in older and
poorly-maintained homes.
---------------------------------------------------------------------------
\5\ https://www.ncdc.noaa.gov/billions/
Q.3. Can climate-friendly investments in housing construction
---------------------------------------------------------------------------
and renovation open up new jobs and job training opportunities?
A.3. Climate-friendly home investments--for example those
promoting greater energy efficiency--have proven to be an
important source of job growth in the residential markets.
Improved insulation, upgraded heating and cooling equipment,
double or triple glazed windows, tankless hot water heaters,
smart thermostats, and solar panels have all increased in
popularity over the past decade. However, several of these
efficiency enhancements still have significant growth
potential. Fewer than 10 percent of all existing homes
nationally have tankless on-demand water heaters, or smart
thermostats, or solar panels. Saturation of these products is
disappointingly low even for newly built homes. The specialized
skills required to install many of these energy efficiency
products could provide new employment opportunities in the home
building and remodeling workforce that build the 1.5 million or
so new homes each year and improve and repair the tens of
millions of owner-occupied homes and rental units annually. At
last count there were some 7.4 million workers in the
construction trades, with only 9 percent having a college
degree. Since 2018 there has been an average of nearly 300,000
job openings monthly for these jobs. Training for workers with
less than a college education for these skilled trades, with a
focus on energy efficient retrofits, would open up well-paying
jobs for 100s of thousands of workers.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM CHRISTOPHER HERBERT
Q.1. A recent report from the National Association of Realtors
found that Black households are more than twice as likely as
white ones to be rejected for mo1tgage loans. I am deeply
concerned we continue to see discrimination in mortgage lending
against Black and Latino people.
What policies do you recommend we prioritize to ensure fair
housing?
A.1. As I noted in my response to Senator Brown's question
above, the starting point for ensuring fair housing is to fully
enforce existing laws from the Fair Housing Act (FHA),
including regulations requiring efforts to Affirmatively
Further Fair Housing, as well as the Equal Credit Opportunity
Act (ECOA) to ensure that mortgage lending is not
discriminatory. With regard to the specific concern you note
about high denial rates for Black mortgage applicants, in
addition to enforcing both FHA and ECOA, there are also a
variety of policies that could help ensure that Black mortgage
applicants are more likely to be approved for loans, First,
housing counseling can be of enormous value in helping
prospective buyers to understand lending requirements and to
take steps to build savings and repair credit that might
otherwise be impediments for loan qualification. Public support
for counseling efforts could be expanded to ensure that this
assistance is widely available to historically disadvantaged
borrowers, including Black, Hispanic and other people of color.
Second, given that Black consumers have much lower traditional
credit scores, the development and use of alternative means of
evaluating credit that incorporate non-traditional information
such as rent and utility payments, should be supported by
public policy to expand access to credit.
Q.2. Home value appraisals are critical to ensuring that
homeowners receive fair value for their property. Home
appraisals also ensure homebuyers do not overpay.
How should we address the documented problem of bias in the
appraisals?
A.2. To the extent that racial bias in the appraisal process
arises from the bias on the part of appraisers, necessary
responses should include efforts to increase the racial and
ethnic diversity of appraisers and to provide training to
address implicit biases. Steps should also be taken to
eliminate overt sources of bias, such as the use of
neighborhood race as a proxy for other measures of housing
quality, which already would violate appraisal standards. \1\
The use of automated valuation models have the potential to
reduce bias due to human judgement, but themselves may suffer
from inaccuracy due to heterogeneity of housing stock in
majority Black neighborhoods, rapidly changing house prices,
and a higher share of distressed property sales. \2\ To realize
the potential of these models to provide unbiased estimates of
home values research is needed to evaluate the sources of bias
in these models and to improve the inputs used to provide the
estimates.
---------------------------------------------------------------------------
\1\ Howell, Junia, and Elizabeth Korver-Glenn. ``Neighborhoods,
Race, and the Twenty-First-Century Housing Appraisal Industry''.
Sociology of Race and Ethnicity 4, no. 4 (2018): 473-490.
\2\ Neal, Michael, Sarah Strochak, Linna Zhu, and Caitlin Young.
``How Automated Valuation Models Can Disproportionately Affect
Majority-Black Neighborhoods''. Washington, D.C.: The Urban Institute
(December 2020). https://www.urban.org/sites/default/files/publication/
103429/how-automated-valuation-models-can-disproportionately-affect-
majority-black-neighborhoods-1.pdf
Q.3. Your research has found that on average, Black homebuyers
pay a higher interest rate than that of white homebuyers. In
fact, your research finds that high-income Black homeowners pay
a higher interest rate than low-income white homeowners.
In my questions to you, you noted that your research on
interest rates from homeowners relied primarily on data from
the American Housing Survey. Does any of your research rely on
data from the CFPB's HMDA database?
A.3. In the years since loan-level HMDA data was made available
in the 1990s the Joint Center historically has employed the
HMDA data for a wide variety of significant studies and have
found these data to be of enormous value in understanding the
state of mortgage lending in the US. We have not, however, had
an opportunity to employ the HMDA database since responsibility
for these data was transferred to the CFPB as our research
agenda has focused more on other policy areas.
Q.4. If so, has the limitation of HMDA data for the vast
majority of small banks and credit unions that make between 25-
100 mortgage loans limited your ability to conduct research?
A.4. Since we have not undertaken research using these data in
the last few years and so we have not confronted this issue.
Q.5. You also noted that HMDA data is critical for rural
states, where homebuyers are primarily served by smaller
lenders. Can you elaborate on the importance of HMDA data for
more rural localities?
A.5. HMDA data are of enormous importance in understanding
access to mortgage credit at both the individual borrower and
neighborhood level. The fact that these data are readily
available to researchers--unlike industry databases that are
only available at high cost--supports analysis by a broad range
of researchers. Over time the data has been of great importance
in shedding light on issue of significant policy concern,
including the differences in mortgage denials, the incidence of
high cost lending, patterns of homebuying by race, ethnicity
and income of both homebuyers and the communities where they
are buying. However, a challenge in conducting research in
rural areas is that common sources of credit are small local
lenders who may not reach the minimum loan threshold that
triggers a requirement of reporting loan activity (which was
set at 25 closed-end loans until raised last July to 100). This
higher reporting floor is estimated to have reduced the number
of reporting lenders by 40 percent, drastically curtailing
information available on lending in rural areas. This is on top
of loss of 1200 lenders required to report when the threshold
was set at 25 closed-end loans. \3\ The loss of this
information will mean there is little information about the
extent or nature of lending in rural areas, providing little
ability for policy makers, researchers or community advocates
to assess whether a community's lending needs are being met or
whether potentially harmful lending practices are
proliferating.
---------------------------------------------------------------------------
\3\ Home Mortgage Disclosure (Regulation C); Final Rule; Consumer
Financial Protection Bureau, 85 FR 92,28364 (May 12, 2020).
Q.6. Could you explain the importance of the additional HMDA
data that was instituted under Section 1094 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act and how this
---------------------------------------------------------------------------
data would assist regulators and outside observers?
A.6. The additional data required under Section 1094 provide
much greater opportunity for regulators and researchers to
assess a fuller range of factors that relate to both credit
risk of borrowers and the characteristics of the loans applied
for and originated. While HMDA data through the years has been
of enormous value is analyzing mortgage market outcomes, the
lack of these additional data elements made it impossible to
fully assess market conditions and outcomes. These additional
data elements are of foundational importance for regulators and
researchers to more accurately assess market conditions and
lender actions.
Q.7. Home prices in Las Vegas increased more than 11 percent in
the past year. Nationwide, they have risen by nearly 11
percent.
What should we do to increase the supply of homes,
especially those affordable to Millennials and Generation Z?
A.7. As I noted in my written testimony, the Joint Center and
other researchers have documented a shortage of new
construction relative to demand in the years following the
Great Recession. The constraints contributing to this shortfall
in supply include regulatory barriers that add to the time and
complexity of approval processes (thus increasing costs),
reduce the density of development (thus increasing land costs),
and may add excessive fees that further add to costs. As
described in my response to Senator Brown's question, the
Federal Government should consider adopting financial
incentives for local governments that reduce these regulatory
barriers. A lack of construction labor has also impeded the
expansion of the residential construction market and so support
for development of this workforce would also help expand new
housing supply. The cost of lumber and other inputs into the
construction process have also risen sharply over the past
year, and so efforts to expand these supply chains would also
help to lower costs of new development.
Given the racial and ethnic diversity of both Millennials
and Gen Z there is also a need to expand the supply of housing
in communities of color where housing market conditions have
been weak and current home values do not support either new
construction or rehabilitation of existing homes. Subsidies
targeted at both the rehabilitation of existing homes and new
homes in these communities would both expand home ownership
opportunities and serve to help revitalize communities that
have suffered from a lack of public and private investment over
many years.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM CHRISTOPHER HERBERT
Q.1. Renters and Borrowers Permanently Impacted Due to the
Pandemic--I want to highlight an important issue that's on the
horizon, and that is borrowers and renters who have experienced
permanent job displacement due to the pandemic and will remain
in forbearance or unable to pay their rent for the foreseeable
future. As many employment repm1s and economic data suggests,
this labor market development has dispropm1ionately impacted
minorities and people of color.
Can you talk about the importance of helping those who have
lost their jobs permanently and how it has and will continue to
impact their housing needs as a result of the pandemic? What
additional relief or policy considerations should we be
considering to help this segment of renters and borrowers?
A.1. As of April 2021, there were some 8 million fewer jobs
than a year ago. While the economy is rebounding strongly from
the worst effects of the pandemic, it is still likely that this
jobs deficit will last for several years as the sectors of the
economy hardest hit by the pandemic take time to recover. In
addition to lingering job loss, the earnings power of many
households will also be permanently disrupted by the pandemic,
due to the loss of family members to COVID and to lingering
disability associated with long-haul COVID symptoms. \1\ The
American Rescue Plan passed in March, in addition to the CARES
Act and the COVID-19 Relief Act passed last year, have provided
a robust and much needed safety net for those experiencing
economic loss due to the pandemic. But for those experiencing
long-term loss of income, longer-term supports will be needed.
For renters, expanding funding the availability of rental
assistance through the Housing Choice Voucher and Low-Income
Housing Tax Credit programs are called for to meet this
expanded need for these supports--not to mention that even
before the pandemic only roughly one if four income eligible
households received assistance. \2\
---------------------------------------------------------------------------
\1\ ``Researchers Are Closing in on Long COVID'', The Economist,
May 1, 2020.
\2\ Watson, Nicole Elsasser, Barry Steffen, Marge L.Martin, David
A.Vandenbroucke. ``Worst Case Housing Needs: 2019 Report to Congress''.
U.S. Department of Housing and Urban Development, June 2020. https://
www.huduser.gov/portal/publications/worst-case-housing-needs-2020.html
---------------------------------------------------------------------------
Many homeowners have been protected from foreclosure during
the pandemic by forbearance extended to borrowers with
federally backed loans, which accounts for roughly 70 percent
of all outstanding loans. To date, the vast majority of
borrowers exiting forbearance have been able to reinstate their
loans with very few in extended periods of delinquency. \3\
However, borrowers remaining in forbearance are those most
likely to face extended loss of income and therefore the
greatest difficulty in resuming mortgage payments. While
today's widespread high rates of home price appreciation will
provide many of these borrowers with home equity that would
allow for home sales, such sales would mean forgoing any future
benefits from home ownership. And many recent homebuyers who
have experienced up to 18 months of missed mortgage, property
tax and insurance payments will have accumulated substantial
deficits that may not be covered by home equity. Meanwhile,
there is nearly another third of borrowers who are not covered
by forbearance mandates, importantly including manufactured
homeowners financed through chattel loans. \4\ The American
Rescue Plan (ARP) appropriated $10 billion in funding to assist
homeowners with financial hardship due to the pandemic to help
them maintain home ownership and avoid foreclosure. These funds
can be used to cover a wide range of costs to make up mortgage
delinquency, utility or property tax payments, fees, counseling
costs, etc. Importantly, these funds can also be used to reduce
principal and reduce interest rates for those who cannot resume
their former mortgage obligations. This portion of the ARP
holds promise to help support homeowners facing long term
financial losses from the pandemic, but it is not clear where
the magnitude of funding will be sufficient for the need. With
forbearance ending for millions of homeowners this summer and
fall it will be important to monitor the demand for this
support to see if additional funding will be needed to maintain
home ownership for those impacted by the pandemic.
---------------------------------------------------------------------------
\3\ ``Mortgage Monitor Report: January 2021'' Black Knight,
January 2021. https://cdn.blackknightinc.com/wp-content/uploads/2021/
03/BKI-MM-Jan2021-Report.pdf
\4\ Choi, Jung Hyun and Laurie Goodman. ``22 Million Renters and
Owners of Manufactured Homes Are Mostly Left Out of Pandemic
Assistance''. Washington, D.C.: The Urban Institute, August 21, 2020.
https://www.urban.org/urban-wire/22-million-renters-and-owners-
manufactured-homes-are-mostly-left-out-pandemic-assistance
Q.2. Promoting Minority home ownership--As we recover from the
pandemic, I also want to ensure that everyone, especially in
our rural and minority communities, have fair and equal access
to credit to help increase home ownership.
Ms. Nikitra Bailey, in response to the ongoing lack of
participation among black and latino borrowers in the mortgage
market, stated,
Recent people-led protest[s] to address today's social
injustices are rooted in our nation's discriminatory
federal housing policies. These practices caused
families of color to accumulate less wealth and be more
susceptible to abusive subprime lending that cost Black
and Latino families $1 trillion in wealth. Sadly, the
current COVID-19 health crisis is devastating families
of color at a disproportionately higher rate than
whites. By not creating cost-efficient home ownership
opportunities for creditworthy borrowers of color, we
are denying millions of Americans the opportunity to
accumulate wealth, suppressing economic growth, and
widening the racial wealth gap. \5\
---------------------------------------------------------------------------
\5\ CRL press release, Jun. 26, 2020, online: https://
www.responsiblelending.org/media/new-hmda-data-shows-mortgage-market-
continues-exclude-black-and-latino-borrowers.
Can you discuss how critical it is to promote and increase
---------------------------------------------------------------------------
minority home ownership as we recover from this pandemic?
A.2. As I described in my written testimony, there is very
strong evidence that home ownership provides substantial
financial benefits while providing greater stability and
control over one's home. The financial benefits most obviously
include the opportunity to create wealth over time and, as my
testimony notes, home equity accounts for a large share of net
worth among people of color. Research has also consistently
found that racial disparities in home ownership account for a
large share of racial disparities in household wealth. \6\ In
addition to wealth accumulation, home ownership also fixes the
largest portion of the monthly housing costs and provides an
important shield against rising house prices. Once the home is
paid for, living free and clear of mortgage debt provides an
important dividend for households. home ownership also provides
much greater security of tenure, allowing owners to stay in
their homes and communities over time. The benefits of
residential stability and the ability to be shielded from
rising housing costs (while also benefiting from rising values)
is of particular importance for people of color living in the
many communities across the country experiencing gentrification
over the past decades, putting many renters at risk of
displacement from their homes and communities. For all of these
reasons, expanding opportunities for people of color to own
homes should be an important policy goal, particularly in light
of the long history of discrimination in housing markets that
have limited opportunities to own over time and produced the
stark disparities in home ownership evident today more than 50
years after passage of the Fair Housing Act. \7\
---------------------------------------------------------------------------
\6\ Shapiro, Thomas, Tatjana Meschede, and Sam Osoro. ``The Roots
of the Widening Racial Wealth Gap: Explaining the Black-White Economic
Divide''. Brandeis University, Institute on Assets and Social Policy,
Research and Policy Brief, February 2013. https://heller.brandeis.edu/
iere/pdfs/racial-wealth-equity/racial-wealth-gap/roots-widening-racial-
wealth-gap.pdf
\7\ Rothstein, Richard. ``The Color of Law: A Forgotten History of
How Our Government Segregated America''. Liveright Publishing, 2017.
---------------------------------------------------------------------------
The pandemic has also highlighted other benefits of home
ownership. One is the much greater ability of the Federal
Government to extend protections to individual homebuyers by
virtue of the fact that some 70 percent of all mortgages are
backed by the Government. The forbearance protections afforded
homeowners have provided robust supports that have kept
millions of homeowners stably housed and shielded from both the
threat of foreclosure and in position to negotiate resolution
of accrued deficits with loan servicers. In contrast, the
government has struggled to develop effective means of
extending support to renters without such direct connections.
In addition, the additional indoor and outdoor space associated
with home ownership has proven to be of enormous benefit during
the pandemic as home has become the locus for work and study
and the need to social distance has placed a premium on private
space. Increasing access to home ownership for people of color
would be another important extension of these benefits that has
been denied for generations.
------
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM DIANE YENTEL
Q.1. Eviction Crisis Act and Protections for Renters--In your
testimony, you mentioned the Eviction Crisis Act, which I
introduced last Congress with Senators Bennet, Portman, and
Young and NLIHC endorsed. In addition to providing an emergency
housing assistance fund for rental aid and stability services,
which you are recommending Congress expand into a permanent
program, the bill contains a number of protections for renters
and better tracking of eviction data.
Are there any other renter protections or policies that
Congress should consider in order to reduce evictions?
A.1. The power imbalance between renters and landlords put
renters at greater risk of housing instability and, in worst
cases, homelessness. Despite the broad and lasting consequences
of evictions, only 10 percent of renters in eviction court
receive legal representation, compared to 90 percent of
landlords. In many states, landlords can evict renters for no
reason, and there are no federal protections against arbitrary,
retaliatory, or discriminatory evictions or other abusive
practices by some landlords.
Congress should enact legislation to establish a national
right to counsel, which would help ensure more renters stay in
their homes and mitigate harm when eviction is unavoidable.
Banning credit reporting agencies from including eviction-
related information after three years would stop evictions from
following families for years, and make it easier for them to
find safe, quality housing in the future.
Creating ``just cause'' eviction protections would ensure
greater housing stability, particularly for survivors of
domestic violence, dating violence, sexual assault, or
stalking, who in many states can be evicted for the behavior of
their abusive partners. Additionally, banning the use of ``one
strike'' or ``no fault'' eviction policies in federally
assisted housing would help more people remain stably housed.
Currently, providers of federally assisted housing may evict
tenants for minor, one-time criminal activity or the criminal
activity of a guest, even if the tenant was unaware of the
activity taking place. Enacting these policies would help level
the playing field between renters and landlords, reduce
evictions and mitigate the long-term impact of evictions on
families.
Other needed renter protections include:
Prohibiting source of income discrimination to help
ensure that landlords do not discriminate against
renters with rental assistance or other sources of
income.
Expanding the Fair Housing Act to ban
discrimination based on sexual orientation, gender
identity, marital status, and source of income.
Increasing unrestricted resources for legal
services.
Barring federally assisted landlords from screening
out applicants or evicting tenants because of the
actions of an abuser and from retaliating against a
tenant for calling emergency assistance for help, and
ensure survivors of domestic violence, dating violence,
sexual assault, or stalking have access to safe,
accessible homes and the ability to leave unsafe
housing situations without risking possible
homelessness.
Providing housing resources to all income-eligible
households, regardless of immigration status.
Establishing anti-rent gouging protections for
renters and require landlords to disclose any and all
fees in advance of lease signing.
Discouraging speculators from driving up housing
costs.
Regulating tenant and credit reporting agencies and
banning them from including eviction-related
information that did not result in a judgement against
the renter, or that occurred during the pandemic, and
all other eviction-related information after 3 years.
Supporting tenant organizing.
Establishing the right of tenants to renew leases
and for first right of purchase.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM DIANE YENTEL
Q.1. The American Rescue Plan included more than $60 billion to
subsidize the rent for families who became ill or were laid off
during the pandemic.
Some property owners will not accept vouchers--what needs
to happen to make sure that those families are able to use
their vouchers?
A.1. In order to ensure families are able to utilize housing
choice vouchers and other forms of rental assistance, Congress
must enact source of income discrimination protections.
Currently, landlords in the private market can deny residence
to potential tenants attempting to use a voucher to obtain
housing. As a result, even after waiting months or years to
obtain a voucher, families sometimes can't ``lease up'' within
the required timeframe or can only find a landlord willing to
rent to them in high-poverty neighborhoods with less access to
higher performing schools and economic opportunities. Source of
income discrimination protections would ensure tenants are able
to use vouchers in the neighborhoods of their choice.
One option that may help avoid the problem of landlord
participation is to provide rental assistance through a
renters' tax credit. A tax credit could provide the similar
assistance as a voucher, but it would be provided directly to
the renter as a ``hidden'' subsidy. Congress recently enacted a
major expansion of the child tax credit and allowed these
resources to be provided on a monthly basis. This development
could serve as a model for providing a monthly renters' tax
credit.
Other reforms are also needed to ensure that families are
better able to make use of their rental assistance, including
using Small Area Fair Market Rents (SAFMRs) and recruiting
landlord participation.
Q.2. Rents have risen quite high in parts of Nevada. What
options does a tenant have when they find a home or apartment
to rent but the rent is higher than the voucher provides?
A.2. Public Housing Agencies have the flexibility to set
voucher payment standards, which establish the maximum amount
of subsidy that the PHA will provide to cover the costs of
rental housing. Typically, PHAs can fluctuate the payment
standard from 90 to 110 percent of the Fair Market Rent (FMR),
though PHAs can seek approval by HUD to increase the payment
standard above that amount (between 110 and 120 percent). PHAs
can establish a single set of payment standards for the entire
jurisdiction or can use different sets of payment standards,
reflecting cost differences in various communities.
Q.3. Can we provide more subsidy to families with children
moving to amenity rich communities?
A.3. NLIHC supports the Family Stability and Opportunity
Voucher Act, introduced by Senators Chris Van Hollen (D-MD) and
Todd Young (R-IN) to provide 500,000 housing vouchers to
families with young children. These resources would be paired
with housing mobility counseling to give families greater
choice about where they want to live.
Public Housing Agencies (PHAs) in metropolitan areas have
the option of setting voucher payment standards based on Small
Area Fair Market Rents (SAFMRs) in higher-rent zip codes within
their jurisdiction. Rather than basing payment standards on
Fair Market Rents, which often encompass large areas with
variable rent costs, SAFMRs are based on rents in particular
zip codes and more accurately reflect the cost of housing in
high-cost areas. Using SAFMRs can expand access for low-income
households to higher-opportunity areas and make the program
more cost-effective.
Currently, PHAs in only 22 metropolitan areas are required
to use SAFMRs. While other PHAs may also use SAFMRs, in order
to improve voucher utilization, required use of SAFMRs should
be expanded, but with certain protections. For example, areas
with low vacancy rates should be excluded from required SAFMR
participation. Another protection would require voucher
households in low-rent neighborhoods whose voucher payment
standard decreases due to SAFMR implementation to be held
harmless so that their rent burden does not increase. This
would also help prevent owners from leaving the voucher
program.
Using SAFMRs and enacting source of income discrimination
protections would help ensure families are able to use vouchers
in more neighborhoods. Additionally, investing in the
construction of deeply affordable, accessible housing in an
equitable manner, and providing desperately needed resources to
repair and expand the stock of public housing, would provide
families with greater options when it comes to finding a safe,
affordable place to live.
Making the expansion of the Child Tax Credit (CTC) and
Earned Income Tax Credit (EITC) included in the American Rescue
Plan permanent would help provide extra assistance to families
with children, regardless of where they live.
Q.4. Do local governments or foundations have the resources to
provide additional assistance?
A.4. While addressing the affordable housing crisis will
require resources from multiple avenues, including local and
state governments, the Federal Government is the only entity
that can provide the resources at the scale necessary to ensure
safe, accessible homes for people with the lowest incomes.
Federal intervention to equitably increase the supply of deeply
affordable, accessible housing, to bridge the gap between
renters' incomes and the cost of rent, and to strengthen renter
protections are needed to end homelessness and housing poverty.
Q.5. What options do the housing authorities have to work with
HUD to ensure that Fair Market Rents are accurate?
A.5. Public Housing Agencies have the flexibility to set
voucher payment standards, which establish the maximum amount
of subsidy that the PHA will provide to cover the costs of
rental housing. Typically, PHAs can fluctuate the payment
standard from 90 to 110 percent of the Fair Market Rent (FMR),
though PHAs can seek approval by HUD to increase the payment
standard above that amount (between 110 and 120 percent). PHAs
can establish a single set of payment standards for the entire
jurisdiction or can use different sets of payment standards,
reflecting cost differences in various communities.
Public Housing Agencies have the option of setting voucher
payment standards based on Small Area Fair Market Rents
(SAFMRs) in higher-rent zip codes under their jurisdiction.
Rather than basing payment standards on Fair Market Rents,
which often encompass large areas with variable rent costs,
SAFMRs are based on rents in particular zip codes and more
accurately reflect the cost of housing in high-cost areas.
Using SAFMRs can expand access for low-income households to
higher-opportunity areas and make the program more cost-
effective.
Currently, PHAs in only 22 metropolitan areas are required
to use SAFMRs. While other PHAs may also use SAFMRs, in order
to improve voucher utilization, required use of SAFMRs should
be expanded, but with certain protections. For example, areas
with low vacancy rates should be excluded from required SAFMR
participation. Another protection would require voucher
households whose voucher payment standard decreases due to
SAFMR implementation to be held harmless so that their rent
burden does not increase as well as to prevent owners from
leaving the voucher program.
PHAs can challenge FMRs if they think they are too low, but
the PHA must cover the cost to produce statistically valid
local rent surveys covering their entire FMR-area. HUD's FMR is
based on the American Community Survey, which may not
accurately reflect rental costs in certain rapidly changing
housing markets. Congress should consider providing federal
resources for HUD to conduct or support local rent to help
ensure accurate FMRs.
Q.6. Prior to the pandemic, only 1 in 4 eligible households
could receive rental housing assistance. With these new
investments, how many more do you think will be able to receive
help paying the rent?
A.6. Most of the resources in the American Rescue Plan are
intended to address the immediate, urgent needs of renters who
are at risk of losing their homes during the pandemic. We
continue to need investments to ensure long-term housing
stability. Congress should include in any infrastructure plan
its top priorities: an expansion of rental assistance to every
eligible household, $70 billion to repair public housing, and
$40 billion for the national Housing Trust Fund to build and
preserve rental homes affordable to people with the greatest
needs.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM DIANE YENTEL
Q.1. Renters and Borrowers Permanently Impacted Due to the
Pandemic--I want to highlight an important issue that's on the
horizon, and that is borrowers and renters who have experienced
permanent job displacement due to the pandemic and will remain
in forbearance or unable to pay their rent for the foreseeable
future. As many employment reports and economic data suggests,
this labor market development has disproportionately impacted
minorities and people of color.
Can you talk about the importance of helping those who have
lost their jobs permanently and how it has and will continue to
impact their housing needs as a result of the pandemic? What
additional relief or policy considerations should we be
considering to help this segment of renters and borrowers?
A.1. Renters with long-term job loss may need longer-term
assistance to help cover the cost of rent. Rental assistance is
a critical tool for helping people with low incomes afford
decent, stable homes, and avoid homelessness, but 3 out of 4
households who qualify for rental assistance do not receive it
because of chronic underfunding. Expanding rental assistance to
meet the needs of all housing cost-burdened households with low
incomes is key to any successful strategy to solve the
affordable housing crisis and end housing instability.
Moreover, we must invest in the national Housing Trust Fund to
increase the supply of housing affordable to people with the
lowest incomes.
Q.2. Promoting Minority Home Ownership--As we recover from the
pandemic, I also want to ensure that everyone, especially in
our rural and minority communities, have fair and equal access
to credit to help increase home ownership.
Ms. Nikitra Bailey, in response to the ongoing lack of
participation among black and latino borrowers in the mortgage
market, stated,
Recent people-led protest[s] to address today's social
injustices are rooted in our nation's discriminatory
federal housing policies. These practices caused
families of color to accumulate less wealth and be more
susceptible to abusive subprime lending that cost Black
and Latino families $1 trillion in wealth. Sadly, the
current COVID-19 health crisis is devastating families
of color at a disproportionately higher rate than
whites. By not creating cost-efficient home ownership
opportunities for creditworthy borrowers of color, we
are denying millions of Americans the opportunity to
accumulate wealth, suppressing economic growth, and
widening the racial wealth gap. \1\
---------------------------------------------------------------------------
\1\ CRL press release, Jun. 26, 2020 online: https://
www.responsiblelending.org/media/new-hmda-data-shows-mortgage-market-
continues-exclude-black-and-latino-borrowers.
Can you discuss how critical it is to promote and increase
---------------------------------------------------------------------------
minority home ownership as we recover from this pandemic?
A.2. Home ownership can be an important wealth-building tool,
one that the Federal Government purposefully excluded many
Black families from for generations. As a result of this
intentional and systemic racism, there is a tremendous
generational wealth gap between white and Black households that
have resulted in clear racial disparities in housing and
homelessness today.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM NIKITRA BAILEY
Q.1. A recent report from the National Association of Realtors
found that Black households are more than twice as likely as
white ones to be rejected for mortgage loans. I am deeply
concerned we continue to see discrimination in mortgage lending
against Black and Latino people.
What policies do you recommend we prioritize to ensure fair
housing?
A.1. Thank you for your question, Senator Cortez Masto. Sadly,
our nation's fair housing laws have yet to be fully enforced.
We are a long way from realizing the promise of the Fair
Housing Act. The nation's first fair housing law, The Civil
Rights Act of 1866, was passed during the Reconstruction period
following the Civil War and outlawed discrimination in housing.
The 1866 law went unenforced for 102 years before the passage
of the Fair Housing Act of 1968 because it only provided a
private right of action. The fact that only private plaintiffs
could bring suit for discrimination limited the effectiveness
of the legislation as the newly freed formerly enslaved
Africans lacked the financial resources to hire an attorney.
History teaches us that as the formerly enslaved Africans
became citizens, most Black Americans never received the 40
acres of land promised by General Sherman's Special Field Order
No. 15.
The climate in which the 1968 act became law must be noted.
The Fair Housing Act (FHA) was swiftly passed by the Congress
only after Dr. Martin Luther King, Jr. was assassinated in
Memphis, TN.
Between 1866 and 1968, the Federal Government did not
enforce the 1866 law's prohibition against housing
discrimination. Therefore, Black Americans and other people of
color were locked out of the Federal Government's New Deal
subsidies that made home ownership more affordable and expanded
the middle class. Due to federally sanctioned redlining at the
time, most of the Federal Government's home ownership support
was provided to white families. The Federal Government
subsidized homes in predominately white suburbia-where builders
included requirements that no homes be sold to Black Americans.
In fact, only 2 percent of FHA insured mortgage loans went to
Black and brown families in the program's first 35 years. \1\
In the state of Mississippi alone, just 2 out of 3,229 VA
insured mortgages went to Black servicemembers seeking to
finance a home, business, or farm in the first 3 years of the
program. \2\
---------------------------------------------------------------------------
\1\ Dedrick Asante-Muhammad, et. al, The Road to Zero Wealth: How
the Racial Wealth Divide is Hallowing Out America's Middle Class, at 15
(September 2017), https://prosperitynow.org/files/PDFs/road-to-zero-
wealth.pdf.
\2\ Id.
---------------------------------------------------------------------------
These policies bestowed upon white families a crucial
measure of financial stability and a cushion against economic
setbacks that were denied to families of color. Policies and
practices underlying these federal programs included denial of
credit for qualified borrowers buying in predominantly Black
neighborhoods, thereby depressing the value of homes in those
neighborhoods. \3\
---------------------------------------------------------------------------
\3\ Terry Gross, ``A `Forgotten History' of How the U.S.
Government Segregated America'', NPR Fresh Air, May 3, 2017,
www.npr.org/2017/05/03/526655831/a-forgotten-history-of-how-the-u-s-
government-segregated-america.
---------------------------------------------------------------------------
These policies are a significant contributor to today's
racial wealth gaps where the median white family has ten times
the wealth of the median Black family and eight times the
wealth of the median Latino family. \4\ In fact, the racial
wealth gap between Black and white families grew from about
$100,000 in 1992 to $154,000 in 2016. \5\ The median white
family gained significantly more wealth, with the median
increasing by $54,000, while median wealth for Black families
did not grow in real terms over the same time period. \6\ The
racial wealth gap contributes to the fact that in the 46
largest housing markets in the country, a median income Black
household could only afford 25 percent of homes on the market
last year in comparison to the 57 percent that a median income
white household could afford. \7\ It will require focused and
bold action to reverse these inequities. If current trends
continue, it could take as long as 228 years for the average
Black family to reach the level of wealth white families own
today. \8\ For the average Latino family, matching the wealth
of white families could take 84 years. \9\ (Pages 3-8 of my
written testimony offers greater details on these harms).
---------------------------------------------------------------------------
\4\ Asset Building Policy Network, ``The Hispanic-White Wealth Gap
Infographic'' (September 2019), https://prosperitynow.org/sites/
default/files/resources/ABPN-Hispanic-White-
Racial%20Wealth%20Gap%20Infographic-Final.pdf; Nick Noel, Duwain
Pinder, Shelley Stewart III, and Jason Wright, ``The Economic Impact of
Closing the Racial Wealth Gap'', McKinsey & Company (August 2019), at
5, Exhibit 1, https://www.mckinsey.com/industries/public-and-social-
sector/our-insights/the-economic-impact-of-closing-theracial-wealth-
gap.
\5\ Nick Noel, Duwain Pinder, Shelley Stewart III, and Jason
Wright, ``The Economic Impact of Closing the Racial Wealth Gap'',
McKinsey & Company, August 2019, at 5, Exhibit 1, https://
www.mckinsey.com/industries/publicand-social-sector/our-insights/the-
economic-impact-of-closing-the-racial-wealth-gap.
\6\ Id.
\7\ Paul Davidson, ``Black Households Can Afford Just 25% of Homes
For Sale'', USA Today, October 15, 2019, https://www.usatoday.com/
story/money/2019/10/15/homes-sale-black-households-can-afford-just-25-
percent-houses-market/3976383002.
\8\ See Dedrick Asante-Muhammad, et al., ``The Road to Zero
Wealth'', at 15 (Sept. 2017), https://prosperitynow.org/files/PDFs/
road--to--zero--wealth.pdf.
\9\ Id.
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The genius of the Fair Housing Act is that it outlawed
discrimination in housing and requires the Federal Government
to affirmatively further fair housing, which means take steps
to proactively create thriving inclusive communities.
Therefore, HUD's disparate impact and Affirmatively
Furthering Fair Housing (AFFH) rules must be restored by the
Biden Administration. Additionally, more must be done to
promote the use of the Equal Credit Opportunity Act's (ECOA)
special purpose credit programs provisions. These provisions
allow lenders to create and design programs to reach borrowers
that they currently underserve. Congress can inquire to see if
lenders are creating these programs. Lenders should not push
for safe harbors to create these programs as they are fully
permissible under ECOA and Regulation B. Moreover, CFPB, HUD,
and DOJ should encourage the use of special purpose credit
programs.
Also, the Community Reinvestment Act (CRA) must be enforced
with a focus on racial justice. We urge the Congress to require
the Office of the Comptroller of the Currency, Federal Reserve
Board, and
Federal Deposit Insurance Corporation to collect data
comparing residential, small business, and commercial lending
by banks in low-income, minority, and distressed neighborhoods
to such lending in other neighborhoods.
Congress should also require the CFPB, HUD, FHFA, and DOJ
to report on their efforts to ensure that algorithms are not
discriminating, are being supervised for fair lending
compliance, and proper enforcement is taken against entities
using artificial intelligence/machine learning model decisions
that violate the FHA and ECOA.
Finally, Congress should require the FHFA to ensure that
the GSEs' broad public interest duties are met by requesting
quarterly reports on their affordable housing goals. Both
Fannie Mae and Freddie Mac are currently woefully under
performing in ensuring adequate support for Black, Latino, and
other communities of color in conventional lending since the
Great Recession. The FHFA itself is making it more difficult
for low-to-moderate income families to secure a loan backed by
the enterprises, including loan refinances for families that
are hardest-hit by COVID-19. Also, Congress must require FHFA
to report on steps it is taking to ensure that redlining is
factored into any climate risk assessments and that the
assessments comply with existing fair lending laws.
Q.2. Home value appraisals are critical to ensuring that
homeowners receive fair value for their prope1ty. Home
appraisals also ensure homebuyers do not overpay.
How should we address the documented problem of bias in the
appraisals?
A.2. Our Nation's fair housing/lending laws apply to
appraisals, and Congress must urge regulators to ensure that
they are being fully enforced.
While numerous news stories have highlighted examples of
racial bias in the appraisal process, \10\ there is a growing
body of research that demonstrates appraisal discrimination is
a systemic issue. \11\ Recent research has found that even
after accounting for structural and neighborhood
characteristics of homes, homes in Black neighbors were valued
on average 23 percent less than they would have been if the
residents of the neighborhood were mostly white. \12\ This
translates to owner-occupied homes in Black neighborhoods being
undervalued by $48,000 per home on average, amounting to $156
billion in cumulative losses. \13\ Moreover, a 2020 study found
that neighborhood racial composition was an even stronger
determinant of a home's appraised values in 2015 than it was in
1980. \14\ In fact, the race appraisal gap has doubled since
1980. \15\ Another 2020 study found that Automated Valuation
Models (AVMs) in majority Black neighborhoods produced a larger
percentage magnitude of inaccuracies, relative to the
underlying sales price, than AVMs in majority-white
neighborhoods. \16\
---------------------------------------------------------------------------
\10\ Julian Glover, ``Black California Couple Lowballed by $500K
in Home Appraisal, Believe Race Was a Factor'', ABC 7 News, Feb. 12,
2021; Debra Kamin, ``Black Homeowners Face Discrimination in
Appraisals'', New York Times, Aug. 25, 2020; Troy McMullen, ``For Black
Homeowners, a Common Conundrum With Appraisals'', Washington Post, Jan.
21, 2021; Russell Haythorn, ``An Unconscious Bias? Biracial Denver
Couple Says They Faced Discrimination on Home Appraisal'', The Denver
Channel, Nov. 18, 2020.
\11\ Brentin Mock, ``What It Will Take To Close the Race Gap in
Home Appraisals'', Bloomberg CityLab, March 3, 2021; Andre Perry,
Jonathan Rothwell, and David Harshbarger, ``The Devaluation of Assets
in Black Neighborhoods'', The Brookings Institution Metropolitan Policy
Program (Nov. 2018); Junia Howell and Elizabeth Korver-Glen,
``Neighborhoods, Race, and the Twenty-first Century Housing Appraisal
Industry'', 4 Sociology of Race and Ethnicity 473 (2018), (finding
substantial differences in home values in communities of color even
after controlling for home features, neighborhood amenities,
socioeconomic status and consumer demand).
\12\ Andre Perry, Jonathan Rothwell, and David Harshbarger, ``The
Devaluation of Assets in Black Neighborhoods'', The Brookings
Institution Metropolitan Policy Program (Nov. 2018), https://
www.brookings.edu/research/devaluation-of-assets-in-black-
neighborhoods/.
\13\ Id.
\14\ Junia Howell and Elizabeth Korver-Glen, ``The Increasing
Effect of Neighborhood Racial Composition on Housing Values'', 1980-
2015, Social Problems (2020), https://academic.oup.com/socpro/advance-
article/doi/10.1093/socpro/spaa033/5900507.
\15\ Brentin Mock, ``A Neighborhood's Race Affects Home Values
More Now Than in 1980'', Bloomberg CityLab (Sept. 21, 2020), https://
www.bloomberg.com/news/articles/2020-09-21/race-gap-in-home-appraisals-
has-doubled-since-1980.
\16\ Michael Neal, Sara Strochak, Linna Zhu, and Caitlin Young,
``How Automated Valuation Models Can Disproportionately Affect
Majority-Black Neighborhoods'', Urban Institute (Dec. 2020), https://
www.urban.org/sites/default/files/publication/103429/how-automated-
valuation-models-can-disproportionately-affect-majority-black-
neighborhoods-1.pdf.
---------------------------------------------------------------------------
We must address discrimination in the valuation of homes in
communities of color and owned by people of color. It is
critical to consider all changes in the appraisal business
model, including increased use of AVMs, with an equity lens.
All processes must be judiciously examined for fair lending
risk and should test outcomes for their effect and impact on
people and communities of color. Additionally, there should be
robust review of Federal appraisal standards, including ethics
standards, increased training on unconscious bias for
appraisers, and expanded initiatives to bring more appraisers
of color into the field. Moreover, the use of sales comparisons
in a neighborhood carries the legacy of redlining into the
present. It allows historically undervalued appraisals to
influence current values. As the 2020 study stated, ``Since no
steps were taken to rectify the historic inequities, this
approach has enabled such inequalities to persist.'' \17\ The
appraisal industry should continue to explore more equitable
alternative methods. We concur with the recommendations of the
National Fair Housing Alliance as outlined in their response to
FHFA's recent RFI on appraisals. \18\
---------------------------------------------------------------------------
\17\ Junia Howell and Elizabeth Korver-Glen, ``The Increasing
Effect of Neighborhood Racial Composition on Housing Values, 1980-
2015'', Social Problems (2020), https://academic.oup.com/socpro/
advance-article/doi/10.1093/socpro/spaa033/5900507.
\18\ Comment letter from National Fair Housing Alliance to FHFA on
Request for Information on Appraisal-Related Policies, Practices, and
Processes (Feb. 26, 2021), https://www.fhfa.gov//AboutUs/Contact/Pages/
input-submission-detail.aspx?RFIId=1320.
Q.3. Can you elaborate on the importance of HMDA data to
---------------------------------------------------------------------------
rooting out discrimination?
A.3. Yes, we cannot watch for discrimination that we cannot
see. Enacted by Congress in 1975 to provide transparency in the
mortgage market, the Home Mortgage Disclosure Act (HMDA)
requires an annual public accounting of the nation's mortgage
lending. Its data provides critical information for both the
public and financial sectors by alerting the nation to trends
on the groups of Americans that are receiving mortgage loans
from financial institutions. One of the critical data points
that HMDA requires is for lenders to report on the race and
ethnicity of mortgage loan applicants. In recent years,
however, Congress and CFPB have made legislative and regulatory
changes to weaken HMDA reporting, resulting in decreased
transparency. CFPB finalized a rule that would increase the
HMDA reporting threshold for mortgages, which means that some
smaller lenders may not have to report at all. CFPB also
announced an advance notice of proposed rulemaking that would
solicit feedback on the costs and benefits of collecting and
reporting the additional data points in the 2015 HMDA rule.
Additionally, in 2019, CFPB announced it would no longer host
or maintain the HMDA Explorer, a vital and user-friendly tool
to provide a clear view of the mortgage market and who it
serves. It is essential that CFPB replace the data access tool
and address the gap in accessibility that will have occurred
between the release of the 2018 HMDA data and the launch of a
replacement to HMDA Explorer.
Thus, in its annual report to the Congress, CFPB should
answer how it is proceeding with the above actions.
Q.4. You noted in your answers to my questions regarding the
Home Mortgage Disclosure Act (HMDA) that the Consumer Financial
Protection Bureau's HMDA rep01ts were critical to uncovering
discrimination--What steps should the CFPB take to ensure HMDA
data is accessible and available for outside observers to
analyze the data and root out discrimination in mo1tgage
lending?
A.4. The CFPB must also conduct research into the racial
disparities in mortgage approvals and mortgage pricing,
including controlling for FICO, which the CFPB's initial 2019
HMDA report failed to do. Only the Bureau can do this as FICO
is not publicly released. We also urge CFPB to immediately
cease work on the HMDA rules listed in the Unified Agenda which
would narrow data collected under HMDA and codify the privacy
policy into Regulation B; create a ``trusted researcher''
program to allow others to access the full set of HMDA data;
and reinstate the requirement for lenders to submit quarterly
data so CFPB can observe and report on trends in closer to real
time.
Q.5. Could you explain the impo1tance of the additional HMDA
data that was required under Section 1094 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act and how this
data would assist regulators and outside observers?
A.5. The amendments made by the Dodd-Frank Act expanded the
scope of information relating to mortgage loans that must be
collected and maintained under HMDA. This includes information
about credit score, the points and fees payable at origination,
the difference between the annual percentage rate associated
with the loan and the benchmark rate(s) for all loans, the term
of any prepayment penalty, the value of any real property
pledged or proposed to be pledged as collateral, the actual or
proposed term in months of the mortgage loan, and the age of
applicant(s).
The Bureau also has the authority to add other data
requirements pursuant to the Bureau's discretionary authority
to carry out the purposes of HMDA. These new data points shed
additional light on mortgage lending patterns. The data help
researchers, regulators, and advocates spot possible
discrimination, including patterns of redlining and
discriminatory loan denials.
Q.6. Can you elaborate on the importance of HMDA data for more
rural localities?
A.6. Yes, HMDA's data collection informs us about which lenders
are making loans in underserved rural localities. Further,
rural communities also reflect the diversity of the nation and
count families of color among residents. It is critically
important that we understand if the mortgage credit needs of
rural communities are being met. Many large lenders fail to
provide access to small dollar mortgage loans while their
investment arms benefit substantially from their vanishing
presence in the single-family market. In 2019, nearly 475,000
homes priced below $80,000 were sold, according to U.S. Census
Bureau data with only 43 percent of those financed with a
mortgage loan. COVID-19 has worsened this reality as the focus
of mortgage originations have shifted to the wealthiest
borrowers leaving many credit worthy families with limited
mortgage access, which has fallen disproportionately on
families of color who typically rely on small balance mortgage
loans to purchase a home.
Furthermore, FHA and the GSEs' bulk sales of distressed
loan sales coupled with the lack of small balance mortgage
lending is pulling modest and affordable homes off the market.
These public interest entities accrued large numbers of loans
facing foreclosure. Rather than selling them individually as a
local bank would do, they auctioned them off in large pools.
While this helped FHA and the GSEs increase their reserves and
capital more quickly, hedge funds--the largest buyers of these
pools--converted many of the ultimately foreclosed loans into
rental properties. This reduced the supply of modest homes for
purchase by individuals and altered the character of
neighborhoods where the percentage of homeowners declined. The
sale of these distressed pools has continued, and hedge funds
have announced plans to expand their conversion programs. \19\
This, along with other factors limiting new starter home
construction, including labor and materials shortages and
increased costs of both, created a shortage of these starter
homes and a substantial barrier to families trying to enter
home ownership. \20\ Instead of bulk sales to investors, more
needs to be done with these properties to ensure that families
can purchase them to help preserve access to home ownership in
low-to-moderate income communities and communities of color as
opposed to only providing rental as an option for hardworking
families.
---------------------------------------------------------------------------
\19\ Julia Gordon, ``The Dark Side of Single-Family Rental'',
ShelterForce (July 30, 2018). Others have argued that these sales are
beneficial in that the buyers have fewer restrictions on the loan
modifications they can offer. Laurie Goodman and Dan Magder, ``Selling
HUD's Nonperforming Loans: A Win-Win for Borrowers'', Investors and
HUD, Urban Institute (January 2016). A better approach is reform of the
HUD foreclosure process; substantial improvements have been implemented
in the GSE process.
\20\ Michael Neal, ``Residential Construction Down in June, Eye on
Housing'', National Association of Homebuilders (July 18, 2018), http:/
/eyeonhousing.org/2018/07/residential-construction-down-injune/?utm-
campaign=EOE2018&-ga=2.126940237.1759872631.1535413976-
631253769.1535413976.
---------------------------------------------------------------------------
Small dollar mortgages are essential in rural communities
and Congress must require the banking regulators to ensure the
availability of mortgage credit in these communities.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM NIKITRA BAILEY
Q.1. Renters and Borrowers Permanently Impacted Due to the
Pandemic--I want to highlight an important issue that's on the
horizon, and that is bonowers and renters who have experienced
pe1manentjob displacement due to the pandemic and will remain
in forbearance or unable to pay their rent for the foreseeable
future. As many employment rep01ts and economic data suggests,
this labor market development has dispropo1tionately impacted
minorities and people of color.
Can you talk about the importance of helping those who have
lost their jobs permanently and how it has and will continue to
impact their housing needs as a result of the pandemic? What
additional relief or policy considerations should we be
considering to help this segment of renters and borrowers?
A.1. Thank you for the question, Senator Warnock.
The COVID-19 crisis is having a disproportionate impact on
families of color, by nearly every metric. Data has shown that
the virus is infecting and killing people of color at a much
higher rate. \1\ People of color are overrepresented among
essential workers who are generally not able to work from home
and are more likely to encounter the virus. \2\ From February
to April 2020, the number of Black business owners dropped by
440,000 or 41 percent, compared to a 17 percent decline in
white small business owners. \3\ Families of color who are
hardest hit by COVID-19 are the same families long denied
equity in home ownership opportunities. \4\ Indeed, there are
statistically significant correlations between redlining and
susceptibility to COVID-19. \5\ The same low-income
neighborhoods of color that were intentionally cut off from
lending and investment today suffer from reduced wealth,
greater poverty, lower life expectancy, and higher incidence of
chronic disease that are risk factors for poor outcomes from
the coronavirus. \6\
---------------------------------------------------------------------------
\1\ Centers for Disease Control and Prevention, ``COVID-19 Racial
and Ethnic Health Disparities'', https://www.cdc.gov/coronavirus/2019-
ncov/community/health-equity/racial-ethnic-disparities/index.html.
\2\ Tiana N. Rogers, Charles R. Rogers, Elizabeth VanSant-Webb,
Lily Y. Gu, Bin Yan, Fares Qeadan, ``Racial Disparities in COVID-19
Mortality Among Essential Workers in the United States'', World Medical
& Health Policy, 2020; DOI, 10.1002/wmh3.358.
\3\ Robert W. Fairle, ``The Impact of COVID-19 on Small Business
Owners: Evidence of Early-Stage Losses From the April 2020 Current
Population Survey'', National Bureau of Economic Research, Working
Paper 27309 (June 2020), https://www.nber.org/papers/w27309.
\4\ See Alan Gomez, et al.,`` `An Unbelievable Chain of
Oppression': America's History of Racism Was a Preexisting Condition
for COVID-19'', USA Today, Oct. 12, 2020, https://www.usatoday.com/in-
depth/news/nation/2020/10/12/coronavirus-deaths-reveal-systemic-racism-
united-states/5770952002/; Andre M. Perry, ``Black Americans Were
Forced Into `Social Distancing' Long Before the Coronavirus'', The
Brookings Institution (March 20, 2020), https://www.brookings.edu/blog/
the-avenue/2020/03/20/black-americans-were-forced-into-social-
distancing-long-before-the-coronavirus/.
\5\ Jason Richardson, Bruce C. Mitchell, Helen C.S. Meier, Emily
Lynch, Jad Edlebi, ``Redlining and Neighborhood Health'', NCRC,
September 2020, https://ncrc.org/holc-health/.
\6\ Id.
---------------------------------------------------------------------------
According to the Bureau of Labor Statistics, while the
unemployment rate of whites, which peaked at 14 percent in
April, has dropped to 5.6 percent, the reported unemployment
rate of Blacks stands at 9.9 percent and actually increased in
February, even while the economy added over 350,000 new jobs.
And a recent report from the Center for Economic and Policy
Research demonstrates that BLS' surveys systematically
understate the unemployment rate for Blacks relative to whites.
\7\
---------------------------------------------------------------------------
\7\ Yixia Cai and Dean Baker, ``Masking Real Unemployment: The
Overall and Racial Impact of Survey Non-Response on Measured Labor
Market Outcomes'', Center for Economic and Policy Research (March
2021), https://www.ineteconomics.org/research/research-papers/masking-
real-unemployment-the-overall-and-racial-impact-of-survey-non-response-
on-measured-labor-market-outcomes.
---------------------------------------------------------------------------
Further, the unemployment rate captures only those who are
still deemed to be within the labor force and thus misses the
decline in workforce participation. That has been especially
pronounced for Black women and Latinas: there are 9.9 percent
fewer Black women and 8.6 percent fewer Latinas in the
workforce today than at the start of the pandemic.
Not surprisingly given their employment situation, Black
and brown families are struggling to make ends meet. The most
recent Household Pulse Survey from the Bureau of the Census
found that 44 percent of Blacks and 43 percent of Hispanics
reported that they were finding it difficult to pay their usual
household expenses, a rate more than 60 percent higher than for
whites. Moreover, according to a CFPB report, as of December,
almost one in five Black homeowners and one in seven Hispanic
homeowners reported being behind on their mortgage compared to
only one in twenty white homeowners. \8\
---------------------------------------------------------------------------
\8\ CFPB, ``Housing Insecurity and the COVID-19 Pandemic'' (March
2021), https://files.consumerfinance.gov/f/documents/cfpb-Housing-
insecurity-and-the-COVID-19-pandemic.pdf.
---------------------------------------------------------------------------
As the uneven recovery to the pandemic continues, it is
essential that Black and brown families hardest-hit are able to
maintain their homes, which are the primary source of wealth in
our communities. Thank you to the Committee for your leadership
in passing the Homeowners Assistance Fund (HAF) in the American
Rescue Plan. The HAF provides $10 billion in relief for COVID-
19's hardest-hit families who are struggling with mortgages,
utilities, broadband, and taxes due to being negatively
impacted by the pandemic. A key highlight of the legislation is
the explicit direction for states to ensure that the relief is
targeted to socially disadvantaged communities. Taking this
action can help build toward a more equitable recovery. It is
critical that racial equity remain at the core of all COVID
relief efforts, including Treasury's implementation of the
Homeowner Assistance Fund.
Q.2. Promoting Minority Home Ownership--As we recover from the
pandemic, I also want to ensure that everyone, especially in
our rural and minority communities, have fair and equal access
to credit to help increase home ownership.
Ms. Nikitra Bailey, in response to the ongoing lack of
paiticipation among black and latino borrowers in the mortgage
market, you stated,
Recent people-led protest[s] to address today's social
injustices are rooted in our nation's discriminatory
federal housing policies. These practices caused
families of color to accumulate less wealth and be more
susceptible to abusive subprime lending that cost Black
and Latino families $1 trillion in wealth. Sadly, the
cunent COVID-19 health crisis is devastating families
of color at a disproportionately higher rate than
whites. By not creating cost-efficient home ownership
opportunities for creditworthy borrowers of color, we
are denying millions of Americans the opportunity to
accumulate wealth, suppressing economic growth, and
widening the racial wealth gap. \9\
---------------------------------------------------------------------------
\9\ CRL press release, Jun. 26, 2020, online: https://
www.responsiblelending.org/media/new-hmda-data-shows-mortgage-market-
continues-exclude-black-and-latino-borrowers.
Can each of you discuss how critical it is to promote and
increase minority home ownership as we recover from this
---------------------------------------------------------------------------
pandemic?
A.2. As the foundation of the American Dream, home ownership is
the primary way that most middle-class families build wealth
and economic stability. Home equity accounts for 69 percent of
American family wealth. \10\ However, it accounts for only 30
percent of the net worth for wealthier households but
constitutes 67 percent for middle-to-low-income households.
\11\ Home equity accounts for 53 percent of African American
wealth as compared to 39 percent for whites. \12\ For many low-
to-moderate income (LMI) families and people of color in
particular, a home represents the only asset that a family may
ever own and the equity in their homes constitutes a larger
share of personal wealth.
---------------------------------------------------------------------------
\10\ James H. Carr, Michela Zonta, and Steven P. Hornburg, ``2017
State of Housing in Black America'', National Association of Real
Estate Brokers, September 18, 2017, http://www.nareb.com/site-files/
uploads/2017/09/SHIBA2017-final-for-web-0918.pdf.
\11\ Brendan Greely, ``U.S. Homeowners Are Repeating Their
Mistakes'', Bloomberg, February 14, 2013, https://www.bloomberg.com/
news/articles/2013-02-14/u-dot-s-dot-homeowners-are-repeating-their-
mistakes.
\12\ Thomas Shapiro, Tatjana Meschede, and Sam Osoro, ``The Roots
of the Widening Racial Wealth Gap: Explaining the Black-White Economic
Divide'', Institute on Assets and Social Policy, at 3 (February 2013),
http://iasp.brandeis.edu/pdfs/Author/shapiro-thomas-m/
racialwealthgapbrief.pdf.
---------------------------------------------------------------------------
Widespread access to low-cost, fairly structured credit is
critical for building family wealth, closing the racial wealth
gap, and for sustaining the housing market overall. This in
turn contributes significantly to our overall economy. Yet the
opportunity to purchase, maintain and refinance a home still
has not reached significant portions of low-to-moderate income
families and people of color.
As the cornerstone of opportunity in our nation, wide-
spread home ownership was largely created by federal economic
subsidies that primarily benefitted whites, while excluding
Black, Hispanic, Asian American Pacific Islander, and Native
communities. This has given many white Americans a crucial
lever for amassing wealth that cushions families against
economic setbacks and creates a nest egg for the next
generation. This crucial lever has been unjustly and
disproportionately denied to many Black and brown families, for
whom a lack of intergenerational wealth forces each successive
generation to start anew, without a firm foundation to build
upon.
Although housing discrimination, including the ability to
purchase a home, was made unlawful by the Civil Rights Act of
1866, these long-standing discriminatory policies produced
segregated housing patterns across the nation and disinvestment
from Black communities for over 102 years until the Fair
Housing Act of 1968 provided meaningful enforcement and an
affirmative obligation for the Federal Government to create
inclusive communities. This legacy has limited access to
traditional low-cost credit for Black families and other
families of color, and unduly exposed them to exploitative
predatory lending, such as land installment contracts or
contracts for deeds that robbed families of the wealth building
benefits of home ownership. For instance, in Chicago, Illinois,
85 percent of Black homebuyers purchased their homes ``on
contract'' from white sellers in the mid-20th century. \13\
Estimates show that these Black homebuyers had more than $500
million legally extorted from them from 1940-1970. \14\
Hispanic families also have a history of being victimized by
these practices. \15\
---------------------------------------------------------------------------
\13\ Megan Wright, ``Installment Housing Contracts: Presumptively
Unconscionable'', 18 Berkeley J. Afr.-Am. L. & Pol'y, at 5 (2016).
\14\ Rebecca Burns, ``The Infamous Practice of Contract Selling Is
Back in Chicago'', Reader News and Politics, March 2017, .https://
www.chicagoreader.com/chicago/contract-selling-redlining-
housingdiscrimination/Content?oid=25705647.
\15\ Ann Carpenter, Taz George, And Lisa Nelson, ``The American
Dream or Just an Illusion? Understanding Land Contract Trends in the
Midwest Pre- and Post-Crisis'', Harvard Joint Center for Housing
Studies, March 2019, https://www.jchs.harvard.edu/sites/default/files/
harvard-jchs-housing-tenure-symposium-carpenter-george-nelson-0.pdf.
---------------------------------------------------------------------------
As a result of this troubled history of inequity and
continuing discrimination, Black home ownership levels, the
primary asset of Black families, is at levels similar to when
the Fair Housing Act was passed in 1968. \16\ In fact, the gap
between white and Black home ownership rates today is the
largest it has been since 1890. \17\ The home ownership rate
for Black Americans is 42 percent, compared to white home
ownership of 72.1 percent, and 48.1 percent for Latinos. \18\
In large part because families of color were not afforded the
opportunity to build wealth through federally supported
investment in home ownership and were later devastated by the
financial crisis, the median white family has 10 times the
wealth of the median Black family and eight times the wealth of
the median Latino family. \19\ In fact, the racial wealth gap
between Black and white families grew from about $100,000 in
1992 to $154,000 in 2016. \20\ The median white family gained
significantly more wealth, with the median increasing by
$54,000, while median wealth for Black families did not grow in
real terms over the same time period. \21\ The racial wealth
gap contributes to the fact that in the 46 largest housing
markets in the country, a median income Black household could
only afford 25 percent of homes on the market last year in
comparison to the 57 percent that a median income white
household could afford. \22\ It will require focused and bold
action to reverse these inequities. If current trends continue,
it could take as long as 228 years for the average Black family
to reach the level of wealth white families own today. \23\ For
the average Latino family, matching the wealth of white
families could take 84 years. \24\
---------------------------------------------------------------------------
\16\ Alanna McCargo and Jung Hyun Choi, ``Closing the Gaps:
Building Black Wealth Through Home Ownership'', Figure 3, Urban
Institute (November 2020), https://www.urban.org/sites/default/files/
publication/103267/closing-the-gaps-building-black-wealth-through-home-
ownership-0.pdf; see also Laurie Goodman, Jun Zhu, and Rolf Pendall,
``Are Gains in Black Home Ownership History?'', Urban Institute
(February 14, 2017), https://www.urban.org/urban-wire/are-gains-black-
home ownership-history.
\17\ Adam Levitin, ``How To Start Closing the Racial Wealth Gap'',
``The American Prospect'' (June 17, 2020), https://prospect.org/
economy/how-to-start-closing-the-racial-wealth-gap/.
\18\ Alanna McCargo and Jung Hyun Choi, ``Closing the Gaps:
Building Black Wealth Through Home Ownership'', Figure 3, Urban
Institute (November 2020), https://www.urban.org/sites/default/files/
publication/103267/closing-the-gaps-building-black-wealth-through-home-
ownership-0.pdf.
\19\ Asset Building Policy Network, ``The Hispanic-White Wealth
Gap Infographic'' (September 2019), https://prosperitynow.org/sites/
default/files/resources/ABPN--Hispanic--White--
Racial%20Wealth%20Gap%20Infographic--Final.pdf; Nick Noel, Duwain
Pinder, Shelley Stewart III, and Jason Wright, ``The Economic Impact of
Closing the Racial Wealth Gap'', McKinsey & Company (August 2019), at
5, Exhibit 1, https://www.mckinsey.com/industries/public-and-social-
sector/our-insights/the-economic-impact-of-closing-theracial-wealth-
gap.
\20\ Nick Noel, Duwain Pinder, Shelley Stewart III, and Jason
Wright, ``The Economic Impact of Closing the Racial Wealth Gap'',
McKinsey & Company, August 2019, at 5, Exhibit 1, https://
www.mckinsey.com/industries/publicand-social-sector/our-insights/the-
economic-impact-of-closing-the-racial-wealth-gap.
\21\ Id.
\22\ Paul Davidson, ``Black Households Can Afford Just 25% of
Homes For Sale'', USA Today, October 15, 2019, https://
www.usatoday.com/story/money/2019/10/15/homes-sale-black-households-
can-afford-just-25-percent-houses-market/3976383002.
\23\ See Dedrick Asante-Muhammad, et al., ``The Road to Zero
Wealth'', at 15 (Sept. 2017), https://prosperitynow.org/files/PDFs/
road-to-zero-wealth.pdf.
\24\ Id.
---------------------------------------------------------------------------
Historic and ongoing systemic racism has left families of
color more vulnerable going into the 2008 housing crisis, and
that crisis, and the inadequate response to it, left them even
worse off. Black and Hispanic communities lost over $1 trillion
during the Great Recession that was never regained because the
help came too late and well after foreclosures unnecessarily
devastated neighborhoods--needlessly pushing families from
their communities, pulling children from their schools, and
wiping out the lifetime of savings they needed to move on. The
COVID-19 pandemic is likewise hitting these families the
hardest again, and the response so far is not equitable or
sufficient. But beyond the pandemic response, we must address
the long-term structural flaws that produce and perpetuate this
inequity.
COVID-19 has exacerbated economic inequality, leaving in
its wake a ``Tale of Two Americas'': One where the haves,
mostly wealthy and white, are equipped with the means to
shelter in place throughout the global health pandemic, working
from home, and actually growing their wealth due to roaring
stock market surges, historically low mortgage rates, and
increasing valuation of home properties. The have-nots, mostly
low wage workers and people of color, could not shelter in
place because of being relegated to jobs in the service sector
as they became America's new essential workers. Nor could they
afford to shelter in place because, while ``essential,'' they
have for too long been treated as expendable, paid wages
inadequate to cover life's essentials, let alone allow
sufficient savings. Facing heightened COVID-19 risk by going to
work, many of these essential workers fell ill themselves or
brought COVID-19 home to their loved ones. And still, these
hardworking families faced massive reductions in working hours,
wage cuts, unemployment, food pantry lines that cover entire
city blocks and country roads, a growing bill for back rent
with no idea how it will be repaid, and threats of eviction. In
many of their formerly redlined neighborhoods, quality medical
care is in too-short supply and toxins in the physical
environment increase the risk of chronic disease, including
COVID-19. Moreover, many of these families struggle more due to
insufficient access to the cost-reducing mortgage refinances at
historically low rates that would ease their financial burdens.
Over the course of one year, over 29 million people have
been infected and more than 520,000 people have died in the
United States, with Black and Hispanic communities being
overwhelmingly devastated. Moreover, increasingly, as
misperceptions about COVID continue to circulate and breed
anti-Asian sentiments, too many Asian Americans live in
constant terror as the result of an increase of hate crimes in
their communities.
We can choose to stay the course and embark on a prolonged
K-shaped recovery, or we can pivot toward a more inclusive
America where all families have an opportunity to thrive. If we
choose the latter, home ownership can be the fuel that ignites
future economic growth and leads our nation to shared
prosperity. This time though, we must ensure full access as
discrimination, especially in housing, is a drag on the economy
that hurts families and limits economic opportunity for all
Americans. Recent reports show that addressing discrimination
targeted at Black Americans alone can generate $1 trillion a
year, billions for local jurisdictions, and thousands of jobs.
\25\
---------------------------------------------------------------------------
\25\ Dana M. Peterson and Catherine L. Mann, ``Closing the Racial
Inequality Gaps: The Economic Cost of Black Inequality in the U.S.'',
Citi Global Perspectives & Solutions (Sept. 2020); Nick Noel, Duwain
Pinder, Shelley Stewart III, and Jason Wright, ``The Economic Impact of
Closing the Racial Wealth Gap'', McKinsey & Company, at 6, Exhibit 2
(Aug. 2019); Jeff Cox, ``Morgan Stanley says Housing Discrimination Has
Taken a Huge Toll on the Economy'', CNBC, November 13, 2020.
---------------------------------------------------------------------------
These issues require a comprehensive and dedicated
government response. One solution is more targeted aid to help
overcome discrimination in home ownership opportunity. Saving
for a down payment is a significant barrier to home ownership
that particularly hits communities of color. \26\ As research
from Freddie Mac and Urban Institute demonstrates, there are
millions of mortgage-ready borrowers of color, based on
borrowers' current credit scores and debt-to-income ratios,
though not funds available for a down payment. In fact, there
are 6.3 million mortgage ready Black and Latino millennials in
the 31 largest metropolitan statistical areas. \27\ Given that
many of these borrowers do not have family wealth for a down
payment because of the lack of intergenerational wealth,
targeted down payment assistance will be critical to enable
mortgage-ready borrowers of color to become homeowners.
---------------------------------------------------------------------------
\26\ See Christelle Bamona, ``Data Point: Hardship for Renters:
Too Many Years To Save for Mortgage Down Payment and Closing Costs'',
Center for Responsible Lending (April 2021), https://
www.responsiblelending.org/sites/default/files/nodes/files/research-
publication/crl-mortgage-downpayment-7apr2021.pdf.
\27\ Alanna McCargo, ``America's Persistent Racial Home Ownership
Gaps'', Urban Institute. See also National Association of Hispanic Real
Estate Professionals, 2019 State of Hispanic Home Ownership Report;
Alanna McCargo, Jung Hyun Choi, and Edward Golding, ``Building Black
Home Ownership Bridges: A Five Point Framework for Reducing the Racial
Home Ownership Gap'', Urban Institute, at 8 (May 2019).
---------------------------------------------------------------------------
Accordingly, drawing on the approach in the educational
arena in which there are special programs targeting first-
generation college students, we recommend that the core down
payment assistance program be limited to first-generation,
first-time homebuyers whose income is within 120 percent of the
Area Median Income (AMI). We would add to this a house price
limit as an additional safeguard to assure the money is well
targeted.
Half of the funds should be set aside for state Housing
Finance Agencies that have adopted Affirmatively Furthering
Fair Housing (AFFH) Plans, awarded based on the size of the
renter population in each state. The other 50 percent should be
awarded through a competitive bidding process run by the CDFI
Fund to select Administrators committed to and capable of
delivering funds to socially and economically disadvantaged
individuals. The DPA should be a minimum of $20,000 per
applicant (could be increased for high-cost markets) to provide
sufficient funds to make home ownership affordable. In
addition, strong reporting and evaluation requirements should
be included to ensure transparency and efficacy.
Finally, the Departments of Justice and Housing and Urban
Development should be directed to conduct a study to determine
whether this program, in conjunction with any other extant
efforts, will succeed in remedying the effects of past and
present discrimination and closing the racial home ownership
gap. If the study finds that more is needed, the Administrators
shall be authorized to use race-conscious remedies to overcome
discriminatory barriers to serving socially and economically
disadvantaged people, using a rebuttable presumption that
people of color are socially and economically disadvantaged.
Additional details on the proposal may be found in Appendix
1 of our written testimony.
The challenges presented by student loan debt must also be
addressed. Student debt in this country has reached crisis
levels and has negatively impacted the prospects of home
ownership for an entire generation, particularly people of
color. \28\ To help address this, FHA should modify its policy
on how it factors in student loan debt when calculating DTI.
Currently, FHA presumes a monthly payment of 1 percent of the
outstanding student loan balance if borrowers are actively
participating in a repayment plan resulting in a monthly
obligation that does not fully amortize the debt. Black and
Latino borrowers are more likely to be enrolled in income-based
repayment and more likely to have loans that are negatively
amortizing. While Fannie Mae, Freddie Mac, the Department of
Veterans Affairs (VA) and the Department of Agriculture (USDA)
qualify borrowers using the actual monthly obligation or an
alternative that is more closely aligned with a fully amortized
payment calculation, FHA continues to assume a monthly payment
of 1 percent of the outstanding balance--which is almost always
larger than the actual payment being made by potential
borrowers in both covered plans and fully amortized plans. This
policy may be disqualifying creditworthy borrowers because of
the inflated DTI ratios that it produces. As a result, many
potential borrowers may have more limited financing options or
may be unable to obtain mortgage credit entirely. While this
fix is necessary, addressing the student debt crisis and
increasing access to home ownership will require bold
solutions, including broad-based debt cancellation.
---------------------------------------------------------------------------
\28\ See discussion on pp. 9-14 in Testimony of Nikitra Bailey,
House Financial Services Committee, ``Justice for All: Achieving Racial
Equity Through Fair Access to Housing and Financial Services'' (March
10, 2021), https://www.responsiblelending.org/sites/default/files/
nodes/files/research-publication/crl-testimony-nikitra-bailey-hfsc-
hearing-10mar2021.pdf.
---------------------------------------------------------------------------
Thanks to each of you for your participation in last week's
hearing. I look forward to reviewing your responses.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM EDWARD J. DEMARCO
Q.1. On page 5 of your prepared remarks you stated that ``there
is limited evidence that the housing goals [for Fannie Mae and
Freddie Mac] have expanded low-income home ownership.'' One
study on this topic found that ``the goals increased the supply
of mortgage credit available to low- and moderate-income
households, after controlling for other mortgage market
factors.'' \1\
---------------------------------------------------------------------------
\1\ Brent W. Ambrose and Thomas G. Thibodeau, ``Have the GSE
affordable housing goals increased the supply of mortgage credit?''
Regional Science and Urban Economics, Volume 34, Issue 3, May 2004.
---------------------------------------------------------------------------
What studies have you reviewed to support your statement?
A.1. My statement is based on data that is reflective of the
market as it is today and is less influenced by studies
conducted prior to the great financial crisis. Changes in
market dynamics, including for example, the growth of
government-backed mortgage programs, the increasing quality of
mortgage products, as well as the rise of non-bank lenders
create a housing finance environment that is not entirely
analogous to the pre-financial crisis era. Examples of studies
that support my statement include:
Fannie Mae and Freddie Mac Annual Housing
Activities Report and Annual Mortgage Report.
Parrott, Stegman, Swagel, and Zandi, ``Access and
Affordability in the New Housing Finance System, Urban
Institute,'' February 2018
Levitin and Ratcliffe, ``Rethinking Duty to Serve
in Housing Finance,'' Joint Center for Housing Studies
at Harvard University, October 2013
Korman, ``Furthering Fair Housing, The Housing
Finance System, and the Government Sponsored
Enterprises,'' Kirwan Institute for the Study of Race
and Ethnicity, September 2010.
A common observation in these studies is the difficulty in
measuring with certainty the impact of the housing goals in
isolation. HPC's recent comment letter to FHFA details in
greater depth our rationale and conclusion and we offer that
letter here for the record (attached below).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Q.2. You further state on page 5 that the goals ( or
``subsidy'' to use your term) are ``based on a borrower's
credit risk, not race or income (emphasis added) or wealth or
financial readiness.'' There are eight goals for Fannie Mae and
Freddie Mac, of which (1) three are for home purchase or
refinance mmtgages for low-income or very low-income families,
(2) three are for multifamily rental units affordable to these
same families, and (3) two are for home purchase mortgages for
families in low-income and high-minority census tracts. Thus
six goals are based on borrower or renter income, and two are
based on tract income and minority share of tract population.
None of the goals are based on the creditworthiness of the
borrower or renter.
In light of these considerations, what is the basis for
your statement that the goals are not based on income or race?
A.2. I appreciate the opportunity to correct any
misunderstanding regarding my comments on the effectiveness of
the goals in reaching the traditionally underserved population.
The existing affordable housing goals are based on
borrower/tenant income and serving minority communities but the
method of achieving those goals is cross-subsidization, where
borrowers with higher credit profiles subsidize lending to
borrowers with lower credit profiles. That portion of my
statement was not a comment on the definitions of GSE's goals
themselves but rather an explanation for why the GSEs' goals
have not been effective. As we all know, the racial home
ownership gap today is higher than it was more than 50 years
ago--an outcome that suggests that the current methods of
narrowing that gap are flawed.
As an attempt to explain why the existing methods for
addressing the racial home ownership gap may not be effective,
I noted that the affordable housing goals are currently
achieved by relaxing underwriting criteria and providing
pricing benefits to borrowers who would not otherwise qualify
for a mortgage. The goals are not achieved by directly
addressing the barriers that stand in the way of home ownership
for borrowers of particular income levels or racial/ethnic
groups. That may be why the goals have not been effective; the
ways of achieving the goals, cross-subsidization based on
credit scores, is poorly targeted and fails to address the
barriers many Black, Hispanic, and low income/low-wealth
families face in trying to attain and maintain home ownership,
such as a lack of downpayment, financial education, or a rainy-
day fund.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM EDWARD J. DEMARCO
Q.1. Home prices continue to rise at an alarming rate in
certain markets. In Phoenix, for example, home prices rose by
14.4 percent last year. Is this type of increase sustainable,
and does this phenomenon have the makings of an asset bubble?
What are the consequences if such a bubble were to burst?
A.1. House prices have risen sharply in many communities across
the country the past year as a result of supply/demand
imbalance. One recent paper cites the primary causes of this
imbalance, from least to most important, as being materials and
labor, lending, and demographic changes. \1\ In general terms,
this is due to the combination of:
---------------------------------------------------------------------------
\1\ Jim Parrott and Mark Zandi, ``Overcoming the Nation's Daunting
Housing Supply Shortage'' Urban Institute, March 2021.
the increase in building costs due to the
disruption of global supply chains during the pandemic,
along with greater trade restrictions on major U.S.
---------------------------------------------------------------------------
trading partners.
the struggle of the building industry to develop
and maintain a consistent labor force, in part
reflecting the difficulty that many of the trades face
in attracting high school graduates into careers
requiring specialized skills.
historically low mortgage interest rates resulting
from Federal Reserve policies,
a change in demand for single-family housing
resulting from both changes in housing preferences
brought on by the pandemic and the millennial
generation reaching prime homebuying age, and
a 10-plus year slowdown in new home construction
that has resulted in new supply not keeping pace with
demographic changes.
While it may be premature to say this has created a housing
bubble--lending standards have remained strong and demand still
far outpaces supply--these sort of growth rates in house prices
are not sustainable for a long period. For the housing market
to remain healthy in the long-run, home price appreciation must
be tied to increases in borrower income.
Additional Material Supplied for the Record
LETTER FROM CENTER FOR URBAN RENEWAL AND EDUCATION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]