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					Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
                                            systematic retooling of the FHA Title 1
Bank of America                             program.
Should consumer-based assistance also       There are two areas FHA Title 1
be made available to low-income             retooling should emphasize. First, use of
homeowners with severe housing cost         FHA Title 1 should be linked and
burdens? If so, how should this be done?    coordinated with structural code
Generally, no. However, there is a          enforcement efforts of local government.
legitimate role for limited duration,       Additionally, a homogeneous secondary
transitional assistance to low-income       market for the insured loans needs to be
homebuyers, for example a more              created. A limited number of
realistic and refined version of the        institutional bulk purchasers could
existing Section 8(y) authority.            perform a role analogous to that of
                                            Fannie Mae and Freddie Mac for first
For low-income homeowners with              mortgages.
severe cost burdens, there is a federal
role in fostering alternative ownership     How could the various tax policy
models that can reduce the financing        “tools” (e.g., tax credits, bonds, passive
burden to low- income homeowners            loss allowances) be better used to
while not promoting short-term private      promote (a) the production of affordable
windfall gains. Two examples are the        rental housing, including housing for
community land trust or the limited         extremely low-income families, and (b)
equity co-op model.                         homeownership?
How can access to capital for               The largest single use of federal tax
homeownership (for refinancing as well      policy in the housing area is the
as purchase) be improved for those who      homeowner mortgage interest and
currently fall through the gaps?            property tax deduction. The tax
                                            expenditure associated with this item is
Access to capital today is actually quite   more than twice as large as the entire
good. The real problems or barriers         HUD budget and may not be well-
relate much more to underwriting issues     targeted to low- and moderate-income
such as amount of debt or payment           households.
histories and the distribution of
household incomes. As such, a focus on      The President‘s proposal for a
―access‖ may be misplaced much of the       ―Renewing the Dream‖ homeownership
time.                                       tax credit is a bold suggestion worthy of
                                            support. While many details and
The notable exception to this               refinements remain to be developed, the
observation concerns low-value, owner-      single family housing tax credit could
occupied houses in depressed markets.       make an important contribution to
These homeowners often have little or       expanded housing affordability and
no equity in their homes and have           neighborhood enhancement.
difficulty securing capital for needed
repairs and occasional improvements. In
these situations, access to capital might
be enhanced through some type of


                                            1
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter

Catholic Charities USA                        …

A voucher program should result in            The effectiveness of vouchers is tied to
home ownership. If it does not do this, it    supply and demand. Transferable
will not significantly impact the asset-      vouchers make sense where there is a
building necessary to overcome poverty.       supply of housing units available.
                                              Moreover, it is less likely that the holder
Should consumer-based assistance also         will be discriminated against, since the
be made available to low-income               unit needs to be occupied. However,
homeowners with severe housing cost           where there is no supply of available
burdens? If so, how should this be done?      units, vouchers are worthless. Proposal –
Other housing opportunities need to be        tie vouchers to new housing production,
available for low-income homeowners           so that financing can be readily
with severe housing cost burdens.             obtainable for new units since there is a
                                              guaranteed income stream to support the
Consumer based assistance should be           mortgage.
available to low-income homeowners
with severe housing cost burdens              …
because there are people that have            We have had good tenants through the
worked their way to home ownership but        Section 8 program. I support the
possibly ran into hard times and may          philosophy behind tenant based
need a boost to get on their feet again.      vouchers/certificates but I think there are
Helping them would prevent them losing        situations that call for project based as
everything and eventually ending up on        well. For example, we are partners in an
the voucher system. (Lori Romo, Asst.         apartment complex rescued from HUD
Director, Greeley Transitional House)         foreclosure and renovated through the
Another issue here is the issue of            tax credit program. Cash flow on this
maintaining homes in good condition           project is very tight with occupancy
and making them energy efficient. Often       running at about 70%. We loose many
times people who are low-income or on         tenants for inability to pay. Some project
fixed incomes (like seniors) can‘t afford     based rental assistance would help to
to keep their homes in good working           stabilize this important source of
order or the furnace goes and then unless     affordable housing.
there is some kind of program that helps      How can access to capital for
with weatherization and other such            homeownership (for refinancing as well
matters, it is very hard for the household.   as purchase) be improved for those who
There can be set asides or earmarked          currently fall through the gaps?
public/private funds to specifically
address these issues. An example here in      We are not presently developing
Fort Collins, CO is the ZILCH program         homeownership models, but plan to do
that provides no-interest loans if you are    so in the near future. Possible ways to
upgrading your furnace or hot water           make homeownership more affordable
heater to a more efficient one. (John         could be to develop limited equity
Kefalas, Public Policy Advocate,              cooperatives that keep ownership
Catholic Charities, Fort Collins, CO)         affordable for an extended period of


                                              2
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
time. Capital for the development of this    Homebuyer counseling is the key to
model could be publicly funded or            addressing this need. We also like the
granted.                                     President‘s ―American Dream‖ fund
                                             proposal that would provide down
…
                                             payments for prospective buyers and the
Access to capital for homeownership can      allowance of voucher rollovers for the
be improved through government               purpose of down payments.
reinsurance of risky loans through the
                                             …
marketplace.
                                             How can we best provide the capital to
…
                                             finance the rehabilitation needs of the
Down payment assistance programs             affordable housing stock (both public
work to get people into home ownership.      housing and the assisted inventory)?
The problem is that people between
                                             …
60%-80% AMI can afford a monthly
payment that allows them to purchase         Direct grants and low-interest financing
inventory for $80K - $120K. The              together with cooperative
inventory in this price range is far and     homeownership.
few between and those in the category
are predominantly small condos or units      Chicago Mutual Housing
in poor shape. Consideration needs to be     Network
taken regarding the local market and the
                                             How can vouchers best support mobility
barriers to homeownership imposed by
                                             and self-sufficiency for the families that
an appreciating market. In simple words,
                                             receive them?
if we want more people in home
ownership, there needs to be more down       Section 8 Vouchers should be used for
payment subsidy at greater levels. (Rusty    homeownership, and have been used
Collins, Executive Director, Neighbor to     successfully in housing cooperatives in
Neighbor, Fort Collins, CO)                  Chicago. Co-op conversions of Section 8
                                             properties are one strategy for affordable
An example of where there can be more
                                             housing preservation in Chicago. Two
federal-local coordination of resources is
                                             excellent examples of 100% Section 8
the Metro Mayors Caucus Single Family
                                             properties that have successfully
Home Mortgage Bond Program, which
                                             converted to housing cooperatives
is a regional program designed to assist
                                             include the Gill Park Cooperative, 810
qualified homebuyers to purchase a
                                             West Grace Street and Lafayette Plaza,
home by providing below market rate
                                             50 West 71st Street. The Chicago Dept.
mortgage loans (6-7/8%) and by
                                             of Housing has also looked into a
providing 3.5% of the loan amount as a
                                             condominium/cooperative model (or
grant for closing costs and down-
                                             cond-op) for 80/20 Section 8 properties
payment assistance. (John Kefalas,
                                             in gentrifying areas of the city. This
Public Policy Advocate, Catholic
                                             would enable lower income households
Charities, Fort Collins, CO)
                                             to remain in a mixed-income housing
…



                                             3
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
community while concurrently offering        jurisdictions as a relatively shallow
them tenant ownership.                       capital subsidy, which needs to be
                                             combined with tax credits, debt, and
…
                                             other sources to complete a production
How could the various tax policy tools       package. This is inefficient and costly.
(e.g. tax credits, bonds, passive loss
                                             …
allowances) be better used to promote
(a) the production of affordable rental      In monitoring the use the federal
housing, including housing for extremely     program funds, HUD should insure that
low-income families, and (b)                 the Consolidated Plans submitted by
homeownership?                               communities reflect the true needs of the
                                             community and those housing plans
Tax credits are one of the few deep
subsidy programs that we have utilized       respond to these needs. For example, if
                                             the need data show many extremely low-
for housing production, but the fifteen
                                             income families in ―worst case‖ housing
year wait for actual tenant ownership
                                             need, the use of federal funds outlined in
make tax credits an unworkable solution
                                             the ConPlan should respond to that
for the creation of housing co-ops. The
                                             housing need. Subsidy programs should
recent federal expansion of the tax credit
                                             provide deep enough subsidy to serve
program will result in more affordable
                                             the very lowest income households.
rental property constructed, but will not
                                             Similarly, if high needs for housing for
assist us in creating tenant ownership
                                             homeless persons are demonstrated,
opportunities for low-income families.
                                             most HOME funds shouldn‘t go into
We need federal dollars without the
                                             homeownership. HUD should insist that
restrictions that tax credits require.
                                             where high need for low-income rental
Citizens’ Housing and                        housing is demonstrated, appropriate
                                             financing be offered by the jurisdictions.
Planning Association
                                             …
How well do current programs operate
as production tools? (HOME, CDBG,            State-funded housing programs.
HOPE VI, §202, 811)                          Massachusetts has developed a number
                                             of general obligation bond financed
HOME and CDBG are important to
                                             programs to facilitate housing
housing production and developers have
                                             production. The Housing Stabilization
used them successfully. Local control
                                             Fund is available for rental and
has allowed the cities and states to craft
                                             homeownership programs for
appropriate policies to solve local
                                             households below 80% of median
housing problems. However, HOME and
                                             income. The Housing Innovation Fund
CDBG lack an exclusive focus on
                                             will contribute up to 50% of the capital
production, particularly multi-family
                                             costs of a project that serves special
rental production. In FY 01, only 35% of
                                             needs populations like homeless persons
CDBG went to housing; 45% of HOME
                                             and families. This year, the state has
is used for homeownership programs. In
                                             begun two new programs: a five-year,
general, the subsidy available through
                                             $100 million affordable housing trust
these programs has been used by


                                             4
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
fund and a five-year, $100 million state     Access to Capital for Homeownership
low income housing tax credit program.       The following elements are needed to
These two new resources are expected to      improve access to homeownership for
increase production by 75% over the          low and moderate income households:
next five years.
                                                Outreach, counseling and education
…
                                                 for low and moderate income
How can the various tax policy tools be          prospective homebuyers through
used to a) promote affordable rental             community-based organizations
housing, including housing for extremely
                                                 Inadequate access to information and
low-income families? b) promote
                                                 assistance is one of the primary
homeownership?
                                                 obstacles preventing greater access
The recent increase in the tax credit and        to capital by low and moderate
bond volume caps is an important step in         income and minority households.
providing more resources for affordable          Non-profit organizations around the
housing production. The tax credit               country have been successful in
provides a critical source of equity to          targeting and reaching first-
projects. However, we find that tax              generation homebuyers -- families
credit projects best serve families at the       and individuals who do not realize
higher end of the affordability range.           they may be able to achieve
Without operating subsidy attached to            homeownership. These households
the project, tax credit projects cannot          are not reached through traditional
serve families below 45% of median               marketing methods; rather, they
income.                                          become better informed of potential
Combining project-based assistance with          opportunities through non-profit
tax credits and providing incentives for         agencies with a mission and history
developers to use them will help increase        of affirmatively furthering fair
the range of affordability. Underwriting         housing to ensure equal access to
to allow a larger capitalized reserve to         housing opportunities by all families
reduce rents will also help.                     and individuals.

CHAPA also believes that President               Community-based organizations
Bush‘s proposal to create a                      conduct outreach to low and
homeownership tax credit to spur new             moderate income and minority
production merits serious consideration.         households by working with local
While there are numerous mortgage                churches, service organizations,
products to reduce the costs of                  government agencies, and others.
homeownership for first-time                     These agencies also have established
homebuyers, there is a lack of financing         relationships with cultural and social
for the production of single family              organizations and local businesses
housing that is affordable to households         serving particular ethnic groups to
below 80% of median income.                      market their counseling services.

…                                                Homebuyer services provided by
                                                 community-based organizations


                                             5
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
    include conducting group                     this market must be encouraged to
    educational classes and individual           fund non-profit homebuying
    counseling for prospective                   services.
    homebuyers. Classes include                  The U.S. Department of Housing and
    comprehensive discussions of the             Urban Development provides funds
    home purchase process, including             to non-profit agencies through its
    credit and budgeting issues and              housing counseling program. These
    access to affordable mortgage                funds help provide the critical
    products. Individual counseling              services described above. Funding
    provides services based on the               by HUD should be increased.
    client‘s specific needs. Services are
    provided in a non-intimidating              Flexible mortgage products to meet
    environment with the intent to help          community needs
    prospective homebuyers make                  Difficulty in satisfying standard
    informed, voluntary decisions                homebuying qualifications is another
    regarding the homebuying process.            obstacle to increasing access to
    Unlike other professionals in the            capital for low and moderate income
    homeownership industry, staff                households. Affordable mortgage
    members providing homebuyer                  products that include flexible
    services have no personal or                 underwriting standards and low
    financial stake in directing                 down payment requirements allow
    prospective homebuyers to any                greater numbers of low and moderate
    particular product or service.               income households to achieve
    These factors make non-profit,               homeownership.
    community-based organizations                Lenders should be encouraged to
    uniquely qualified to reach and              work with non-profit organizations
    educate low and moderate income              in their communities to develop
    and minority households on                   innovative lending criteria to meet
    homeownership opportunities, and to          the needs of households with non-
    play a critical role in improving            traditional credit histories and lower
    access to capital for this population.       incomes. State and local government
   Funding to support outreach,                 agencies should also be encouraged
    counseling and education efforts             to develop subsidy programs that can
                                                 close financing gaps through down
    Low and moderate income and                  payment and closing cost assistance
    minority households participating in         programs, and low-interest loans or
    the homebuying activities offered by         grants for rehabilitation and lead
    community-based organizations form           paint abatement.
    a highly targeted market that uses the
    services of mortgage originators, real      Recruiting, training and hiring loan
    estate agents, home inspectors, real         originators and underwriters who
    estate attorneys, and other                  share the same ethnic background as
    professionals in the field. These            minority prospective homebuyers
    industry players who benefit from


                                             6
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
    Fear and alienation from the               remedy this problem, the Administration
    homebuying process is another              should increase staffing levels to an
    reason that more low and moderate          appropriate level that, at a minimum, are
    income and minority households do          equivalent to that of FY 94 and
    not achieve homeownership. By              correspond to the complaint level at each
    recruiting, training and hiring loan       agency. In addition, HUD's Office of
    originators who speak the same             Fair Housing and Equal Opportunity
    language and share the same cultural       should have its own line item for staffing
    background as prospective clients,         and support resources in the HUD
    lenders remove an obstacle the             budget so that the public can evaluate
    prevents households capable of             the level of resources provided in each
    purchasing a home from seeking a           budget. We also strongly urge the
    mortgage.                                  Administration to expand the fair
                                               lending and land use initiatives of the
Civil Rights                                   Justice Department‘s Housing and Civil
Organizations (multiple)                       Enforcement Section, as well as its more
                                               traditional focus on discrimination in
Reaffirming Civil Rights Enforcement
                                               rental housing. These efforts have
priorities
                                               significantly expanded access to
One critical element of the new                homeownership and other quality
Administration's civil rights agenda           housing opportunities for minorities and
should be ensuring appropriate resources       other groups protected under the Fair
and policies at the federal civil rights       Housing Act.
agencies. Among these agencies, the
                                               …
ones with responsibility over fair
housing issues include: HUD's Office of        Expand Efforts to Combat Predatory
Fair Housing and Equal Opportunity; the        lending
Department of Agriculture's Office of          ―Predatory lending‖ refers to a set of
Civil Rights (particularly as it relates to    unscrupulous practices that result in
the Rural Housing Service); and the            homeowners paying far more in fees and
Department of Justice's Civil Rights           rates when they refinance or purchase a
Division, particularly the Housing and         home, thereby stripping equity from
Civil Enforcement Section.                     their homes and wealth from their
As reflected in a recent report from the       communities. As reflected in a number
U.S. Commission of Civil Rights, the           of recent studies, those who are
staffing levels in most federal civil rights   victimized by these practices are
agencies have decreased in real terms          disproportionately elderly and persons of
over the past six years. At HUD's Office       color. HUD should continue to make
of Fair Housing and Equal Opportunity          combating predatory lending a priority
(FHEO), for example, staff levels have         by increasing enforcement activity
decreased by 22% between FY 94 and             against predatory and discriminatory
FY 2000 and appropriations have fallen         lending, including use of the Fair
by 14.4%, despite a 15% increase in its        Housing Act, RESPA, and GSE
Title VIII complaint workload. To              oversight authorities as appropriate.


                                               7
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
HUD can also expand reliable collection     …
of information and data regarding           Along these lines of stimulating private
lending institutions by promoting recent    growth in communities is the need to
proposals regarding the Home Mortgage       continue fighting predatory lending
Disclosure Act (HMDA).                      practices. Although a problem in most
Coalition for Indian                        all low-income communities, Native
                                            American communities suffer acutely
Housing and                                 from exploitation by lenders because
Development                                 there is an almost complete absence of
                                            other options, even for people who can
Along these lines of stimulating private
                                            afford competitive loans. Furthermore,
growth in communities is the need to
                                            the Native population is made up of
continue fighting predatory lending
                                            mostly first-generation homebuyers who
practices. Although a problem in most
                                            are susceptible to every predatory
all low-income communities, Native
                                            practice there is.
American communities suffer acutely
from exploitation by lenders because        Current legislation pending in the House
there is an almost complete absence of      of Representatives will make positive
other options, even for people who can      changes in the area of predatory lending
afford competitive loans. Furthermore,      but there are more areas to be looked at.
the Native population is made up of         For one, Congress should look at how
mostly first-generation homebuyers who      we may be able to limit how much
are susceptible to every predatory          lenders can make on these transactions.
practice there is.                          What might be helpful is trying to
                                            determine what is a fair and reasonable
Current legislation pending in the House
                                            fee for services. A recent class-action
of Representatives will make positive
                                            lawsuit on above-par pricing illustrated
changes in the area of predatory lending
                                            how premiums too often reflect what the
but there are more areas to be looked at.
                                            broker would like to get out of the
For one, Congress should look at how
                                            transaction rather than what services the
we may be able to limit how much
                                            client is receiving. Many lenders justify
lenders can make on these transactions.
                                            high premiums for having to go out of
What might be helpful is trying to
                                            their own area and into Indian Country.
determine what is a fair and reasonable
                                            With increased private market
fee for services. A recent class-action
                                            development, this justification can be
lawsuit on above-par pricing illustrated
                                            made obsolete.
how premiums too often reflect what the
broker would like to get out of the         …
transaction rather than what services the   Another way to improve access to
client is receiving. Many lenders justify   capitol for homeownership in Indian
high premiums for having to go out of       Country is to streamline the Section
their own area and into Indian Country.     184 Loan Guarantee Program. Section
With increased private market               184 was originally designed to make it
development, this justification can be      easier for individual tribal members,
made obsolete.


                                            8
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
particularly in isolated communities,           Create an Indian housing set-aside
who would otherwise qualify for a                for the Low-Income Housing Tax
traditional mortgage loan to obtain              Credit Program
mortgage loans on trust land. Lenders
                                                Create an Indian housing set-aside
have avoided approving mortgages on
                                                 for the Mortgage Revenue Bond
trust land because they are not allowed
                                                 Program
to foreclose and repossess in the case of
a default. Section 184 provides the             Make tribes eligible for tax-exempt
guarantee for the loan, allowing these           bond financing
qualified tribal members access to
                                             Tribes are not on a level playing field
traditional mortgages.
                                             when competing for LIHTC credits and
Several problems have plagued the            so have not been able to utilize this
Section 184 program. First, it takes too     program as well as they should. If there
long to get HUD approval. Many times it      were a per capita state set-aside for
has taken as long as six months to           Indian tribes, tribal programs would
approve a mortgage proposal, and the         stand a better chance of being awarded
opportunity to obtain the loan will have     credits.
passed. Explanations for this delay have
                                             For Mortgage Revenue Bonds, CIHD
so far been unavailable.
                                             would like to see an increase in the state
The other problem is that the process is     funding allocations and also a set-aside
not user-friendly. As explained before,      for tribes. MRBs are a proven tool in
many tribal members have never had a         economic and housing development and
mortgage and are not able to navigate        should be more readily available to
through financial systems. If the process    Indian tribal governments, for whom
is streamlined, while still protecting       availability to private capital is almost
lenders, more people could gain access.      nonexistent. CIHD further supports the
CIHD recommends assigning a task             enactment of H.R. 951 and S. 677, The
force to investigate these problems to       Housing Bond and Credit Modernization
find out what is holding up the process      and Fairness Act of 2001.
and how it can be made more user-            Each of these changes would
friendly. Ideally, the task force should     substantially increase the availability of
consult lenders, HUD, and Indian             financing to improve housing and
housing authorities for                      infrastructure in tribal areas.
recommendations.
                                             Consortium for Citizens
…
                                             with Disabilities Housing
How could the various tax policy
“tools” (e.g., tax credits, bonds, passive   Task Force
loss allowances) be better used to           Should consumer based assistance be
promote (a) the production of affordable     made available to low income
rental housing, including housing for        homeowners with severe housing cost
extremely low-income families, and (b)       burdens? If so, how should this be done?
homeownership?


                                             9
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
The CCD Housing Task Force is               of the mortgage loan, or lowering the
concerned that the Section 8 program is     interest rate, are more in line with a
now being targeted to be ―all things to     balanced federal housing policy.
all people‖ and that this is more of an
outcome of the lack of adequate federal     Council for HOPE VI and
housing resources for production and        Mixed FinanceFirst
homeownership than it is feasible or well
thought out program design. With the
                                            document on Web site
exception of the extremely small Section    Homeownership Opportunities
811 and McKinney permanent housing          National housing efforts have long
programs (50,000 units total), the          sought to include the ―American Dream‖
Section 8 voucher program is literally      of homeownership as an integral
the only source of federally subsidized     component, and public housing policy is
housing for people with incomes below       no exception. Unfortunately, the policies
30 percent of median.                       created to encourage public housing
As you know, the Quality Housing and        residents to save for and achieve that
Work Responsibility Act of 1998 set         dream have met with only limited
targeting guidelines for Section 8          success. HOPE VI and other mixed
assistance (75 percent of the program       finance initiatives provide a new
must assist people below 30 percent of      opportunity to meet the ever-present
median income) explicitly to counter-       challenges of homeownership for low-
balance the higher income limits adopted    income families.
for federal public housing. Therefore,      As previously mentioned, HOPE VI
the primary focus of the program must       projects often involve equity investment
not be diluted in order to cover other      created through the Tax Credit Program.
activities, such as downpayment             In the homeownership context, the
assistance, that can be provided through    overlay of these two programs causes
any array of other resources besides        regulatory obstacles to achieving the
Section 8.                                  desired goals. Specifically, the Tax
For these reasons, we do not believe that   Credit Program requires that units
consumer based assistance should be         remain as rental housing units for 15
made available to current homeowners        years in order to avoid the recapture of
with severe cost burdens. To do so          the credits. However, because HOPE VI
would further dilute the primary purpose    and tax credit units are often one in the
of the program. Subsidizing existing        same, it is very difficult to include such
homeowners using Section 8 assistance       units in a homeownership program.
is taking one more step away from the       Accordingly, we recommend a
millions of Americans that are still        modification of the tax credit rules to
desperately in need of affordable rental    permit the release of units in conjunction
housing and are not in a financial          with a homeownership program without
position to become homeowners, even         triggering the recapture penalties.
with the help of federal programs. Other    Public housing homeownership
solutions, such as writing down the cost    programs traditionally have included


                                            10
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
―anti-speculation‖ provisions. In short,      replacement housing for demolished or
such provisions limit the amount the          disposed of public housing. Nehemiah-
subsidized purchaser can realize due to       like homeownership allowed PHAs to
appreciation of the property on resale.       develop opportunities for families with
The provisions typically outline the          incomes up to 100% of median income,
terms of sharing the appreciation             with 15% of the units available for
realized upon resale between the housing      families up to 115% of median income.
authority and the homeowner. While it is      This allowed PHAs to develop
understandable that federal dollars are       homeownership programs that served
not intended to create personal windfalls     families with a very broad range of
for subsidized homeowners, such               incomes. In 1998, Congress permanently
conventional policy assumptions must be       authorized the HOPE VI program as
reconsidered for HOPE VI projects.            section 24 of the Act. This eliminated
                                              the flexibility to design Nehemiah-like
HOPE VI was designed to revitalize
                                              homeownership programs and PHAs
distressed public housing projects and
                                              were required to limit HOPE VI
encourage investment in our most
                                              homeownership opportunities to families
economically disadvantaged areas.
                                              whose incomes are no more than 80% of
Accordingly, a modification of policies
                                              areas median income
and incentives is appropriate for
residents who wish to take a risk on the      Desired Outcome – A technical
gradual success of redeveloped                amendment to section 24 to reestablish
neighborhoods. Americans value                the Nehemiah-like homeownership
homeownership because it is an                program and allow PHAs to use HOPE
investment that holds the promise of          VI funds to develop homeownership
financial gain. This risk-reward calculus     replacement housing opportunities for
must be the same for low income as for        families with incomes up to 115% of
middle income citizens. Through               median income.
participation in a homeownership
program, public housing residents are         Council of State
often making an investment in our most        Community Development
precarious neighborhoods. It is only          Agencies
fitting that anti-speculation provisions be
modified to recognize the risk with           COSCDA urges the Commission to
commensurate financial reward.                oppose any efforts to create set-asides
                                              within HOME, specifically the Bush
Second document on                            administrations‘ current homeownership
Web site                                      proposal. The administration‘s proposals
                                              add NO new money and the
Increase Homeownership eligibility up         homeownership activities proposed in
to 115% of area median income                 the plan are already eligible uses of
Issue – Under the original HOPE VI            HOME funds.
program, PHAs could use HOPE VI               …
funds to develop ―Nehemiah-like‖
homeownership housing opportunities as


                                              11
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
On the Mortgage Revenue Bond side,           The Enterprise
COSCDA strongly urges the
Commission to recommend a repeal of          Foundation
the 10-Year Rule currently in effect.        Create a Homeownership Production
Eliminating the 10-Year Rule would           Tax Credit
provide states with the ability to finance
                                             Most federal low-income housing
additional homeownership opportunities
                                             assistance is for rental production and
and enhance the impact of the recent cap
                                             tenant-based assistance. Far fewer
increases.
                                             resources are available to help produce
Delaware State Housing                       homeownership housing for low-income
                                             families. Homeownership rates for
Authority                                    families earning less than their area‘s
Should consumer based assistance also        median income and for central city
be made available to low income              residents are 25 percent below the rate
homeowners with severe housing cost          for the nation as a whole.
burdens? If so, how should this be done?     The main reason for the lack of
Consumer-based assistance should be          affordable homeownership development
made available to low-income home            in many distressed neighborhoods is that
owners with severe housing-cost              it costs more to build or substantially
burdens, and assistance should include       rehabilitate homes than homes can sell
intense credit and homeowner                 for in such areas. Thus, a resource is
counseling. Successfully completed           needed to bridge the difference between
training to improve earning capacity is      construction cost and market value of
required prior to providing the              homes in low-income communities. A
assistance. The assistance should also be    homeownership production tax credit
time-limited or gradually reduced over a     would fill a glaring gap in the housing
specified time.                              finance system, increase affordable
                                             homeownership opportunity for low-
…
                                             income people, encourage mixed-income
How can access to capital for                development and community
homeownership (for refinancing as well       revitalization in distressed
as purchase) be improved for those who       neighborhoods and help combat sprawl.
currently fall through the gaps?             President Bush has proposed such a
I think the best way to help those who       credit, wisely modeled largely on the
fall through the gaps is to put more         Housing Credit.
money into home ownership counseling,        We recommend that such a credit have
marketing aggressively and reaching out      the major principles outlined by the
to under-served communities to inform        president: 50 percent present value tax
them of ongoing programs and                 credit claimed over 5 years; allocation
homeownership counseling.                    by the states, in an amount equal to
                                             $1.75 per capita, with a small state
                                             minimum, both of which would be
                                             indexed to inflation; targeted to families


                                             12
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
earning 80 percent or less of area median     wealth creation as well as neighborhood
income (70 percent or less for families       stability argue for a strong endorsement
of less than 3); available in census tracts   of homeownership strategies. Renters
with median incomes 80 percent or less        who move to homeownership facilitate
of area median income; awarded to             some filtering of the affordable rental
developers to fill the gap between            inventory. The effects of policies that
construction costs and market value,          increase housing supply on price and
limited to 50 percent of development          availability are the same whether the
costs; buyer subject to recapture of a        housing tenure that results is for
portion of any resale gain if the home is     homeownership or for rental housing.
sold to a non-qualified buyer within          …
three years of original purchase.
                                              Do No Harm. The Commission should
In addition, we recommend the                 take a strong stand in opposition to those
following modifications to the                who would argue that the nation invests
president‘s proposal: the Credit also         too much in housing. So long as millions
should be available in rural areas, as        of Americans face significant rent
defined by Section 520 of the 1949            burdens and many millions more have
Housing Act, and on Indian reservations;      not yet achieved the dream of
states should be able to serve buyers         homeownership, placing a high priority
earning up to 100 percent of area median      on housing investment is sound. The
income (90 percent or less for families       Commission should apply the following,
of less than 3) in ―Qualified Census          straight-forward questions to any
Tracts‖ as defined under the Housing          proposals for changes to the housing
Credit statute (census tracts where more      finance system as well as the housing
than half the families have 60 percent or     assistance delivery system: Do the
less of area median income or where           proposals reduce costs for consumers?
development costs are disproportionately      Do they improve the safety and
high); and nonprofit developers should        soundness of the housing finance
receive a minimum of 10 percent of each       system? Do they expand opportunities
state‘s annual allocation of Credits.         for homeownership or affordable rental
Fannie Mae                                    housing? Do they allow innovation in
                                              the market without cumbersome
Encourage Choice. The appropriate mix         regulatory requirements? Proposals that
of policies should work to assist             reduce competition, drive up the cost of
households with housing needs to              housing, or undermine efforts to increase
become either well-housed renters or          affordable housing opportunity are
homeowners. In its deliberations, the         contrary to the work of the Commission.
Commission should consider policy
proposals that maximize housing               …
choices, including opportunities to attain    Fannie Mae would further recommend
homeownership where appropriate and           that the Commission adopt the same
affordable. The benefits that                 range of tools – investor tax credits,
homeownership can bring to household          flexible gap funds, low-interest debt,


                                              13
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
consumer-based assistance, and service           level of risk than the private sector
dollars where needed – to address                with the private sector‘s ability to
homeownership needs. Some pieces of              better measure and manage risk.
the structure are already in place: MRBs
                                                The Commission could consider
and the HOME program are already
                                                 looking at Fannie Mae‘s partnership
making significant contributions to
                                                 with Self-Help and the Ford
affordable homeownership
                                                 Foundation as a model.
opportunities, and HUD is implementing
new authority for Section 8                     HOME Model Programs. The
homeownership vouchers. The                      government could increase the
enactment of a single-family housing tax         effectiveness of the HOME program
credit similar to the one proposed by the        as a second mortgage tool if HUD
Bush Administration for the production           used its model program authorities to
of affordable homeownership housing              encourage standardization across
would create a complete and parallel             participating jurisdictions.
structure.
                                                10-year Rule. Repeal of the 10-year
…                                                rule in the MRB program would
Other Specific New Policy Proposals              greatly expand the availability of
                                                 low-interest mortgage funds.
Based on Fannie Mae‘s experience
working in communities with a wide              Regulatory Barriers. The government
range of affordable housing and                  has available to it low-cost strategies
community development challenges, we             to decrease the impact of federal,
believe that the following proposals             state, and local regulations that drive
would strengthen the country‘s efforts to        up the cost of affordable housing. An
increase homeownership and close                 effort to provide incentives to
homeownership gaps, expanded                     localities to lower regulatory barriers
affordable rental housing opportunities,         holds significant potential for
and strengthen communities:                      increasing housing affordability and
                                                 enhancing the redevelopment of
   Increasing Homeownership and                 older neighborhoods.
    Closing Homeownership Gaps.
                                                Housing Counseling Assistance. The
   Employer-Assisted Housing.                   challenge of predatory lending
    Through tax incentives for employer          should serve to enhance policy
    participation in meeting the housing         interest in the role of housing
    needs of employees, the government           counseling and education programs
    would bring new partners and new             as well as training in financial
    resources to the nation‘s housing            literacy. It is possible that HUD
    efforts.                                     could enhance resources for housing
   FHA Single-Family Risk-Sharing.              counseling by allowing fees for
    FHA should consider a risk-sharing           services in conjunction with its
    program that would marry the                 grants and by testing efforts to raise
    government‘s ability to take a higher        private matching funds from the
                                                 lending community.


                                            14
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
…                                            recipient family to begin accumulating
                                             assets and wealth. Also, because much
Importance of Community Context.
                                             of the existing affordable single family
Policy should emphasize that affordable
                                             housing stock—especially those homes
housing developments cannot succeed
                                             located in large central cities—are in
without strong communities around them
                                             need of extensive rehabilitation and
– safe neighborhoods, good schools, and
                                             repair, the purchase of a new home with
access to job opportunities. Likewise,
                                             a zero interest mortgage is often the best
community development efforts will
                                             option for the long-term economic
prosper if homeownership can increase
                                             security of a family. In addition, with the
and will fail if the community does not
                                             Housing Choice Voucher program and
have available, affordable rental and
                                             the Habitat method of financing, the
homeownership housing opportunities.
                                             monthly federal investment is
Habitat for Humanity                         multiplied, as mortgage payment are
                                             continuously recycled back into a ―Fund
How can vouchers best support mobility       for Humanity‖ to build even more
and self-sufficiency for the families that   housing.
receive them?
                                             The Washington Office of Habitat for
One of the most innovative new               Humanity International is currently
developments regarding voucher use is        working to develop a pilot Section 8
the opportunity for qualified families to    homeownership partnership project
use their Section 8 rental voucher for       between Habitat for Humanity of
homeownership purposes. This program,        Northern Virginia and the Fairfax
known as the Housing Choice Voucher          County Housing Authority. The final
program, enables first-time homebuyers       report resulting from this partnership
to use Section 8 voucher subsidies to        will ensure that Housing Authority
meet monthly mortgage payments and           requirements and Habitat affiliate
other homeownership expenses. While          procedures complement one another.
rental vouchers may provide the only         The goal is to release the report to all of
viable housing option for some families,     HFHI‘s 1,603 affiliates across the
there are others who, with adequate pre-     country and to encourage the
and post purchase homeownership              development of new partnerships with
counseling and down payment                  local housing authorities.
assistance, are able to make the
transition from an assisted rental unit      …
into a home of their own.                    How can access to capital for
Habitat homes, sold at no profit and at      homeownership be improved for those
zero interest, provide one of the most       who currently fall through the gaps?
affordable housing options for qualified     Eradicating the unequal access to capital
recipients of the Housing Choice             in underserved communities is of
Voucher program. Habitat mortgages           paramount importance to Habitat for
and other homeownership expenses can         Humanity. Habitat homeowners are
cost significantly less per month than a     unable to access loans in the
rental voucher payment and enables the


                                             15
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
conventional mortgage market and            funding support provided to Habitat by
would in no other way be able to own        HUD and the GSE‘s has been essential
their own homes. Habitat provides           in increasing our capacity to build
homes to qualified families at no-profit    homes. We share the same conviction
and with a long-term zero-interest rate     with these institutions that
mortgage that the family can afford. In     homeownership is perhaps the most
turn, families‘ monthly mortgage            valuable resource in a family‘s life,
payments are used to finance the            stabilizes neighborhoods, and
construction of additional homes. But       contributes to the economic well being
successful homeownership strategies,        of communities.
such as the self-help and affordable        Partnering with volunteers, homeowners,
financing model used by Habitat for         and donors from the private and
Humanity, are not possible without the      governmental sector to build homes is,
collaboration of the private, non-profit,   of course, the largest challenge and one
and government sectors.                     of the primary missions of Habitat for
Partnerships provide the key to raising     Humanity. Unfortunately, there are
the resources needed to reach those         forces working to undermine this very
families who have ―fallen through the       accomplishment, in the form of
gaps‖ into homes of their own. The          exploitive lending practices of some
federal government can facilitate these     financial institutions. Habitat
partnerships in a variety of ways and       homeowners, as first-time property
should continue to support those            owners, are prime targets for tempting
programs that hold the most promise for     offers to trade in their zero interest
affordable housing production and the       mortgages and other debt for one
creation of new housing finance options     consolidated loan at a higher rate. While
for minority and low-income borrowers.      a homeowner‘s decision to refinance
                                            does not harm a Habitat affiliate
Habitat for Humanity has successfully
                                            financially—the remainder of the loan is
partnered with the federal government
through programs such as the Self-Help      typically prepaid in lump sum—there is
                                            serious concern that the homeowner
Homeownership Opportunity Program
                                            family may eventually be unable to
(SHOP) and Capacity Building for
                                            afford the higher payments and be forced
Habitat for Humanity. Affiliates utilize
                                            to foreclose. This scenario is not just a
the skills of dozens of volunteers
                                            possibility but one that has become a
through federally funded National
                                            reality for some Habitat homeowners.
Service groups each year, such as
Americorps, NCCC, and SeniorCorps.          We strongly support federal legislation
We have also developed long-standing        that seeks to curb predatory lending and
relationships with the U.S. Department      other unscrupulous lending practices. It
of Housing and Urban Development and        is disheartening to hear from some in
the GSE‘s, including Fannie Mae,            Congress that because the industry has
Freddie Mac, and the Federal Home           not agreed on a definition of what
Loan Bank system (through the               specific practices constitute predatory
Affordable Housing Program). The            lending, a problem does not exist. We


                                            16
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
can recognize that subprime lending has       …
its legitimate place in the market, but       How well do current programs operate
there is no excuse to not put forth strong    as production tools (e.g., HOME,
efforts to enforce existing law and work      CDBG)? How can they be improved?
to strengthen it to combat deceptive
lending practices. In this time when the      For the past five years, Congress has
Administration has announced its              appropriated funds for the Self-Help
intention to more fully support the           Homeownership Opportunity Program
promotion of homeownership, it is our         (SHOP)—as a CDBG set-aside—to
hope that some resources will be              assist non-profit, self-help housing
necessarily set-aside to provide              providers in the acquisition of land and
homeowner counseling and consumer             development of affordable single-family
education programs on the issue of            homes for homeownership. SHOP was
predatory lending as a first step.            created to facilitate the production of
                                              new housing using the self-help or
…                                             ―sweat equity‖ approach to
Another aspect of the costly issue of         homeownership and to help developers
rehabilitation as it relates to               overcome the two most significant
homeownership is the idea that                financial barriers encountered in
homeownership actually serves to              affordable housing development: the
prevent some of the problems that cause       cost of land and infrastructure
housing stock to become distressed.           development. SHOP funds are spent
Aside from the natural aging and regular      solely on land and infrastructure
maintenance needs of housing, much of         development and one house must be
the dilapidated affordable multifamily        produced for every $10,000 grant.
housing stock in this country is in a state   One of the many benefits of the SHOP
of disrepair due to neglect by property       program is that it results in the efficient
owners and tenants.                           development of affordable housing with
Perhaps one of the most tangible benefits     minimal government intervention and
of homeownership is the financial and         significant involvement by private
personal investment a homeowner places        entities. Habitat for Humanity competes
in the appearance and long-term               for these ―seed‖ funds through the
maintenance of their own property.            Department of Housing and Urban
Homeowners are much more likely to            Development, and is held to strict fiscal
maintain their homes and yards and            accountability by HUD, but administers
contribute to the general upkeep of their     the awards and manages the program
neighborhoods. Also, when families are        through our own internal processes.
given extensive pre-and post-purchase         Competition among Habitat affiliates for
counseling on the demands of                  SHOP funds is steep and requests for
homeownership and encouraged to               funding far exceeds availability.
develop savings accounts to pay for           While SHOP has revolutionized the
future maintenance needs, it is much          capacity of our affiliates to build more
more likely that the homeowner will be        houses, there are two specific changes
able to attend to problems as they arise.


                                              17
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
that would enhance its operation. Since       What are the merits of the various
the inception of SHOP, the price of land      proposals to create a new housing
has grown exponentially in many areas         production program?
of the country, creating additional           Stimulating new housing production
obstacles for self-help housing providers     through affordable homeownership tax
like Habitat for Humanity. To continue        credits, equal in scope to the successful
the successful facilitation of                Low Income Housing Tax Credit, is
homeownership opportunities for low-          perhaps one of the best ways to help
income families, we believe it is             reduce the disparity in homeownership
necessary to adjust the current               rates and attract additional dollars for
requirement of one house produced per         housing production. It is imperative that
$10,000 to $15,000, at least in high cost     the federal government create tax
areas, to accommodate the rising prices       incentives for homeownership, as
of land. It is our hope that the HUD          homeowners provide the catalyst for
Secretary may be able to provide a            community reinvestment, market
waiver for participants in high cost          stability, and the health of families and
areas, where the higher figure may be         neighborhoods. It is also essential that
necessary.                                    any homeownership tax credit program
In addition, SHOP has been reauthorized       not replace or in anyway compromise
annually, making it difficult for some of     the LIHTC, making already scarce
our affiliates to develop long-term           resources for housing even more thinly
building schedules. For example,              spread among developers.
affiliates in several parts of the country    Habitat for Humanity is in strong
have been able to acquire large tracts of     support of a federal homeownership tax
land and plan subdivisions and                credit program that would be available to
neighborhoods of Habitat homes. These         developers through a competitive
larger developments with costly new           allocation program administered by state
infrastructure are possible only through      agencies. It is our hope, of course, that
the infusion of SHOP funds but also           as the debate begins on President Bush‘s
require more extensive, long-range            proposed ―Renewing the Dream‖ tax
planning to fully implement. It would be      credit, self-help housing developers like
extremely beneficial for these affiliates     Habitat for Humanity will have a role in
to have the ability to plan for longer than   drafting the legislation. Habitat and
one year at a time, which could be            groups like ours are unique in the way
accomplished if the reauthorization of        we build and finance homes and need
SHOP were for three years. Attached to        special consideration to ensure we
this paper is draft legislative language to   qualify as developers under any tax
address these two issues and is               credit proposals.
supported by the Housing Assistance
Council, the other major user of SHOP         …
funds. This language is currently being       What innovative and creative programs
circulated on the Hill .                      are being used by states and local
…


                                              18
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
governments to produce affordable             Cash, property, and goods donated to
housing?                                      approved recipients are eligible for the
                                              credit, although contributions may not be
State of Florida‘s Community
                                              used to pay the administrative or
Contribution Tax Credit Program
                                              operational costs of the recipient
(CCTCP)
                                              organization. Banks may also fulfill their
Habitat affiliates and homeowners in the      Community Reinvestment Act
State of Florida are beneficiaries of a       requirements through donations. A
state corporate tax credit—the                business may receive up to $200,000 in
Community Contribution Tax Credit             tax credits per year and any unused
Program or CCTCP—which encourages             credits may carry over for up to five
businesses to make donations toward           years. There are currently $10 million
community and affordable housing              dollars in state tax credits available this
development. Participation in the             fiscal year.
CCTCP has enabled Habitat affiliates to
                                              Corporations receive the tax credit by
become among our top producing
                                              obtaining prior approval from the state
affiliates and build more than 500 tax
                                              office of economic development by
credit financed homes for low-income
                                              filling out an application and submitting
families in Florida.
                                              a copy of the approved application with
Due to the overwhelming success of this       their corporate income tax return at the
program and the relative ease by which        end of the year.
it is administered, Habitat for Humanity
                                              Habitat for Humanity is a popular
is interested in promoting the creation of
                                              recipient of donor funds, as many
a similar federal program. The CCTCP
                                              businesses partner with Habitat affiliates
program functions differently from the
                                              to encourage volunteerism and team
other homeownership tax credit
                                              building among their employees.
proposals but the result is essentially the
                                              Business-sponsored Habitat homes also
same: additional investment in
                                              generate positive community relations
affordable housing development and
                                              and provide opportunities to partner with
more low-income homeowners.
                                              other business and community leaders.
The CCTCP is available to any                 Please see attached legislative language.
corporation paying Florida corporate
                                              …
income tax, franchise tax or insurance
premium tax. Eligible corporations            How could the various tax policy tools
receive a tax credit equal to 50% of the      be better used to promote
value of their donation to approved           homeownership?
community development projects. All           As mentioned above, federal tax credit
projects must construct, improve, or          proposals aimed at promoting the
substantially rehabilitate housing,           development of affordable housing for
commercial, or public facilities, or          homeownership are vital tools in the
promote entrepreneurial or job                federal government‘s efforts to promote
development opportunities for low-            safe, decent, sanitary, and affordable
income persons.                               housing for all. Habitat for Humanity


                                              19
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
supports the adoption of a tax credit for   Reinvestment Act (CRA), which has
homeownership similar in function to        increased credit availability and
the Low Income Housing Tax Credit and       community lending opportunities in
is especially interested in working with    many low-income urban neighborhoods,
Congress to draft a proposal much like      should be extended to smaller banks so
Florida‘s Community Contribution Tax        that its reach expands into rural
Credit Program.                             America.
Additionally, we believe that proposals     Anecdotal evidence suggests that
to use the tax code to encourage more       subprime lenders are becoming
Americans to save for down payments,        increasingly active in rural areas, filling
closing costs, housing repairs,             in the gaps where standard credit is not
retirement, education and job training      accessible and charging more for loans
are equally important tools to help level   to some homeowners who are eligible
the playing field among those in the        for prime rates. USDA‘s Economic
lowest economic brackets. Any               Research Service estimates that rural
opportunity the federal government can      borrowers pay $300 million more than
use to help low-income Americans            urban borrowers for credit annually.
accumulate wealth, particularly in the      While most subprime lenders do not
purchase of a home, have public benefits    engage in predatory lending, this is
that extend well beyond four walls.         another costly and sometimes
                                            devastating problem facing many rural
Housing Assistance                          Americans. Manufactured home owners
Council                                     and Native Americans are especially
                                            vulnerable to predatory lending. Federal
The new Section 8 homeownership
                                            efforts to protect credit consumers from
program has tremendous potential to
                                            predatory lending practices, including
help mitigate severe housing needs in
                                            homebuyer education and credit
rural areas, where homeownership is the
                                            counseling services, should reach rural
overwhelmingly preferred form of
                                            borrowers.
tenure. However, administering the
program in dispersed rural communities      …
is likely to be problematic and             Resources should be significantly
expensive.                                  increased for the production of both
…                                           homeownership and rental housing for
                                            low-income families and individuals.
Rural households have a harder time
                                            While homeownership is not the best
than their urban counterparts in finding
                                            option for all households, it is the
mortgage credit, and they generally pay
                                            overwhelmingly preferred form of tenure
more for the credit they do receive:
                                            in rural America. Federal public-private
approximately 17 percent of all
                                            partnership strategies such as the Rural
nonmetro homeowners with a mortgage
                                            Housing Service (RHS) Section 502
agreed to interest rates of 10 percent or
                                            Homeownership Loan program and the
more in order to get their loans. HAC
                                            Department of Housing and Urban
believes that the Community
                                            Development (HUD) Self-Help


                                            20
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Homeownership Opportunity Program           provide counseling funds to local
(SHOP) are critical to making the           organizations in their networks.
American dream of homeownership             Background
possible for many rural households.
                                            Counseling has played a critical role in
…                                           expanding access to homeownership
As members of the Millennial Housing        opportunities for low- and moderate-
Commission are well aware, housing          income families across the nation. It is a
needs and solutions are often driven by     vital tool to ensure that new homeowners
local markets. No single strategy will      succeed. Pre-purchase counseling helps
work everywhere. Thus federal housing       families learn about affordable mortgage
programs must be flexible in their          and downpayment assistance programs,
methods. HAC believes that federal          deal with credit issues, learn about the
funding, however, should prioritize         homebuying process. It also helps new
serving those people who are most in        buyers understand the multi-faceted
need, including poor rural households.      responsibilities of homeownership and
Very low- and low-income individuals        avoid future problems, significantly
and families, both renters and              reducing the danger of foreclosure.
homeowners, should be the primary           A study published in May by Freddie
beneficiaries of policies that encompass    Mac (A Little Knowledge is a Good
housing production as well as housing       Thing: Empirical Evidence of the
payment assistance strategies.              Effectiveness of Pre-Purchase
The Housing Partnership                     Homeownership Counseling) concludes
                                            that homebuyers who receive face-to-
Network                                     face pre-purchase counseling are 34%
Homeownership Counseling                    less likely to experience delinquency
                                            than are buyers who receive no
Over the last decade, a homeownership
                                            counseling. Similarly, educated buyers
counseling industry has emerged. It has
                                            are far less likely to fall prey to
been largely fueled by CRA lending and
                                            predatory lending practices that are
federal policies that focus on
                                            undermining many of our nation‘s
homeownership for more low- and
                                            neighborhoods.
moderate-income families and the
neighborhoods they live in. Counseling      Post-purchasing counseling is
efforts have surfaced in many different     particularly important during the first
forms, with face-to-face efforts by         few years of homeownership. It is during
nonprofit organizations being notably       this time period that risk of delinquency,
successful. HUD has played a major role     default and foreclosure is highest. Post-
in these efforts. In addition to funding    purchase information and support helps
local counseling agencies, starting in      new homeowners make informed
1995, HUD‘s Housing Counseling              choices about maintaining and repairing
Program has funded a growing number         their homes, and avoiding financial
of national intermediaries, including the   difficulty. Should they encounter
Housing Partnership Network, that           problems—and lower income


                                            21
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
homebuyers are among the most likely        further strengthen the case for
to be affected in an economic               counseling.
downturn—a counseling resource to turn      Projected Achievements
to is essential.
                                            A relatively modest investment in home
The Role of HUD                             ownership counseling will allow
Over the past five years, funding for the   hundreds of qualified non-profit
HUD Housing Counseling Program has          counseling organizations across the
fluctuated between $15 and $20 million.     country to:
Through this program, HUD funds some
                                                Narrow the persistent gap in the
300 local housing counseling agencies
                                                 homeownership rates of white and
and national and regional intermediaries
                                                 minority households (the rate is 46%
(six in 1995, 12 in 2001) who do their
                                                 for African Americans and Latinos
counseling through 300 local affiliates.
                                                 and 72% for whites);
Thus, funding has largely been static
during a time of significant attention to       Meet the growing demand for
creating new homeownership                       qualified borrowers created by the
opportunities. All intermediaries have           secondary market and lenders who
experienced a tremendous increase in             want to reach and educate new and
demand for services.                             traditionally underserved low and
                                                 moderate income buyers;
HUD funding leverages significant
resources from other public and private         Combat predatory lending practices
sources. For example, Network affiliates         through aggressive and widespread
leverage $7 from other sources for every         education and outreach;
$1 of HUD Housing Counseling funds,
                                                Respond to the growth in the sub-
even though the demand for services far
                                                 prime lending industry to ensure that
outpaces the funding available. By
                                                 borrowers make informed choices
increasing funding for housing
                                                 and are not enticed into
counseling to at least $50 million, HUD
                                                 homeownership before they are
can play a major role in enabling a
                                                 prepared;
homeownership counseling system that
meets the demands for services.                 Provide the counseling capacity to
As the Freddie Mac study indicates,              the Administration‘s related
homeownership counseling works. But              homeownership initiatives, such as
we recognize the importance of                   Section 8 for homeownership,
continuing to demonstrate its value to           homeownership production tax
HUD, Congress, and the American                  credits, downpayment assistance
taxpayer. To this end, during the past           initiatives, FHA loss mitigation, and
two years the Network and other                  HOPE VI public housing
intermediaries have worked closely with          revitalization;
HUD to improve methods of reporting             Educate thousands of potential new
and believe that the improved data will          homeowners about the importance of
                                                 using credit wisely, preparing them


                                            22
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
    for the financial challenges and          substandard repairs, and then lease or
    responsibilities of owning a home;        resell the homes to unsuspecting
                                              families.
   Respond to the expanding market
    among seniors for sound guidance on       In 1998 Congress created the ACA
    equity conversion products; and           program. It was an effort to reconcile
                                              conflicting federal priorities and take
   Preserve homeownership and reduce         advantage of the potential of
    FHA foreclosure rates through post-
                                              partnerships with local governments and
    purchase support and foreclosure
                                              nonprofits. Local governments and
    prevention counseling in tandem
                                              nonprofits would agree to purchase all
    with HUD‘s loss mitigation tools.
                                              foreclosed assets within a defined
…                                             geographic area, rehabilitate them, and
Improving Disposition of FHA Single-          make them available for affordable
Family Homes                                  homeownership. Properties would be
                                              appraised and then sold to the local
Creative strategies to dispose of the         partnership at a discount, depending
inventory of foreclosed FHA single-           upon the amount of rehabilitation
family homes continue to provide              needed.
opportunities for affordable
homeownership and stabilizing                 ACA programs are now well underway
neighborhoods. Efforts should build on        in Chicago, Cleveland, Miami,
the policies of new Asset Control Area        Rochester and San Bernardino, with a
(ACA) program. Partnerships among             few other cities, notably Los Angeles,
HUD, local governments, and high-             getting started. These initial efforts are
capacity nonprofits should be structured      demonstrating the strength of the
to recycle FHA properties in bulk.            concept. Thousands of properties are
                                              moving through rehabilitation and into
Background                                    affordable homeownership. The early
Over the last 15 years, HUD has pursued       experiences also highlight some
a variety of initiatives to sell homes that   weaknesses in the program design. For
were foreclosed under FHA mortgage            example, there have been difficulties in
programs. These efforts have tended to        agreeing on appraisal and rehabilitation
be piecemeal, reflecting tension among        standards; insufficient discounts that
the policy goals of improving properties      force non-profit buyers to obtain other
and neighborhoods, supporting                 development subsidies, often from
affordable homeownership, and                 federal sources; confusion on the roles of
recovering as much as possible of             HUD‘s private Marketing and
insurance claims. As a result, properties     Management (M&M) contractors; and a
often remain in the disposition process       general slowness in bringing
too long, and become blighting eyesores       communities into the program.
suffering from deterioration and              Though initially unenthusiastic about the
vandalism. In some cases, when the are        program, HUD is now moving to expand
finally sold, properties are bought by        Asset Control Agreements to additional
predatory resellers who make                  cities. HUD is also addressing some of


                                              23
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
the weaknesses through a rulemaking          ACA properties and other housing
process.                                     development activities.
Maximizing the Partnership Opportunity       This arrangement improves the current
                                             program by:
Technical changes can help the program.
There are also opportunities to realize          Aligning the interests of the federal
more fully the potential of the                   government, the local government
federal/local/nonprofit partnership               and the nonprofit. The nonprofit
structure. Continued efforts to improve           does well by being efficient, keeping
ACA operations should focus on four               rehabilitation costs down (within the
objectives:                                       agreed-upon standards), and by
                                                  generating sales proceeds that
   Bring properties back to market
                                                  reimburse part of HUD‘s mortgage
    quickly and in bulk, preserving their
                                                  insurance claim.
    economic value and minimizing
    blighting impacts;                           Streamlining the acquisition and
                                                  development process. The depth of
   Perform quality rehabilitation so that
                                                  HUD‘s involvement and regulation
    the properties remain neighborhood
                                                  is reduced by eliminating individual
    assets into the future;
                                                  appraisals and rehabilitation
   Create thousands of affordable                standards for each property. These
    homes for sale; and                           cost the government time, effort and
                                                  money, and continue to involve
   Stabilize communities by increasing
    homeownership.                                HUD in monitoring activities.
                                                  Sharing financial incentives and
ACA partnerships should be further                risks, HUD would encourage
strengthened by establishing risk-sharing         entrepreneurial and experienced
compacts between HUD and the local                nonprofits to administer the program
nonprofits responsible for acquiring,             with cost efficiency, scale and
rehabilitating, and reselling the                 impact.
properties. First, HUD, the local
government, and the nonprofit would              Using the FHA insurance fund to
agree on minimum standards for                    subsidize rehabilitation and resale
rehabilitation. HUD would then                    costs of HUD-owned properties to
contribute the properties, and the                lower-income families. Rather than
nonprofit would secure financing to               burden local or state governments, or
rehabilitate, market and resell them. Net         indeed other HUD programs, to
proceeds from the sales (after repayment          provide gap subsidies, the insurance
of rehabilitation financing) would be             fund is the appropriate source to
shared between HUD and the non-profit             absorb these costs.
on a portfolio basis. The nonprofit would        Encouraging local participation by
use its proceeds to pay for its costs to          spreading risk. The risks and rewards
run the program and/or for reinvestment           of resolving entire portfolios are
in other affordable homes, including              shared with the federal partner.



                                             24
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
The ACA program was intended to             Today, with ICE‘s help, there are more
create partnerships between HUD and         than 120 developing and operating CLTs
strong local organizations. The risk-       in 31 states and the District of Columbia.
sharing partnership will realize the full   Representing practically every
potential of these relationships. The       geographic region of the country, CLTs
Network believes HUD has the authority      have developed over 5000 units of
under the existing statute to engage in a   permanently affordable housing.
partnership of this nature.                 …
Institute for Community                     Public Policy Support Needs and
Economics / Community                       Recommendations
Land Trust Network                          CLTs have been actively engaged in
                                            acquiring, constructing, rehabilitating,
Homeownership in a CLT is a simple          marketing, and, in many cases,
concept. The Community Land Trust           managing permanently affordable
sells a brand new or fully renovated        housing for decades. Yet, due to the
house at a reduced cost to a buyer. The     uniqueness of the CLT model, many
buyer owns the home; the community          CLTs are still struggling to receive the
retains the land. If the homeowner          public policy awareness and public
decides to sell, he or she leaves with a    financial support they deserve. Public
share of the equity while the community     policy initiatives supportive of
retains an affordable house, preserving     community land trusts should prioritize
the opportunity to own decent and low
                                            or should require permanent
cost housing for other families, for        affordability.
generations to come.
                                            Permanent affordability has been a
The CLT buyer, typically someone who        scoring advantage in competing for
never dreamed of owning a home in           Federal Home Loan Bank funds and a
their community, gets most of the           number of CLTs have benefited from
advantages of homeownership — the tax       this priority. Community Development
benefits, the long term security, a share   Block Grant (CDBG) and federal
of the equity, the simple delight of        HOME funds have been primary sources
planting a garden or making other           of CLT financing and both of these
improvements — paying a mortgage that       programs have often placed a strong
is often lower than rent. The community     emphasis on permanent affordability. In
control provides a powerful tool in         recognition of the subsidy retention and
reversing neighborhood disinvestment or     long-term affordability benefits of CLTs
gentrification. Congress has recognized     many localities have enabled CLTs to
the effectiveness of community land         utilize these programs to acquire the land
trusts in developing and preserving         for their projects debt-free, further
affordable housing in the Housing and       maximizing the long-term affordability
Community Development Act of 1992,          of the housing units. Encouraging these
which explicitly states that CLTs are       funding programs to maintain permanent
eligible for assistance through the         affordability and subsidy retention as
HOME Program. See Appendix A.


                                            25
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
program goals or requirements should be       direct assistance to groups, provided
a high priority on the public policy          through site visits, telephone and email
agenda.                                       consultation, and supported by a range
                                              of introductory and technical
In qualifying for any public or private
                                              publications; (3) provision of regional
funding community land trusts should be
                                              trainings on the CLT model; (4)
accorded a competitive advantage over
                                              development of further instructional
affordable housing brought to the market
                                              materials, and (5) provision of pass
either without resale restrictions, with
                                              through funding to new groups needing
resale restrictions that are forgiven over
                                              start up support and established groups
time or restrictions that expire in 20-30
                                              encountering specific one time needs.
years. Policy and funding should also be
structured to require or to at least reward   Operating support for community land
subsidy retention in the housing itself       trusts is another policy issue worth
rather than recapturing of subsidies with     mentioning. Operating support is an
interest. In the latter scenario, the value   issue for any non-profit affordable
of the subsidy is greatly diminished over     housing developer. Community land
time as the market appreciates. In            trusts because they take on the task of
contrast, CLT subsidy retention               building membership and stewarding
maintains affordability by removing the       land over the long term are especially in
land from the equation and controlling        need of a stable base of support to build
the value of the improvements.                organizational capacity for these
                                              multiple roles. In the start-up years of
Equally high on the public policy agenda
                                              such organizations at least three-years of
should be continued funding for ICE‘s
                                              operating support is critical because the
HUD funded CHDO technical assistance
                                              organization can not generate
provision activities. The 1992 Housing
                                              developer‘s fees, property management
and Community Development Act makes
                                              income, or ground lease fees until it has
specific provision for CLT funding
                                              developed property. Such financial
under the federal HOME program. The
Act defines CLTs as ―community                support could easily be provided by
                                              enabling legislation designed
housing development organizations‖
                                              specifically to assist CLTs particularly
(CHDOs) under the HOME program,
                                              during their formative years.
thus qualifying them for additional
project funding, operating support, and       The marketability of individual CLT
technical assistance. In 1999 ICE             homes is yet another area in which
received its second three-year national       progressive public policy initiatives
contract with HUD to provide technical        directed at the lending community and at
assistance to CHDOs that operate as or        the secondary market would be
want to start CLTs.                           beneficial. Lending institutions need to
                                              be assured that they are not undertaking
ICE‘s cooperative agreement with HUD
                                              any greater risk in financing a CLT
is national in scope and provides for
                                              home with a ground lease and resale
several kinds of assistance: (1)
                                              restrictions than with financing a
assessment of the technical needs of
                                              conventional dwelling. In most instances
organizations that request assistance; (2)


                                              26
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
they are assuming less risk because of      address the concerns of the lending
ground lease provisions that mandate        community, FHA and those of the
early notification to the lender by the     secondary market would eliminate the
CLT that the homeowner may be at risk       need for ICE and individual CLTs to
of falling behind in the payments. In       negotiate solutions on a time-consuming
these cases the CLT would work with         case by case basis.
the homeowner to prevent an eventual
default and if those efforts failed the     Manufactured Housing
CLT would have the option of                Institute
purchasing the home and continuing the
                                            How can access to capital for
payments to the lender.
                                            homeownership (for refinancing as well
Fannie Mae, the nation‘s largest            as purchase) be improved for those who
secondary market member and ICE have        currently fall through the gaps?
collaborated successfully for many years
                                            The current system of risk-based
to develop a Fannie Mae CLT Mortgage
                                            mortgage rates for
Product, opening up additional lending
                                            purchasers/refinancers of manufactured
opportunities for CLT homebuyers and
                                            homes adds to the cost of the home and
making it easier for lenders to sell CLT
                                            makes our homes less affordable. It
mortgages to Fannie Mae. Additionally,
                                            makes sense to focus the current explicit
the Fannie Mae Foundation is promoting
                                            and implicit federal subsidies (available
CLTs as a way to capture the value of
                                            to all homeowners) on affordable
traditionally undervalued resources in
                                            housing products such as manufactured
distressed communities. The foundation
                                            homes. In the capital markets, this means
also plans to undertake research on
                                            that HUD should direct Fannie Mae and
CLTs as a value-recapture mechanism,
                                            Freddie Mac to create a broad secondary
and ICE expects to be a part of that
                                            market for personal property loans in the
discussion and research.
                                            short and medium term. These GSEs
In contrast, FHA has been reluctant to      should also help the manufactured
purchase CLT mortgages without              housing industry over time develop
insisting on the addition of an onerous     technologies, communities, and other
―Rider‖ which requires that resale          infrastructure that enable the asset-
restrictions be extinguished, thereby       backed securities market for
defeating the purpose of permanent          manufactured home loan portfolios to
affordability. Some CLTs have               become part of the broader mortgage-
encountered problems in obtaining           backed securities market. This should be
project financing due to problems with      done in a way and a timeframe that
securing FHA insurance where the            allows current chattel finance lenders to
mortgages contain resale restrictions.      adapt and compete as this group has the
ICE is currently working with FHA           greatest experience and success in
officials to have those insurability        managing the unique credit risks
barriers eliminated. A federal ‗long-term   associated with manufactured housing.
affordability/ resale restriction‘ policy
backed by specific legislation that would


                                            27
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
How can we best provide the capital to      should be studied, and appropriate
finance the rehabilitation needs of the     remedies devised to ensure that owners
affordable housing stock?                   of manufactured homes are given an
                                            opportunity to benefit from these federal
Many lower-income homeowners reside
                                            programs.
in aging manufactured home
communities that are in need of             …
upgrading. FHA‘s 207(m) program is          How could the various tax policy
supposed to provide financing to            “tools” (e.g., tax credits, bonds, passive
developers seeking to upgrade these         loss allowances) be better used to
older communities. However, the
                                            promote (a) the production of affordable
regulations have been in place since the    rental housing, including housing for
1970s and have not kept pace with the       extremely low-income families, (b)
changing nature of the manufactured         homeownership?
housing industry, thus making it
difficult, if not impossible, for many      In particular, manufactured housing for
developers to utilize this program. In      all policy purposes, including tax policy,
addition, many local HUD offices            should be treated on a par with multi-
around the country have no familiarity      family housing.
with the program, do not promote it or
are unwilling to work with developers       McAuley Institute
seeking to utilize the program. The         Homeownership rates are historically
207(m) program should be reviewed and       high in the U.S., but the rates among
HUD should be encouraged to work with       disadvantaged groups – women and
the industry to revitalize the program as   minorities in particular -- lag behind.
a way to upgrade these older                The good news is that these
communities.                                disadvantaged groups comprise the
While Freddie Mac has financed the          fastest growing segments of the market
rehabilitation of some manufactured         of first-time home buyers. Although
home communities, Freddie Mac and           homeownership is not for everyone, in
Fannie Mae, as well as the regional         some parts of the country it is the most
Federal Home Loan Banks, can do more.       viable form of housing. Many women
One option could be to offer targeted tax   are attracted to homeownership as a
subsidies for such activities, helping      means of asset-building and security for
bring down the effective lending rate on    their families after they‘re gone.
the rehab loans so long as this is passed   McAuley has assisted Houston‘s Fifth
through to the homebuyer.                   Ward Community Redevelopment Corp.
                                            which builds homes for purchase by
In addition, while many federal             families earning as little as 30 percent of
programs such as HOME and CDBG are          area median ($19,000). In the colonias,
open to manufactured homes, state and       Proyecto Azteca, employing the Self-
local governments quite often construct     Help model, has been able to sell homes
barriers to the use of these program        to families earning much less.
dollars on manufactured housing.
Inequities in the use of these dollars


                                            28
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
To encourage homeownership among              The FHA home mortgage insurance
lower-income families, the Commission         program needs to be expanded and
should encourage a mix of strategies          strengthened. Because of its low
including individual development              downpayment requirements and flexible
accounts to match individual savings and      underwriting guidelines, the FHA
a homeownership tax credit to lenders of      program serves families who would not
soft second mortgages.                        qualify for conventional financing. As a
                                              result, 80% of FHA homebuyers are first
Mohave County Housing                         time buyers and nearly 42% are
Authority                                     minorities. These percentages far exceed
                                              the conventional mortgage market. But
We believe that some long-term
                                              the FHA program could do more, if
mortgage assistance will be necessary to
                                              several legislative and regulatory
preserve homeownership for those who
                                              changes were made to it to make it even
are on fixed incomes. We also believe in
                                              more useable. A comprehensive list of
the choice that tenant based assistance
                                              these changes is included in the attached
offers clients.
                                              MBA Blueprint, but the legislative
Mortgage Bankers                              changes specifically would include:
Association of America                        Making permanent the streamlined
                                              downpayment calculation for FHA
How can access to capital for                 mortgages that will expire on December
homeownership (for refinancing as well        31, 2002. Several years ago the Congress
as purchase) be improved for those who        changed the formula for calculating the
currently fall through the gaps?              downpayment requirements for FHA
MBA believes that access to capital for       loans to make them more affordable and
homeownership for those that fall             understandable to the borrower. Now,
through the gaps (low and moderate            these provisions should be permanently
incomes families, minorities, etc.) is best   extended. If the provisions are not
achieved by maintaining a strong              extended, the downpayment
commitment to the Federal                     requirements for FHA loans will
government‘s homeownership programs           significantly increase on January 1,
(FHA,VA and RHS) and by providing             2003.
comprehensive financial literacy and          Providing diversification of FHA‘s
homebuyer education and counseling            product mix by allowing FHA to insure
programs. The FHA, VA and RHS all             hybrid adjustable rate mortgages
offer homeownership programs that             (ARMs) and other new and innovative
require very low downpayment or no            loan products (at least on a limited
downpayment by the borrower and               basis), as the marketplace dictates,
flexible underwriting guidelines.             without requiring FHA to have specific
Because of these features, these              legislative authority for each product.
programs play a critical role in              This change would foster innovation and
expanding homeownership                       allow FHA to respond more quickly to
opportunities.                                changes in the marketplace. (Hybrid


                                              29
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
ARMs have an initial fixed interest rate     amount in Des Moines) while a senior
for the first 3-10 years with adjustments    living in San Francisco with a home
to the interest rate annually thereafter.    worth $175,000 can obtain a FHA
Hybrid ARMs are commonly referred to         insured reverse mortgage for the full
as 3/1, 5/1, 7/1 and 10/1 ARMs. A            $175,000 because the FHA loan limit in
hybrid ARM usually has an initial            San Francisco is $239,250. The FHA
interest rate that is lower than a 30 year   loan limit for reverse mortgages should
fixed rate loan and is less risky than a     be uniform nationwide so that there is no
one year ARM because of the initial          disparate treatment of seniors in this
fixed interest rate period.)                 way.
Establishing a uniform, nationwide loan      The VA home loan program has enable
limit for FHA Home Equity Conversion         millions of veterans to buy homes who
Mortgages (reverse mortgages) that is        may not have otherwise been able to do
equal to the FHA high cost mortgage          so. The single greatest advantage of the
limit. A reverse mortgage can be used by     VA program is the opportunity to
senior homeowners who are ―house             purchase a home without any
rich‖ but ―cash poor‖ to convert the         downpayment. Many veterans and
equity in their homes into a monthly         especially younger veterans have not had
cash payment. But use of the reverse         the opportunity to accumulate the funds
mortgage program is limited because of       for a downpayment because of their
the restriction on loan amounts in the       military service. Typically, veterans
FHA program. FHA loan amounts for its        have the necessary income to qualify for
―forward‘ or regular mortgages are           a mortgage, but not sufficient funds for
limited and vary from county to county,      the downpayment required by other
depending on housing costs in the area.      mortgage programs. As a result, 55% of
Presently, the maximum FHA loan              veteran buyers are first time buyers.
amount can range from $132,000 to            The VA program can be strengthened
$239,250. In this way, FHA programs          and modernized to benefit more veterans
are focused primarily on low and             by making several legislative changes.
moderate income families purchasing a        These changes would include:
home. These county by county loan
limits also apply to FHA reverse             Indexing the VA guaranty amount to the
mortgages. However, there is no              conforming Fannie/Freddie loan amount
rationale for having county by county        so that the guaranty amount keeps pace
maximum loan amounts for reverse             with rising house prices. Currently, the
mortgages, because this is a program         VA guaranty amount is $50,750.
that serves seniors who already own          Because of secondary market
their homes and are just trying to convert   restrictions, this results in a maximum
their equity into additional monthly         VA loan amount of $203,000 (four times
income. Therefore, under current law, a      the guaranty amount). This loan amount
senior living in Des Moines in a home        of $203,000 is significantly below the
worth $175,000 can obtain a FHA              current Fannie Mae/Freddie Mac loan
insured reverse mortgage for only            limit of $275,000 and fails to offer
$132,000 (the maximum FHA loan               sufficient housing choices for veterans


                                             30
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
located in areas with high housing costs.     statewide median or 115% of the US
The VA guaranty amount should be              median family income. Legislative
indexed to the Fannie Mae/Freddie Mac         changes recommended for the RHS
loan limit and be set at 25% of that limit.   program include:
Based upon a current Fannie
                                                  Increasing the median income limits
Mae/Freddie Mac loan limit of
                                                   to at least 120%.
$275,000, the VA guaranty amount
would be $68,750.                                 Allowing borrowers to finance, in
                                                   full, into the mortgage the two
Diversifying VA‘s mortgage product
                                                   percent RHS guarantee fee paid by
mix by allowing VA to guarantee hybrid
                                                   the borrower to be consistent with
adjustable rate mortgages. Hybrid ARMs
                                                   other government homeownership
have initial interest rates that are lower
                                                   programs. Such fees are able to
than thirty year fixed rate mortgages, but
                                                   financed in full in the FHA and VA
are less risky than one year ARMs
                                                   programs.
because of the initial fixed rate period.
Streamlining the VA program by                    Allow RHS guaranteed loans to be
permitting lenders to select their own             streamline refinanced by RHS
appraisers. Presently, VA itself, must             without regard to the income limits.
assign appraisers to lenders in order to           Streamline refinancing will save
have property appraisals performed on              RHS borrowers time and money.
the home to be purchased by the veteran.      Equally important to the primary market
The VA loan program is the only loan          is the role the secondary market agencies
program that continues this anachronistic     play in promoting homeownership. The
practice. In conventional and FHA             Government National Mortgage
lending, lenders select their own             Association (Ginnie Mae) functions to
appraisers so that the lender can provide     support the FHA, VA and RHS
borrowers with faster service and high        programs by adding value and liquidity
levels of customer service.                   to their insured and guaranteed loans.
The Rural Housing Service Guaranteed          Lenders pool the government backed
Loan Program is designed to facilitate        loans they have made and issue
access to home mortgage financing by          securities backed by these mortgages
families in rural areas who do not            and guaranteed by Ginnie Mae. Because
qualify for a loan to purchase a home         of the Ginnie Mae guarantee of payment
without the government guarantee.             of principal and interest to the investors
Numerous studies have documented the          who buy the Ginnie Mae securities, the
lack of affordable housing opportunities      price received for these pooled loans is
for low and moderate income families in       higher than if the loans were sold into
rural areas. The RHS program also has         the secondary market as just whole
income limits. In order to eligible for an    loans. This pricing allows lenders to
RHS guaranteed loan, the family must          offer lower mortgage interest rates that
not have an income that exceeds the           are passed on to homebuyers.
greater of 115% of the average state          Ginnie Mae also offers lenders
metropolitan median family income and         incentives to lend money in underserved


                                              31
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
urban areas and rural areas under its          It is appropriate for HUD to establish
Targeted Lending Initiative. In these          aggressive affordable housing goals for
designated underserved areas Ginnie            the GSEs so that they ―lead the industry‖
Mae reduces its guarantee fee, thereby         in promoting affordable housing.
further reducing the interest rate on the      They should assume some risk on their
mortgage to make homeownership more            mortgage transactions and not transfer
affordable in these areas. Legislative         all of the risk to the primary mortgage
changes that need to be made to the            market or other market participants.
Ginnie Mae program to maintain
housing affordability include:                 Consistent with their charters, they
                                               should be encouraged to undertake
Rolling back the three basis point             ―activities relating to mortgages on
increase in the Ginnie Mae guaranty fee        housing for low and moderate income
scheduled to take effect in 2004. There is     families involving a reasonable rate of
no justification for this increase since the   return that may be less than the return
Ginnie Mae program already operates at         earned on other activities.‖
a considerable profit, making $746
million in 1999. Increasing the Ginnie         The Federal Home Loan Banks (FHLB)
Mae guaranty fee will only result in           have developed the Mortgage
higher borrowing costs for low and             Partnership Finance (MPF) Program and
moderate-income borrowers using the            the Mortgage Purchase Program (MPP)
government backed mortgage programs.           to provide for the purchase of
                                               government and conventional mortgages
MBA supports the vital role that the
                                               by FHLBs. MBA supports the
Government Sponsored Enterprises               development of the MPF and MPP
(GSEs)--Fannie Mae, Freddie Mac --             programs as another avenue for the
play in maintaining the liquidity and          liquidity of mortgage loans and
stability of the secondary market. These       increased competition in the secondary
GSEs can have a significant impact on          market. Currently, thrifts, commercial
providing affordable housing                   banks, life insurance companies, state
opportunities. Accordingly, the MBA            housing agencies, credit unions and
wishes to make the following points with       other lenders have access to the FHLB
regard to these GSEs:                          system. However, independent mortgage
They should be encouraged to provide           companies do not have access to the
assistance to the secondary market for         FHLB system and the MPF and MPP
mortgages on housing; however, they            programs. The FHLBs should open their
should not be encouraged or allowed to         MPF and MPP programs to allow
compete in the primary market or               independent mortgage companies to
expand to other markets that are well          compete for funds in a manner that
served by others. They must focus on the       acknowledges and respects the rights of
missions prescribed in their charters and      the current members of the FHLBs.
the clear distinction between primary          …
and secondary market activities must be
reaffirmed.                                    How can we best provide the capital to
                                               finance the rehabilitation needs of the


                                               32
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
affordable housing stock (both public       any one time or reducing maximum loan
housing and assisted inventory)?            to value ratios on these mortgages.
There is a continued need to have           …
flexible residential renovation loan        The MBA supports the Single Family
products available for homebuyers and       Housing Tax Credit proposal contained
investors. Both Fannie Mae and Freddie      in President Bush‘s budget for FY 2002.
Mac have renovation loan programs that      This ―Renewing the Dream‖ tax credit
can be used by both owners and              program would support the rehabilitation
investors, but must be made more            or new construction of homes in
flexible if they are to be broadly used.
                                            distressed communities. This program
For example, loan to value ratios for       would provide investors with a tax credit
multiple unit properties (2-4 units) are    of up to 50% of project costs for eligible
often restricted below what is needed in    rehabilitation or new construction.
many areas. Fannie Mae has a restriction    Eligible areas would be census tracts
that the renovation costs cannot exceed     with incomes at or below 80% of
50% of the completed value, which often     median, rural areas as defined by RHS
disqualifies low value properties for its   and Native American trust lands.
program. More flexibility is needed in
conventional renovation loan products so    Mortgage Guaranty
that they meet the needs of more
homebuyers.
                                            Insurance Corporation
                                            We advocate creation of a
There is only one program backed by the
                                            homeownership tax credit. The tax credit
Federal government that is specifically
                                            should be flexible enough to be used for
targeted for residential renovation
                                            purchase, purchase-rehabilitation, or
lending and that is the FHA Section
                                            construction-to-permanent financing;
203k program. While this FHA program
                                            and it should provide a solution for both
has flexible underwriting guidelines and
                                            DEMAND and SUPPLY-side affordable
standards, it does not currently permit
                                            housing issues.
participation by private investors. FHA
suspended the program for investors         We advocate the tax credit be written
back in 1996 because of increases in        into the federal tax code but
losses due to these loans. However,         administered on the local level by state
private investors are often the first to    housing finance authorities (HFAs) that
risk capital to renovate properties in      will implement the tax credit consistent
distressed neighborhoods, so suspending     with local housing needs. We don't
this program for investors certainly has    believe a direct-to-consumer tax credit
hurt neighborhood revitalization efforts.   can provide much benefit since the
MBA believes that the Section 203k          consumers we are trying to assist have
program could be reinstated for private     very little taxable income. That's why we
investors with the implementation of        favor an investor or lender tax credit
reasonable safeguards to reduce risk,       with strong recapture provisions to
such as imposing a limit on the number      assure most of the benefit falls to the
of FHA loans an investor can have at        borrower.


                                            33
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
In an attempt to frame the debate over      program; but we are zealous about the
housing tax policy, MGIC developed the      nation's need for a single-family tax
Home At Last tax credit, which we urge      credit that addresses both demand and
the Commission to consider as it            supply issues. The time has come for a
prepares its recommendations (document      homeownership tax credit that targets
attached). Home At Last would be a          families most in need and deserving of
lender-based tax credit that would          assistance.
seamlessly integrate into the existing      More Down Payment and Closing Cost
mortgage origination process without        Assistance is Needed
disrupting the secondary mortgage
markets, or creating the need for a         We support increased allocations to
specialized secondary mortgage market.      federal programs ( like CDBG, HOME,
Home At Last represents the most            etc.) which provide direct, lump-sum
flexible approach to creating               down payment and closing cost
affordability because it can be used with   assistance to borrowers through local
most types of mortgages (conventional,      allocating agencies. This type of
FHA, VA, etc.) and for home purchase,       assistance helps borrowers who have the
purchase-rehabilitation, or home            income to support a mortgage payment,
construction-to-permanent financing. By     but cannot save fast enough to buy a
applying the tax credits as points to buy   home and start building wealth through
down the first mortgage rate, Home At       equity. Additionally, this type of
Last is able to achieve a bigger bang for   assistance helps the private sector serve
the taxpayers' buck than direct cash        a larger population of borrowers.
subsidies while providing homebuyers        Policy Should Promote Pre- and Post-
the lowest possible monthly mortgage        Purchase Borrower Support
payment.
                                            We believe strongly in the benefits of
MGIC has talked with a number of            pre-purchase education and counseling
housing and mortgage lending trade          provided before the home search begins,
groups and reaction to the Home At Last     and post-purchase borrower support,
tax credit has been favorable. To that      including early delinquency intervention.
end, we are in the process of developing    Unfortunately, the organizations that
a working paper to show how the tax         provide these services must compete for
credit can be used to address both          a limited supply of corporate
demand and supply issues related to         contributions or meager federal funds.
affordable housing.                         We support passage of a law that would
Though we have gone to great lengths to     allow these non-profit agencies to
develop and promote the Home At Last        recover the cost of providing these
concept, we want to make it clear that      services (up to a dollar-amount set by
MGIC supports maintaining the               law) through a lump-sum charge that
Mortgage Interest Deduction (MID) and       would be financed as part of the loan
also supports the Administration's          amount. This will have a nominal effect
American Dream Tax Credit. We're are        on monthly payments charged of
not zealous about any one tax credit        consumers and is, in our minds, a


                                            34
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
justifiable cost because the benefit to the   program is that it provides strong
consumer is homeownership. In                 incentives to renters to save money, to
addition, a subsidy will still be necessary   better manage monthly cash flow, and to
to support non-profit groups'                 maintain an unblemished credit record.
infrastructure costs and costs associated     Ostensibly, they learn how to be
with serving borrowers whom are               homeowners while renting.
unsuccessful in their attempts to attain      Cooperative housing offers much the
homeownership.                                same opportunity. Monthly payments for
Turning the LIHTC into a Wealth-              quality cooperative living arrangements
Building Tool                                 can be as low as fair market rents.
                                              However, unlike rental payments, a
Relative to the Low-Income Housing
                                              portion of the monthly payment in a
Tax Credit (LIHTC), we'd like to see it
                                              coop arrangement goes into the
used for the construction of units which
                                              borrower's equity. Coops have been
renters can ultimately own and build
                                              criticized for their very low rate of
equity. While the most critical housing
                                              appreciation, but they at least offer
needs this country faces may well be in
                                              borrowers the opportunity to build
the multifamily sector, we feel it is
                                              equity over time.
sound public policy to promote
homeownership because of its wealth-          FHA Risk Sharing Would Improve Loan
creating benefits. Specifically, we'd like    Performance and Reduce Taxpayer
to see lease-to-purchase and cooperative      Exposure
housing supported by the LIHTC. This
                                              We believe the time has come for the
would allow for the construction of           FHA to share risk in its 203(b) program
affordable units that renters may             with the private sector. It is our opinion
ultimately own. The idea of expanding         that risk sharing would result in
the LIHTC to lease-to-purchase and            immediate improvement in loan
coop arrangements was originally              performance, reduce U.S. taxpayers'
forwarded in June 1998 in a Brookings         exposure to default losses; and enable
Institute document titled Summary of          the FHA to stretch its guaranty to serve
Home Ownership Tax Credit Proposals.          more homebuyers.
The LIHTC currently allows lease-to-          One of the reasons for the FHA's historic
purchase arrangements, but requires that      poor loan performance is its "direct
buyers lease a home for 15 years before       endorsement" approach to underwriting
having the option to buy. This is too         which enables lenders to apply the FHA
long. As a result, some groups have           guaranty with little recourse. FHA
suggested shortening the required lease       underwriting guidelines are not
period to 5 or 10 years. We agree with a      materially different from conventional
5- to 7-year option period, but recognize     conforming affordable housing
that the renter's ability to exercise that    underwriting criteria; yet FHA fixed-rate
option will depend on the wealth              mortgages (FRMs) default three to five
accumulation program they are to abide        times more often than conventional
by as part of the lease-to-purchase           conforming affordable housing FRMs.
arrangement. What we like about this


                                              35
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
The primary difference between                 broader access to market-price
conventional and government mortgage           mortgages. Private-sector lenders and
underwriting is execution. Stiffer             insurers are given the opportunity to
recourse measures in the conventional          expand their markets. And, if done
market -- a direct result of risk sharing --   correctly, FHA risk sharing can align the
promotes more responsible lending and          interests of the government, borrowers,
focuses underwriters on a borrower's           lenders, insurers, and community-based
ability to maintain long-term                  organizations, such as housing
homeownership. Consequently, if the            counseling agencies.
FHA were to engage in a risk-sharing           Let the Real Estate Markets Set Home
arrangement with the private sector, we        Values
would advocate that a third-party private
sector participant underwrite to current       We support passage of a law that
(or possibly expanded) FHA criteria.           prohibits the tying of any subsidies to a
                                               borrower's willingness to pay a pre-
Another contributor to the success of          specified home price without
conventional conforming affordable             negotiation. This would eliminate
housing programs is outreach and               programs that require borrowers to pay a
borrower preparedness programs                 pre-determined home price if they want
provided by organizations like                 to receive the benefits of a given
Neighborhood Reinvestment                      subsidy. These programs, we believe,
Corporation's NeighborWorks and                pose a high risk of overpricing homes,
Washington, D.C.-based HomeFree.               particularly to first-time homebuyers,
These groups provide pre-purchase and          because the actual price is not the result
post-purchase borrower support that            of free market competition.
makes a difference in a borrower's
ability to sustain long-term                   Mortgage Insurance
homeownership. Additionally, their
ability to assist in outreach through
                                               Companies of
community-based channels results in a          AmericaSecond
higher level of borrower diversity. Every      document on Web site (in
one out of two borrowers served through
NRC's NeighborWorks organizations,             entirety)
for example, are minority. We believe          A Public-Private Partnership to Expand
this type of support must be a critical        HomeownershipA Brief Primer
element of any FHA risk-sharing
                                               The Current Situation
program, especially if expanded
underwriting criteria are employed.            The Federal Housing Administration
                                               (FHA) and the Veterans Administration
What's most important to note about
                                               (VA) act as "mortgage insurers" to many
FHA risk sharing is that it has great
                                               homebuyers who sometimes do not
potential to be a "win-win" outcome for
                                               qualify for the private conventional
all. The federal government (i.e.:
                                               mortgage market. They assist
taxpayers) reduces its exposure to
                                               predominantly low and moderate-
default losses. Borrowers benefit from
                                               income consumers achieve


                                               36
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
homeownership by providing a partial          will result in more sources of capital to
guarantee (in the case of VA loans), or       expand homeownership.
government supported mortgage                 There would be considerable housing
insurance (in the case of FHA loans).         policy advantages to this initiative as
Most of these FHA and VA housing              well. Potential homebuyers would
policy benefits are directed to first time    experience new choices and innovations
homebuyers or families with limited or        when seeking a mortgage. For instance,
even slightly impaired credit. In either      there are essentially only two automated
case, the benefits act as financial           scoring systems used to determine who
catalysts for potential homebuyers with       is approved and rejected for home loans,
very little available cash savings to apply   those owned and controlled by the
toward the downpayment on a home.             secondary mortgage entities Fannie Mae
Lenders originate the FHA and VA              and Freddie Mac.
mortgage loans and package them into
mortgage backed securities guaranteed         With this initiative, potential
by Ginnie Mae. Ginnie Mae provides the        homebuyers would have access to
full faith and credit guarantee of the        several automated scoring systems. Most
United States government that investors       potential homebuyers, especially those,
in these security instruments will not be     who are repeatedly rejected by lenders,
exposed to principle loss.                    don‘t realize that today, many different
                                              lenders use the same scoring systems,
The First Time Homebuyers Act                 the systems owned and controlled by
The First Time Homebuyers Act is a            Fannie Mae and Freddie Mac. With
new public-private partnership that will      public-private partnership, they would
make buying a home more widely                have greater opportunities for loan
available to many Americans,                  approval. With greater choice, increased
particularly those buyers who have            competition and access to Ginnie Mae,
traditionally had difficulty obtaining a      many new affordable loans could be
loan in the past – including minorities,      made.
first-time home buyers and low- and           Additionally, it‘s important to note that
moderate-income Americans.                    FHA-insured loans have a default rate
The innovation behind this public             two to three times higher than loans
private partnership is that it introduces     insured by the private conventional
private mortgage insurance into the           market. In addition to spreading some of
Ginnie Mae program, allowing the              the default risk, the new public private
private sector to join the FHA and VA in      partnership will give the government
supporting the risk on certain Ginnie         access to the innovative private sector
Mae loans. That means if loans default,       technology and default management
the taxpayers alone will no longer bear       tools used to help keep families in their
the primary burden for those losses.          homes when they run into financial
Losses would be spread between the            trouble.
government and the private sector.            How it works
Having more places to spread the risk



                                              37
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
At least half of all FHA and VA loans        The private mortgage market wants to
are made to buyers who have down             help expand and support the government
payments of three percent or less. That      mortgage market not only because it is
extensive concentration of FHA and VA        good housing policy that will help more
support leaves less FHA and VA funding       families realize the American dream of
available for potential homebuyers in the    home ownership, but also because it
mortgage market with between three-          makes good economic and business
and ten-percent to put down on a house.      sense. Lenders will benefit from the
The First Time Homebuyers Act is             increased size of the government
designed to make loans to serve that         mortgage market created through the
group - those with a down payment of         program. Lenders are also better
more than three percent and less than ten    protected against borrower default by the
percent. As a result, the initiative is      deeper insurance coverage the program
specifically designed to complement, not     offers in comparison to conventional
compete with, the current FHA program.       lending. Additionally, lenders get greater
Ginnie Mae‘s ability to securitize more      control over underwriting decisions:
loans in the 90 percent to 97 percent        under the initiative they can choose from
loan-to-value range will result in a         the variety of diverse underwriting
larger, stronger market for homebuyers       systems and programs made available by
who can afford down payments within          private companies, rather than being
that range (three-to-ten percent).           limited to only the two currently
                                             available through Fannie Mae and
In addition, because The First Time
                                             Freddie Mac.
Homebuyers Act offers so-called ―life of
loan‖ mortgage insurance coverage, the       The First Time Homebuyers Act: A win-
program makes investing in Ginnie Mae        win-win proposition
securities much more attractive to Wall      The First Time Homebuyers Act is a
Street, ensuring an even more abundant       win-win-win: consumers benefit through
supply of mortgage money for low and         lower costs, more choice and options,
moderate income consumers. While             and through the expansion of mortgage
Ginnie Mae and investors receive life of     availability – often to those who have
loan protection, the homebuyer also          been shut out in the past. Taxpayers
benefits because – like homeowners in        benefit through the expansion of
the private mortgage market – they will      homeownership in a public private
be able to stop paying mortgage              partnership that diminishes the impact of
insurance premiums once they have            potential homeowner default risk on the
reduced their remaining balance to 78 %      government in the event of a national –
of the value of their home. Wall Street      or even a regional – economic downturn.
will also be attracted to the new Ginnie     Ginnie Mae will benefit by getting the
Mae securities because the private           full use of the tools and technology that
insurers will be responsible for the first   has enabled the private market to be
30 percent of loss on any eligible loan.     outstanding at underwriting loans and
Benefits to Lenders                          terrific at keeping people at risk of
                                             default in their homes. Lenders benefit


                                             38
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
from the increased size of the              Budget Office has determined that the
government mortgage market created by       public-private partnership would bring
forming this innovative public-private      additional funds into the Treasury.
partnership.                                Myth: ―The public-private partnership
Third document on Web                       will increase the costs of loans to
                                            consumers.‖
site
                                            FACT: Consumers would never pay
A Public-Private Partnership to Expand      more for loans, in fact in some instances
HomeownershipMyths and Facts               they would end up paying less. This
Myth: ―This is not a public-private         program simply brings additional
partnership, but rather several big banks   competition to the marketplace.
and mortgage insurers trying to lay off a   Increased competition will only benefit
portion of their loan risk on the Federal   consumers and get more of them into
Government.‖                                their own homes.
FACT: The exact opposite is true. The       Myth: ―The big banks and mortgage
private sector would share the risk which   insurers are only entering this market
is now completely born by the Federal       because of the higher servicing fees
Government. In a typical loan default,      associated with these loans.‖
private mortgage insurance would cover      FACT: As required by law these loans
the entire loss and the Federal             have traditionally generated marginally
Government would pay nothing. Also,         higher servicing fees. The fee structure
cutting-edge private sector tools would     was designed to compensate for the
both improve loan approval screening        increased work and risks associated with
and help reduce default and delinquency     these higher risk loans.
rates among those who run into financial
difficulties.                               Myth: ―There is no reason or need for
                                            this program.‖
Myth: ―The FHA suffers from an
inability to properly manage risk and       FACT: There is a great need for this
suffers dangerously high default rates.     program, especially if the U.S. is to
Allowing them, through a public-private     achieve HUD Secretary Martinez‘ goals
partnership, to make more loans simply      of reaching 70% homeownership and
compounds the risk to the Federal           raising the percentages of minorities
Government.‖                                who own their own homes. Currently
                                            many potential homebuyers are denied
FACT: The mission of FHA is to reach        loans because of the GSE duopoly over
families who otherwise could not get        automated underwriting systems. The
home loans, yet each year the FHA           public-private partnership would open
actually brings hundreds of millions of     the market to additional loan approval
dollars into the U.S. Treasury. The         systems which tests show will mean
public-private partnership will introduce   more loan approvals to all Americans.
private sector risk management tools,
proven to reduce defaults and
delinquencies. The Congressional


                                            39
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter

National Association of                     market extremely well. It has focused
                                            the GSEs on their affordable housing
Home BuildersFirst                         mission, while establishing rigorous
document on Web site                        safety and soundness requirements.
Continued GSE Support Is Essential To       Recent efforts in Congress to overhaul
Address Unmet Housing Needs                 the regulatory structure for Fannie Mae
                                            and Freddie Mac, as well as diminish
The housing-related government
                                            their GSE status, could impair the ability
sponsored enterprises (GSEs),
                                            of these enterprises to perform their
particularly Fannie Mae and Freddie
                                            critical role in the housing finance
Mac, are integral components of this
                                            system. Any change in the GSEs‘
nation's housing delivery system. With
                                            agency status or regulatory framework
the help of Fannie Mae and Freddie
                                            could have negative ramifications on the
Mac, nearly two-thirds of the nation‘s
                                            housing finance system, including:
households are homeowners. Much of
                                            higher mortgage rates, increased
this success is due to the public/private
                                            volatility in the cost and availability of
partnership established by Congress
                                            mortgage credit (especially for
more than a half-century ago and to the
                                            affordable housing), lower
reforms enacted in the Federal Housing
                                            homeownership rates, fewer affordable
Enterprises Safety and Soundness Act of
                                            rental units and reduced mortgage
1992 (the GSE Act). However, despite
                                            product and technological innovations.
these achievements, several sectors of
the housing market remain underserved       The present GSE regulatory structure is
by the present system. Homeownership        working effectively and efficiently to
rates for minorities and certain other      ensure that Fannie Mae and Freddie Mac
segments of our population remain low.      are operating in a safe and sound manner
There also continues to be a critical       and fulfilling their public mission. There
shortage of affordable rental housing.      is no need for Congress to act to change
The GSEs‘ continuing role in providing      this system which has taken more than a
capital for the secondary markets is        half century to develop. Rather than
critical to filling these gaps in the       change the regulatory framework,
housing finance system.                     NAHB urges the current GSE regulators
                                            to ensure that the GSEs continue to work
As we move forward to close these gaps,
                                            within their charters and to implement
a strong and efficient regulatory system
                                            rigorous capital requirements to ensure
for Fannie Mae and Freddie Mac, one
                                            the safety and soundness of these
that balances safety and soundness
                                            institutions. Until all Americans enjoy
concerns with mission fulfillment, is
                                            decent and affordable housing, as well as
essential. We believe that the current
                                            the opportunity for homeownership, the
GSE regulatory system established by
                                            critical supports provided by the GSEs to
the 1992 GSE Act meets these
                                            the housing finance system should not be
objectives. The 1992 GSE Act created a
                                            weakened.
positive tension between the mission and
safety and soundness oversight of these     …
entities which has served the housing


                                            40
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
To increase the rate of homeownership,            Temporary Economic Stimulus
NAHB offers these three proposals:                 Proposals
   Support an amendment to the tax                With the economy currently
    code to allow for the tax-free                 experiencing slow growth, the
    treatment to all contributions-in-aid          unemployment rate rising, and the
    of construction.                               manufacturing sector of the economy
                                                   shrinking, the NAHB suggests two
   Temporarily allow up to $10,000 of
                                                   temporary economic stimulus
    a down payment for a first time
                                                   proposals. These proposals would
    homebuyer of a new or existing
                                                   not only help increase the rate of
    house to be considered a qualified
                                                   homeownership, but would stimulate
    investment if said proceeds come
                                                   the overall economy and in particular
    from a qualified plan of the buyer or
                                                   stimulate the manufacturing sector of
    his/her parents or grandparents.
                                                   the economy, which is weaker than
   Enact a temporary credit of 10                 any other segment.
    percent of the home purchase price
                                                  Make Down Payment Assistance a
    up to $6,500 for all first time
                                                   Qualified Investment
    homebuyers of new or existing
    houses.                                        Available evidence strongly suggests
                                                   that outside of income, it is a lack of
…
                                                   a down payment that prevents most
Increasing Homeownership                           renter households who wish to buy a
                                                   house from doing so. Despite the
   Make Contributions-in-Aid of
    Construction Tax-Free                          strong rise in U.S. homeownership
                                                   rates over the past decade, among
    Contributions-in-aid of construction           households aged 25 to 39, the age
    (CIAC) are fees paid to utilities by           category most first-time buyers come
    developers and builders to offset              from, homeownership rates have still
    taxes paid by utilities resulting from         not returned to their levels of the
    the ceding of utility improvements to          1970s. This is primarily because
    utilities by developers and builders.          these households do not have the
    While the Congress made CIAC to                necessary savings, despite having
    public utilities that provide water and        good employment histories, and
    sewage services tax free, all other            satisfactory household incomes. The
    types of CIAC are taxable. In areas            NAHB proposes allowing a
    where utilities of this sort exist, the        homebuyer, his parents and/or
    price of housing has risen as much as          grandparents to collectively invest up
    $1,000 to $2,000. The NAHB                     to $10,000 of qualified retirement
    suggests amending the tax code to              money towards a down payment. By
    make all CIAC tax-free. Doing this             temporarily expanding the definition
    would enable from 400,000 to                   of a qualified investment the
    800,000 households annually to                 government can, in a revenue neutral
    afford to buy a house who now                  way, encourage homeownership,
    cannot.                                        stimulate the economy, and improve


                                              41
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
    the portfolio diversification of many     market. The cost is shifted from the
    Americans.                                government to housing builders, thence
                                              to consumers. It is unjust to shift a social
   Offer First-Time Homebuyers a Tax
                                              cost–the cost of law making–away from
    Credit
                                              society as a whole and impose it on one
    Another way to help achieve the dual      segment of society, if those bearing the
    objectives of increasing                  cost are not receiving a benefit in return,
    homeownership and stimulating the         as in the case of a user fee. In the case of
    economy is to temporarily enact a         unclear and unnecessary regulations, the
    credit of 10 percent of the home          government reduces its short-run costs
    purchase price up to $6,500 for all       by shifting them onto the housing
    first time homebuyers of new or           market, raising the cost of housing,
    existing houses. Enactment of this        reducing its availability and
    proposal would be especially              affordability. The government‘s short-
    beneficial to households with little if   run saving is short-sighted as well, since
    any retirement savings.                   a proper impact analysis would prevent
    Traditionally, Hispanics and African-     litigation that could well cost more than
    Americans have had lower incomes          the small addition to the analysis already
    than whites, which has made it            required by the Paperwork Reduction
    harder for them to save up for a          Act.
    down payment. As a result, despite
                                              …
    government surveys showing
    homeownership rates increasing for        New Homeowner Tax Credit
    blacks from 43 percent in 1994 to 48      NAHB Proposal
    percent in 1999 and for Hispanics
    from 41 percent to 46 percent, the        NAHB proposes a temporary income tax
    numbers lag far behind whites, 74         credit for anyone who buys a first home
    percent of whom own homes.                in the amount of 10 percent of the
                                              purchase price, with a maximum credit
Both of these temporary proposals also        of $6,500. Both new and existing homes
help protect against housing from             would qualify for the credit. The credit
contributing to the current economic          would be refundable or eligible for
weakness. Should housing starts falter,       carry-forward treatment, in case the
hopes of a quick economic recovery            family does not owe enough taxes to
would be severely reduced.                    exhaust the credit. First-time buyer
Fourth document on Web                        status and recapture provisions would be
                                              determined as they are for the mortgage
site                                          revenue bond program, already in place.
If it is our national policy to encourage     There would be no limit on buyer
homeownership, then we should reduce          income, but there would be a limited
the taxes on achieving that goal, not         period of time that the purchase would
increase them. The failure to analyze the     qualify for the credit. NAHB proposes a
housing cost effects of regulation merely     one-year limit, to begin when the
means the analysis will be done in the        legislation is introduced.


                                              42
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Tax Credits in Housing Policy                 The participants purchased homes that
                                              are modestly priced in the expensive
Tax credits are an efficient means of
                                              Washington region. Nearly a quarter of
influencing taxpayer behavior without
                                              the homes cost between $100,000 and
constructing a new bureaucracy.
                                              $150,000, and another quarter cost
Administration is fairly simple; once the
                                              between $25,000 and $100,000. Less
right to the credit is established, the
                                              than one-fifth of the credit claims went
―payment‖ is done through personal tax
                                              for houses costing over $200,000, which
return filing. A first time home buyer tax
                                              is still a moderate price in the
credit is already in use in the District of
                                              Washington area.
Columbia, where a $5,000 tax credit is
available to people buying their first        In sum, this tax credit to the buyer seems
house in the District. A tax credit for the   to have induced a decision to convert
purchase of a new home was                    from renting to home owning, influenced
implemented in 1975 and a first time          the decision about where to buy, and
home buyer tax credit was passed by           allowed people to buy affordably-priced
Congress in 1992. President Bush vetoed       homes. It does exactly what a housing
the legislation for reasons other than the    program should do: it houses people
credit.                                       better, cheaper, and simpler. All the
                                              administration is through the tax system.
Since 1997, the Congress has allowed
first-time home buyers in the District of     Stimulus Effects
Columbia to claim a $5,000 credit             The NAHB proposal is designed to
against their federal income tax in the
                                              stimulate the economy and also increase
year they buy the house. There are no         homeownership. The credit is to last
restrictions on price, but the credit         only a short time, so buyers will
decreases as buyer‘s income rises above       accelerate purchases they had planned
$70,000. At $90,000 income, the credit        for the future. This time limit is key for
evaporates; the limits vary according to      the macroeconomic stimulus effect.
tax filing status.
                                              The proposal also applies to both new
The Greater Washington Research               and existing homes. The stimulus from
Center (now part of the Brookings             accelerated purchase of new homes
Institution) estimates that 70.1 percent of   causes additional homes to be built.
home purchasers in the District claimed       Because home construction involves a
the credit in 1998. Over three-fifths of      wide array of products, the additional
the claimants listed prior addresses in the   expenditures spread over many sectors
District; presumably, most of them were       of the economy. Sales of existing homes
renters converting to owners. Of the          also stimulate the economy. When
non-residents, only one-third owned           people move, they not only buy a house,
their own homes at their previous             they also buy furnishings and appliances,
addresses; most had been non-owners.          and they undertake alterations to make
Clearly, the credit induces purchases.        the house their home. People who don‘t
Just over half the GWRC respondents           move also do these things, but at a much
said the credit caused them ―to buy at        lower rate than movers. People moving
this time.‖


                                              43
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
into houses built since 1990 spend an        as well. Homes account for the largest
average of $8,642 on appliances,             share of household assets, larger than
alterations, and furnishings, almost three   stocks, larger than bonds, larger than
times as much as non-movers.                 mutual funds, and larger than retirement
Additional consumption expenditure of        accounts. In fact, housing accounts for a
$6,000 per household would have a            larger share of household wealth than all
strong multiplier effect.                    four of those financial assets combined.
                                             Overall, American households hold 28
Facilitating sales of existing houses
                                             percent of their wealth in the form of the
would also tend to add new construction,
                                             primary residence. This figure is all the
as the original homeowners purchase
                                             more remarkable because it covers the
replacement homes. First time buyers are
                                             whole population, one third of whom do
more likely to buy an existing home, but
                                             not even own a home. The National
the sellers of that home are more likely
                                             Association of Home Builders
to purchase a new home. When those
                                             recommends that a portion of residence
sellers buy their new home, the purchase
                                             assets–the down payment–be allowed as
still has a stimulative effect, but these
                                             an asset in qualified plans of the
pre-existing homeowners are not eligible
                                             homeowner or the homeowner‘s parents
for the tax credit. Hence, the credit
                                             or grandparents, to the extent they made
would even stimulate construction that
                                             a contribution to it.
would not use the credit.
                                             …
A new homeowner tax credit for buyers
would bring a lower effective price of       Five percent of all households are saving
homes to current non-owners. It would        primarily to buy their own home. If
also allow current homeowners to sell        homes could be made available for those
their homes and purchase new housing         people, not only would those households
they prefer. This increased home buying      be free to increase their spending or
will stimulate the economy through           transfer their new saving toward another
construction and consumption                 purpose, but the wider economy would
expenditure, triggering a multiplier         benefit as well, as more people are put to
effect through the economy.                  work to build and furnish those homes.
                                             Both the households and the economy
Down Payment as a Qualified IRA Asset
                                             would prosper.
The Tension between Home and
                                             People show a wide variety of reasons
Retirement Savings
                                             for saving, like education or general
Families are urged to save for a down        household purposes. However, the
payment, so they can own their own           largest single reason for saving was
homes, yet at the same time, they are        retirement; 35 percent of households
urged to start saving early for their        listed retirement as their primary
retirement. Therefore, they face a           motivation for saving. Two-thirds of
conflict between homeownership and           households already own a home, but
retirement security. In earlier times, it    some of the non-owners must be saving
was said, ―A man‘s home is his castle.‖      for retirement as well. They are pressed
Nowadays, it is the household‘s treasure,    to make a choice between two goals,


                                             44
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
each of which is a strong policy             the down payment for a first time home
objective of our nation: home ownership      buyer temporarily should be allowed as
and retirement security.                     an asset in a qualified retirement plan,
                                             and that it should be allowable in the
That pressure could be relieved by
                                             qualified plans of the homeowner, and
recognizing that some saving
                                             the homeowner‘s parents and
accomplishes both goals. Saving to buy
                                             grandparents. The contribution is neither
a house is also saving toward a secure
                                             a loan nor a withdrawal; it is the
retirement. People hold more wealth in
                                             purchase of a qualified asset–equity in
their homes than they do in their
                                             the first home for themselves or one of
retirement accounts. People already fund
                                             their descendants. The contributors
retirement with their homes to some
                                             should be allowed to sell other assets in
degree. They may sell the home or
                                             their plans to make their contributions
exchange it to pay the entrance fee for an
                                             without tax or penalty, as long as the
assisted living community, or they may
                                             down payment remains an asset of the
take out a reverse mortgage, transferring
                                             plan. It would be subject to the same
title in exchange for an annuity and
                                             rollover provisions as any other asset.
possession while alive. IRA policy
                                             This investment would only be
already grants some recognition to the
                                             allowable for one year, moving forward
interplay between homeownership and
                                             purchases that people had planned to
retirement planning. One may withdraw
                                             make later, creating a strong near term
up to $10,000 from a qualified plan in
                                             stimulus to the economy. Increases in
order to purchase a first home without
                                             homeownership and home buying will
penalty, but the withdrawal will be
                                             increase home building, a large and very
counted as taxable income in year of
                                             cyclical sector of the economy. Allowing
withdrawal. In neither case does the
                                             the down payment on the first home as a
purchased asset–equity in the home–
                                             qualified investment would also lower
become an asset of the plan.
                                             barriers to homeownership,
One may sell an IRA asset and use the        accomplishing another important
proceeds to buy another, if it is            national goal. Finally,
acceptable for a qualified plan. Most
                                             Most people seek two characteristics in
attention centers on financial assets like
                                             an investment: they want a high return,
stocks and bonds, and REITs are also
                                             but they also want a low risk. Because
allowed. However, owner-occupied real
                                             those characteristics are so universal,
estate is not qualified. The use of IRA
                                             investors face a trade-off between risk
assets to buy a home would be counted
                                             and return. High returns tend to come at
as a withdrawal, subject to income tax at
                                             the cost of high risk, and low risk
the tax payer‘s current marginal tax rate.
                                             investments tend to yield a low return.
NAHB Proposal                                What follows is a comparison of the
NAHB proposes that owner-occupied            risk/return performance of owner-
housing is as solid an investment as the     occupied housing against a conservative
other qualified assets; it provides a good   qualified asset–a broadly diversified
financial return at low risk. Therefore,     portfolio of major stocks, represented by
                                             the Standard and Poors 500 index.


                                             45
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
Housing as an Asset                           approximately two-thirds of results will
                                              be within one standard deviation above
Housing is unusual, because it is both a
                                              or below the average. A small standard
consumer good and an investment good.
                                              deviation means it is unlikely for a result
People buy houses because they enjoy
                                              to occur far from the mean, so small
owning their own homes, but they also
                                              standard deviations are signs of low risk.
provide financial returns. In some ways,
                                              In this case, about two-thirds of the
it has these characteristics in common
                                              observations are between 4.5 and 6.5
with investing in paintings or antiques,
                                              percent annual appreciation. In other
but those markets are notoriously
                                              words, capital appreciation above the
speculative, while the housing market
                                              rate of general price inflation is
will be shown to be much more secure
                                              extremely dependable for the average
and dependable. The financial returns to
                                              house.
homeownership come two ways. First,
over the long run, most homes in most         The other major return to housing is the
areas increase in value over time, so the     imputed rent. According to the Census
home yields capital appreciation, just        Bureau, imputed rent is also rising
like a stock going up in price. Second,       steadily, from $86.5 billion in 1975 to
homeownership yields a stream of              $619 billion in 2000, nationwide.
income, in the form of freedom from           Spreading that imputed rent over the
paying rent. Since no rent check goes to      number of owner-occupied housing units
a landlord, it is as though household         and adjusting for units‘ values each year,
income had gone up by the amount of           one finds the imputed rent to average
the rent. Purchasing a house purchases        4.39 percent of the home‘s value per
the right to keep the rent every month,       year. That return is very steady, having a
and add it to household income. This          standard deviation of one-third of 1
rent is a form of income, but it is not       percent (0.34 percent) of the home‘s
actually paid to the household as a           value. To lose money on rent savings is
check; it is a benefit received by right of   nearly impossible: it would require a
ownership. It is measured as ―imputed         negative imputed rent.
rent;‖ the rent that would have been paid     The financial return to housing is the
on that house if it had been leased           sum of the two parts, capital
instead of purchased.                         appreciation and imputed rent. The
According to the Office of Federal            capital appreciation data were adjusted
Housing Enterprise Oversight (OFHEO),         for quality, but both the value of homes
the price of a house more than                and the imputed rent include rising
quadrupled from 1975 through the end          quality. However, as the imputed rent is
of 2000, rising 312 percent, keeping the      divided by the home value, and both
quality of the housing constant.              reflect increasing quality to the same
Computing an average annual rate,             extent, the quality changes cancel each
homes appreciated at a rate of 5.56           other out. Therefore, these two series of
percent per year, with a standard             returns are comparable, and they can be
deviation of 0.96 percent. Standard           added to make the total return.
deviation is a measure of risk;               Averaging the annual totals reveals a


                                              46
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
return of 9.8 percent per year over the       standard deviation of the S&P is larger
last twenty-five years. This return is        than its average; the investor faces a
rock-stable with a standard deviation of      non-trivial possibility of losing a part of
3.0 percent. If the future behaves like the   the investment even in this most
past twenty-five years, a homebuyer           diversified portfolio of the best firms.
faces only about a 16 percent probability     But it is undeniable that stock investing
of making less than a 6.8 percent return      is very much riskier than
on the purchase.                              homeownership, yielding a return that is
                                              not very much higher. While stock
Broadly Diversified Stock Portfolio
                                              ownership may bring greater wealth, it
A standard investment for many IRAs           does so at a greater risk cost. Financial
and individual investors is a broadly         losses are unlikely from stocks, but they
diversified portfolio of stocks, and          are possible, as shown by the recent
possibly some bonds. As most people           decline of the S&P. Financial losses are
cannot buy very many stocks with a            nearly impossible for the average house.
small nest egg, they can accomplish this
                                              Summary
diversification by buying shares in a
mutual fund. Diversification stabilizes       Tax-based economic stimulus programs
the portfolio, evens the flow of returns,     are a fast and efficient means of
and reduces the loss when one of the          applying fiscal policy when the economy
portfolio companies performs poorly.          needs an injection. NAHB proposes two
One very broadly diversified portfolio is     plans that stimulate home purchases. The
to hold all the stocks in the Standard and    tax credit to first time home buyers
Poors 500, an index of the five hundred       provides incentive to move purchases
largest publicly traded companies in the      forward into the period when greater
United States. Several mutual fund            economic activity is desired. And, the
families provide an opportunity to invest     tax credit provides added finance help
in a ―market index‖ fund that holds the       for first time home buyers as they
S&P 500; it gives the investor the            struggle to amass a downpayment.
market rate of return at the market level     Stimulating home building stimulates a
of risk. Many fund families offer an          wide variety of other sectors because so
index fund, so they are widely available      many different and geographically
to IRA investors. Index funds are             diverse industries supply the home
qualified assets in a tax-deferred            building market. This process puts many
retirement plan.                              people to work, from loggers and
                                              quarriers to cabinet makers and
Since 1975, the S&P 500 has produced
                                              appliance manufacturing workers
an average annual yield of 11.8 percent,
with a standard deviation of 13.8             The second temporary stimulus allows
percent. (Like expenditure of the             taxpayers to invest in a first home
imputed rent from housing, the re-            purchase using their assets in a tax-
investment or expenditure of dividends        deferred retirement plan. The down
is ignored.) The yield is two percentage      payment on housing would be a
points higher than in owner-occupied          qualified asset. It is as durable as many
housing, but the risk is quadrupled. The      corporations; it shows nearly as high a


                                              47
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
rate of return as responsible, risk-averse   Background
stock investing, but it has a much lower     Though total homeownership has grown
risk; and it recognizes the way people       to record levels in the last few years, this
view their homes as investments to           climb has left some families behind.
secure their old age. Therefore, allowing    Fully 82 percent of the nation‘s high-
the down payment in a qualified plan         income households own their own
makes sense in terms of the objectives of    homes, while homeownership prevails in
the law and rational human behavior.         only a bare majority of low income
The NAHB proposals work by                   families, 52 percent. Low-income
mobilizing people‘s existing savings and     households often achieve
desire to become home owners. The new        homeownership by devoting an
spending injects new production activity     especially large share of income to house
into the economy. The effect is similar to   payments, and that share has been
a government spending program, except        increasing since 1991. Instead, it means
no tax dollars are involved, and it          the poor have shouldered greater
doesn‘t unbalance the budget or gnaw at      burdens of debt.
the surplus. If the proposals are            We suggest that a targeted intervention
temporary, families have a greater           in the housing market may direct market
incentive to buy now, before the window      forces to bring home ownership within
closes. Therefore, planned purchases are     reach of more American families.
accelerated.                                 Obviously, the cost of homeownership
Both of these proposals serve multiple       would fall if the supply of housing were
purposes. Both will stimulate the            to rise, but construction of housing
economy by accelerating purchases of         requires investment. Traditional capital
housing; both will increase the housing      markets direct funds toward the highest
stock, and both will increase the level of   return and lowest risk, and low income
homeownership. Both programs provide         areas are perceived as promising lower
the greatest direct aid to younger and       returns and threatening higher risk. To
lower income families who have yet to        attract capital, investments must offer a
purchase their first home, but current       better and/or lower risk than is available
homeowners benefit as well. Their            elsewhere. Appropriate use of tax policy
homes will appreciate from the               can act as a lever, raising the expected
improved housing market, and they will       return to investors, thus attracting private
have greater opportunity to sell their       capital to production of housing. As a
current homes and move to other              result, the housing stock grows, and the
housing they may prefer. Though the          cost of homeownership falls, especially
initial impacts target people who cannot     for lower income families.
yet purchase a home, the ultimate            NAHB Proposal
impacts are widespread.
                                             The National Association of Home
…                                            Builders proposes a tax credit program
Producer‘s Tax Credit for First-Time         to assist in the construction and
Homebuyers                                   rehabilitation of homes, particularly in


                                             48
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
distressed neighborhoods, for low- and       The LIHTC works by motivating private
moderate-income first-time                   capital to invest in housing. In 2000,
homeownership. The credits could be          58,748 units were produced by the use of
auctioned and syndicated, providing          $379 million in credits, or a subsidy of
credit from a wide source. Competitive       about $6,500 per unit. These projects
pressures for allocation of the credits      supplied about 15% of all new
within each state would hold home            multifamily housing that year. In 1999,
prices down, to maximize the subsidy         73% of all participating units were new
impact. The credit applies only to           construction. In their 1995 sample,
purchases by first-time home buyers, so      Cummings and DiPasquale found 27%
its use will be oriented strongly toward     of central city new construction projects
families with lower incomes. This tax        were built in census tracts that had seen
credit is to be a complement to existing     no new rental housing construction in
home ownership programs; it is not           the past five years. Rents tended to be
meant to replace or reduce any current       about 10% lower than the national
programs to improve the affordability of     average for recent movers.
rental or owner-occupied housing.            In a 1999 survey of participating
Tax Credits in Housing Policy                property owners, 83% of respondents
                                             said the credit was absolutely essential to
Tax credits are an efficient means of
                                             the deal, and 49% said the credit enabled
influencing taxpayer behavior without
                                             owners to lower rents. Only 29% of
constructing a new bureaucracy.
                                             owners said the credit affected the
Administration is fairly simple; once the
                                             number of units built in their projects,
right to the credit is established, the
                                             but two thirds of those increased the
―payment‖ is done through the tax
                                             number, mostly in central cities.
returns one must file anyway. A similar
program is already in place for rental       In sum, the LIHTCa tax credit to
housing–the Low Income Housing Tax           buildershas been successful at
Credit (LIHTC). The next section is a        increasing the number of new affordable
detailed discussion of the LIHTC and its     housing units built, improving the
effects.                                     quality of existing affordable housing,
The Low Income Housing Tax Credit for        and lowering the rents charged for that
Builders                                     housing.

The LIHTC is granted to private-sector       Tax Credits Work
builders or rehabilitators of low-income     The LIHTC has increased the supply of
housing. Its primary purpose is to           affordable rental housing for low-income
increase the supply of affordable            families. NAHB proposes that we use
housing by lowering the cost of              this same concept for homeownership.
producing it. A builder attracts investors   Allocate and auction credits like the
by allowing them to share in the tax         LIHTC to builders who construct and
credit through syndication; the credit       rehabilitate homes for low- and
cannot be sold.                              moderate-income first-time home
                                             buyers. This process raises capital and


                                             49
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
lowers the financial risk of building low-   Homeownership rates for minorities and
and moderate-income housing. The             certain other segments of our population
credit applies to purchases of new and       remain low. There also continues to be a
rehabilitated homes only, directly           critical shortage of affordable rental
increasing the stock of affordable homes     housing. The GSEs continuing role in
without increasing the costs or putting      providing capital for the secondary
pressure on the current market. Projects     markets is critical to filling these gaps in
aided by these credits would be              the housing finance system.
especially beneficial in areas that have     Background
been difficult to develop. Urban infill
and brownfields are good candidates for      Fannie Mae and Freddie Mac were
the use of these credits, building a         created by Congress in 1938 and 1970,
community by replacing vacant lots with      respectively, to support a secondary
homeowners. A project of good quality,       market for residential mortgages.
owner-occupied homes can give a major        Specifically, the GSEs‘ housing mission,
boost to poor communities and stabilize      as mandated by their respective Charter
changing neighborhoods. With more            Acts, is to:
housing opportunities available, more            provide stability in the secondary
low income families will be able to               market for home mortgages;
make that major financial step of owning
their own homes.                                 respond appropriately to the private
                                                  capital market;
…
                                                 provide ongoing assistance t the
Continued GSE Support Is Essential To
                                                  secondary market for residential
The U.S Housing Finance System
                                                  mortgages (including activities
Issue                                             relating to mortgages on housing for
The housing-related government                    low-and moderate-income families
sponsored enterprises (GSEs),                     involving a reasonable economic
particularly Fannie Mae and Freddie               return that may be less than the
Mac, are integral components of this              return earned on other activities) by
nation's housing delivery system. With            increasing the liquidity of mortgage
the help of Fannie Mae and Freddie                investments and improving the
Mac, nearly two-thirds of the nation‘s            distribution of investment capital
households are homeowners. Much of                available for residential mortgage
this success is due to the public/private         financing; and,
partnership established by Congress              promote access to mortgage credit
more than a half-century ago and to the           throughout the Nation (including
reforms enacted in the Federal Housing            central cities, rural areas and
Enterprises Safety and Soundness Act of           underserved areas) by increasing the
1992 (the GSE Act). Despite these                 liquidity of mortgage investments
achievements, however, several sectors            and improving the distribution of
of the housing market remain                      investment capital available for
underserved by the present system.                residential mortgage financing.


                                             50
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
To assist Fannie Mae and Freddie Mac          oversight for Fannie Mae and Freddie
in achieving their housing mission,           Mac; while the Office of Federal
Congress provided the GSEs several            Housing Enterprise Oversight (OFHEO)
privileges and legal exemptions. These        is the safety and soundness regulator for
federal privileges or attributes include:     Fannie Mae and Freddie Mac. The
                                              current regulatory structure for Fannie
   a line of credit with the US Treasury
                                              Mae and Freddie Mac was established
    of up to $2.25 billion each for Fannie
                                              under the Federal Housing Enterprises
    Mae and Freddie Mac;
                                              Financial Safety and Soundness Act of
   eligibility for the GSEs' corporate       1992 (or, the GSE Act).
    securities to be purchased without
                                              The GSE Act directs HUD to establish,
    limit by federally regulated financial
                                              monitor and enforce housing goals for
    institutions;
                                              the Enterprises. By law, the housing
   assignment of mortgage-related            goals require Fannie Mae and Freddie
    securities issued or guaranteed by the    Mac to direct a specific percentage of
    GSEs to the second lowest credit risk     their mortgage purchases to three
    category at insured depository            specific categories: 1) housing for low-
    institutions;                             to-moderate income families (the low-
                                              mod goal); 2) housing located in
   eligibility of the GSEs' debt to serve
                                              underserved areas (the geographically
    as collateral for public deposits;
                                              targeted or underserved areas goal); and,
   eligibility of the GSEs' securities for   3) special affordable housing to meet the
    Federal Reserve open market               unaddressed needs of lower income
    purchases;                                families defined as 60 to 80 percent of
                                              area median income (the special
   exemption from state and local
                                              affordable goal). The goals are measured
    income taxes (but not from property
                                              as a percentage of total number units
    taxes or federal income taxes); and,
                                              financed by a GSE (including both
   exemption from SEC registration and       single and multifamily mortgages) and
    reporting requirements.                   one mortgage can satisfy more than one
                                              goal.
Securities issued by the GSEs are not
explicitly guaranteed by the U.S.             The initial housing goals were
government. However, given their              established in 1995. HUD has issued
federal privileges, the marketplace has       revised regulations which raise these
assumed an implicit government                goals for 2001-2003. The new rules
guarantee.                                    increased the low/mod goal from 42 to
                                              50 percent of each GSE‘s purchases; the
Regulation of Fannie Mae and Freddie
                                              underserved areas goals increased from
Mac
                                              24 to 31 percent; and, the special
Two government agencies regulate              affordable goal increased from 14 to 20
Fannie Mae and Freddie Mac. The               percent. Fannie Mae and Freddie Mac
Department of Housing and Urban               have consistently met their housing
Development (HUD) has mission                 goals for 1996-2000 and are committed


                                              51
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
to meeting the new ―stretch‖ goals in          the date of publication before Fannie
2001-2003.                                     Mae and Freddie Mac must comply with
                                               the RBC standard. By statute, the final
The Office of Federal Housing
                                               RBC rule was to completed by 1994.
Enterprise Oversight (OFHEO) is
                                               Although the final rule is extremely
charged with implementing the safety
                                               lengthy (600 pages) and complex,
and soundness provisions of the Federal
                                               Fannie Mae and Freddie Mac have
Housing Enterprise Financial Safety and
                                               pledged to meet the RBC standard.
Soundness Act of 1992 (the Act).
OFHEO's primary responsibilities are to        The GSEs Play Critical Role In
establish and enforce capital standards        Sustaining The U.S. Housing Finance
for Fannie Mae and Freddie Mac (the            System
Enterprises) and to conduct annual             By all accounts, Fannie Mae and Freddie
onsite examinations of the Enterprises to      Mac have met their Congressional
ensure that the firms are operating in a       mandate. Together, they have brought
safe and sound manner.                         enormous benefits to home buyers and
The Enterprises must meet two capital          the housing finance system. Some of the
standards, a minimum leverage ratio and        benefits provided by Fannie Mae and
a risk-based capital (RBC) standard, in        Freddie Mac include:
order to be classified as adequately
                                                   Reduction of mortgage interest rates.
capitalized. The Act authorizes
                                                    Home buyers with conforming
mandatory and discretionary regulatory
                                                    loansmortgages eligible for
enforcement actions if an Enterprise is
                                                    purchase by Fannie Mae and Freddie
less than adequately capitalized. The Act
                                                    Mac, those up to $275,000 for one-
dictates that the RBC standard must be
based on a stress test that includes three          unit propertiespay mortgage rates
components: credit risk, interest rate risk,        that are approximately 25 to 50 basis
and management and operations risk. The             points lower than rates paid by other
stress test will determine the amount of            conventional mortgage borrowers.
capital that Fannie Mae and Freddie Mac            Reliable and stable supply of
must hold to maintain positive capital              mortgage credit. The vibrant and
over a 10-year period of adverse credit             efficient secondary market that the
and interest rate conditions, plus an               housing GSEs have been
additional 30 percent of this capital level         instrumental in establishing provide
to cover management and operations risk.            a link to the national and
On July 19, 2001, after nearly 10 years             international credit markets. This
of development and two public comment               linkage sustains the flow of capital to
periods (in 1996 and 1999), OFHEO                   housing, even under changing
publicly released the final RBC                     economic conditions. While the
regulation. The rule is presently                   economy has undergone major
undergoing a 60-day Congressional                   shocks over the past decade, home
review period and will be published in              buyers have experienced no
the Federal Register in September. There            interruption in the availability of
will be a one-year transition period from           mortgage credit. As evidence of the


                                               52
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
    stable flow of credit for housing, one         in underserved areas. The housing
    only needs to look to the financial            goals enacted by the 1992 GSE Act
    market liquidity crisis in late 1998,          have successfully encouraged both
    when the GSEs continued to make a              Fannie Mae and Freddie Mac to
    wide variety of home and                       significantly increase their service to
    multifamily mortgage products                  the market sectors targeted by the
    available at affordable interest rates.        housing goals. Fannie Mae‘s and
                                                   Freddie Mac‘s financing of housing
   Elimination of regional disparities in
                                                   for low- and moderate-income
    interest rates. The GSEs provide a
                                                   families has increased from under 30
    nationwide market for mortgage
                                                   percent of their mortgage purchases
    funds, a key factor in the elimination
                                                   in 1992 (just prior to enactment of
    of regional disparities in the
                                                   the GSE Act) to almost 50 percent in
    availability and cost of mortgage
                                                   2000.
    credit, which occurred regularly
    before Fannie Mae and Freddie Mac              These accomplishments are the result
    came on the scene. Today, interest             of concerted efforts by both
    rates in conforming mortgage                   Enterprises in the affordable housing
    markets around the country vary by             arena. Both GSEs have introduced
    no more than 10 basis points.                  products and services to expand
                                                   homeownership opportunities for
   Cushion against local economic                 low-and moderate-(low/mod) income
    downturns. When regional
                                                   borrowers, renters and residents of
    economies begin to slow, some
                                                   areas underserved by the broader
    participants in the mortgage industry
                                                   housing finance system.
    have restricted credit or abandoned
                                                   Technological innovations by the
    markets in search of opportunities
                                                   GSEs, such as their automated
    elsewhere. This is not the practice of
                                                   underwriting systems (AUS), also
    the GSEs. They maintain a presence
                                                   have contributed to their efforts to
    in all markets under all economic
                                                   expand homeownership
    conditions, cushioning the impact of
                                                   opportunities. In the affordable
    local or regional declines in
                                                   multifamily market, both GSEs have
    economic activity. For example, the
                                                   established forward commitment
    GSEs helped support housing prices
                                                   programs that support much-needed
    in Texas during the collapse of oil
                                                   production of new units. Further,
    prices in the 1980s, and they helped
                                                   each has developed partnerships and
    to counter weak markets in the
                                                   alliances at the national and local
    Northeast and in California in the
                                                   levels to expand affordable housing
    early 1990s.
                                                   opportunities. Several of NAHB‘s
   Expansion of homeownership and                 local Home Building Associations
    rental housing opportunities. The              have worked with Fannie Mae and
    housing GSEs have made significant             Freddie Mac on these partnerships.
    strides in expanding homeownership
                                                  Market standardization and
    opportunities and increasing the
                                                   innovation. The GSEs have brought
    supply of affordable rental housing


                                              53
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
   both standardization and innovation      GSEs to expand the investor base for US
   to the mortgage markets, involving a     mortgage securities worldwide, bringing
   variety of mortgage instruments and      greater liquidity to the US mortgage
   securities structures. Standardization   market and, ultimately, reducing costs
   is key to obtaining and retaining        for the nation‘s homebuyers and renters.
   investor confidence and supports the     Most importantly, the GSEs have
   innovation that has addressed a          provided these benefits at no cost to
   broad range of borrower and investor     taxpayers. The GSEs‘ business
   preferences.                             operations are fully self sufficient.
In the primary market, the GSEs have        Furthermore, taxpayers are protected
supported the development of hybrid         from risk by the GSEs‘ prudent risk
mortgages that combine the benefits of      management. Governmental studies
adjustable and fixed-rate mortgages. The    released in 1991 and 1996 found that the
GSEs also have established reduced          GSEs‘ did not pose undue risk to the
downpayment programs to help cash-          government. New rigorous and dynamic
strapped first-time home buyers.            risk-based capital standards soon to be
Recently, both Fannie Mae and Freddie       implemented by OFHEO for Fannie Mae
Mac have introduced mortgage products       and Freddie Mac will provide additional
to assist borrowers with tarnished credit   protection for the taxpayers.
histories. In addition, Fannie Mae and      Continued GSE Support Is Essential To
Freddie Mac are at the forefront of         Address Unmet Housing Needs
technological innovations to streamline
the mortgage process in order to reduce     Despite the many achievements of the
the time and cost involved in obtaining a   housing finance system over the past
mortgage. The GSEs automated                several years, and the current record
underwriting systems (AUS) have             homeownership rate, there are still many
fundamentally changed the mortgage          underserved sectors of the housing
origination process and have                market. Homeownership rates for
significantly reduced origination costs.    minorities and certain other segments of
The AUS technology also has allowed         our population remain low. In the first
the GSEs to expand the scope of their       quarter of this year, homeownership
mortgage products and extend                rates for African-Americans and
homeownership opportunities.                Hispanics were 48.2 and 46.1 percent,
                                            respectively, compared to 74 percent for
In the secondary markets, Fannie Mae
                                            whites. Although homeownership rates
and Freddie Mac have launched a             for both African-Americans and
continuing chain of breakthroughs, such     Hispanics have increased significantly
as collateralized mortgage obligations,     since the early 1990s, from a low of 42
which have allowed mortgages to be          percent in 1993 for African-Americans
―repackaged‖ to attract new groups of       and 39 percent in 1991 for Hispanics, the
investors. On the funding side, the GSEs    disparity between minority and white
have pioneered new debt products to         homeownership rates remains wide. For
meet the demands of global investors.       example, the gap between
These innovations have allowed the          homeownership rates for African-


                                            54
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Americans and whites has declined from       oversight of these entities which has
28.2 percentage points in 1993 to 25.8       served the housing market extremely
today. Similarly, the gap between white      well. It has focused the GSEs on their
and Hispanic homeownership rates has         affordable housing mission, while
decreased from 30.5 percentage points in     establishing rigorous safety and
1991 to 27.9 percentage points. For both     soundness requirements.
groups, the gap with whites has              Recent efforts in Congress to overhaul
narrowed by less than 3 percentage           the regulatory structure for Fannie Mae
points. Clearly more work remains to be      and Freddie Mac, as well as diminish
done.                                        their GSE status, could impair the ability
The GSEs‘ continuing role in providing       of these enterprises to perform their
capital for the secondary markets is         critical role in the housing finance
critical to filling these gaps in the        system. Any change in the GSEs‘
housing finance system. As noted above,      agency status or regulatory framework
the GSEs have made significant strides       could have negative ramifications on the
in expanding homeownership                   housing finance system, including:
opportunities through their many             higher mortgage rates, increased
affordable housing initiatives. Several of   volatility in the cost and availability of
these initiatives are also targeted at       mortgage credit (especially for
narrowing the minority/white                 affordable housing), lower
homeownership gap through                    homeownership rates, fewer affordable
partnerships, expansion of low-              rental units and reduced mortgage
downpayment mortgages and more               product and technological innovations.
flexible underwriting. Further, the GSEs     The present GSE regulatory structure is
recent forays into the subprime mortgage     working effectively and efficiently to
market, which serves primarily lower-        ensure that Fannie Mae and Freddie Mac
income and minority homebuyers, will         are operating in a safe and sound manner
bring the benefits of standardization and    and fulfilling their public mission. We
lower costs to the subprime market in        see no need for Congress to act to
the same way they have benefited the         change this system which has taken
conventional mortgage market.                more than a half century to develop.
Recommendation                               Rather than change the regulatory
                                             framework, we urge the current GSE
As we move forward to close these gaps
                                             regulators to ensure that the GSEs
in homeownership, a strong and efficient
                                             continue to work within their charters
regulatory system for Fannie Mae and
                                             and to implement rigorous capital
Freddie Mac, one that balances safety
                                             requirements to ensure the safety and
and soundness concerns with mission
                                             soundness of these institutions. Until all
fulfillment, is essential. We believe that
                                             Americans enjoy decent and affordable
the current GSE regulatory system
                                             housing, as well as the opportunity for
established by the 1992 GSE Act meets
                                             homeownership, the critical supports
these objectives. The 1992 GSE Act
                                             provided by the GSEs to the housing
created a positive tension between the
                                             finance system should not be weakened.
mission and safety and soundness


                                             55
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter

National Association of                          Bankers Association, and the
                                                 Cooperative Housing Coalition
Housing and                                      propose a 23% increase in the
Redevelopment Officials                          Section 213 per unit mortgage limits.
                                                 It is important to note that 213
Experience with the public housing
                                                 requires no Congressional
program has taught us many lessons and
                                                 appropriation and no credit subsidy
led to many innovations in the program.
                                                 because of its unique status as a
The best measure of success is the
                                                 separate mutual fund.
continuing demand for public housing
and the consequent length of their              activate the 203n program.
waiting lists. Another is the increasing         Legislation for the 203n FHA co-op
trend of residents‘ movement toward              share loan financing program has
self-sufficiency and a reduction in              long been on the books, but HUD
dependence on federal assistance. The            has failed to implement the program
average tenure in public housing is less         in any meaningful way. Market
than seven years. Among those leaving            acceptance of cooperative ownership
the program, an increasing number of             would be aided greatly by an active
families are moving up the economic              203n program for unsubsidized co-
ladder and entering the mainstream of            ops.
homeownership and independence.
                                                authorize VA guaranteed co-op share
NAHRO strongly recommends that
                                                 loans. The Department of Veterans
public housing operating and capital
                                                 Affairs lacks statutory authority to
funding continue to be provided directly
                                                 guarantee ―no money down‖ VA
to local housing agencies.
                                                 loans for veterans wanting to buy a
National Association of                          share in a co-op. Veterans deserve
                                                 access to such a program. HR3751
Housing Cooperatives                             would have provided the statutory
Several modest changes to current law            authority. The FY2001 VA-HUD
and programs would make the co-op                Appropriations Act report language
model even more attractive and increase          directs VA to study this problem and
its use and availability as a means of           report back by February 2001.
providing homeownership for moderate
                                                authorize the use of housing
income families. They are:
                                                 counseling funds for co-ops.
   raise the per unit mortgage limits           Legislation (HR.1776 and S.1452)
    under Section 213 of the National            passed the House in 2000 to
    Housing Act. Section 213 statutory           explicitly permit housing counseling
    mortgage limits got out of synch             funds to be used to counsel co-op
    with other FHA multifamily                   purchasers, and because of the
    programs in the 1980‘s. In addition,         special role of co-ops in home
    the last increase across the board in        maintenance, to allow use of
    FHA multifamily programs was                 counseling funds for training co-op
    1992. The National Association of            boards of directors.
    Housing Cooperatives, the Mortgage


                                            56
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
   appropriate funds for training FHA      percent. However, despite these
    and VA staff. Underwriting co-op        important gains, persistent
    loans and appraising co-op buildings    homeownership disparities between
    involve specialized knowledge that      whites and minorities narrowed slightly.
    can be easily transferred with          The NATIONAL ASSOCIATION OF
    training.                               REALTORS® believes continued
                                            efforts must be undertaken to provide
   encourage rental buildings financed     opportunities to underserved populations
    through the Low Income Housing
                                            to achieve the dream of homeownership.
    Tax Credit to convert to co-op when
                                            With the introduction of low-
    the credits expire. A weakness in the
                                            downpayment products, flexible
    LIHTC program is the short duration
                                            underwriting standards, and improved
    (15 years) of the benefit of
                                            risk assessment tools, the mechanisms
    affordable housing to the occupants.
                                            exist to close our nation's
    If developer applicants in the
                                            homeownership gap. We recommend the
    program were given preference on
                                            following to complement the innovation
    condition of agreeing to convert to a
                                            and outreach undertaken by the real
    limited equity co-op at the
                                            estate industry:
    conclusion of the program, the
    affordable housing stock would be       Support and promote administrative
    stronger for a longer period of time,   relaxation of HUD policy regarding
    there would be less displacement at     owner-occupancy ratios under the FHA
    the expiration of the tax credit, and   condominium insurance program.
    the residents would gain in place       Currently, HUD requires that
    experience in self governing and        condominium developments be at least
    management years before the             51 percent owner-occupied before
    conversion takes place.                 individual units can be deemed eligible
                                            for FHA-insured loans. The policy is
National Association of                     restrictive because it limits sales and
RealtorsFirst document                     homeownership opportunities,
                                            particularly in market areas comprised of
on Web site                                 significant condominium developments
Closing the Homeownership Gap               and first-time homebuyers. It is
                                            important to note that the condo market
Fueled by the nation's strong economic
                                            has matured since adoption of the 51
prosperity, the national homeownership
                                            percent rule. Liquidity risk has
rate reached a new annual high of 67.7
                                            dramatically declined as the market has
percent in 2000 and continues to climb
                                            matured which, in turn, has fueled the
across all geographic regions, age groups
                                            growth and popularity of condo
and ethnic groups. All-time high rates
                                            ownership as a viable homeownership
were set for minorities, at 48.2 percent;
                                            tool. In support of this, our research has
Hispanics, at 46.7 percent; central city
                                            determined that nationwide sales of
residents, at 51.9 percent; households
                                            previously owned condominiums and
headed by females, at 53.3 percent; and
                                            cooperatives climbed to a record level of
married couples younger than 35, at 61
                                            763,000 units in the three months of


                                            57
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
2001, up 5.8 percent from 721,000          Mortgage financing is readily available
during the previous quarter.               in the United States due principally to a
                                           competitive marketplace, stable home
Support and promote legislation
                                           values and a thriving capital market
modifying the FHA adjustable-rate
                                           infrastructure. Nevertheless, some forms
mortgage product to accommodate a
                                           of homeownership financing are not
hybrid FHA ARM and eliminate the loan
                                           adequately available in all markets.
cap on the aggregate number of ARMs
                                           Moreover, mortgage financing is not
that FHA may insure annually. The FHA
                                           always adequately available in certain
adjustable-rate mortgage experience has
                                           neighborhoods or areas, particularly
demonstrated it to be a viable and sound
                                           those communities that are experiencing
product that has evolved into a standard
                                           an economic downturn.. To facilitate
home financing tool and patterned by
                                           affordable housing and generate new
other mortgage providers. A "hybrid"
                                           homeownership opportunities, the
ARM provides a mix of adjustable-rate
                                           continuous availability of mortgage
and fixed-rate features, providing a
                                           financing is a critical ingredient.
useful avenue of homeownership
especially for first-time homebuyers.      The NATIONAL ASSOCIATION OF
The hybrid ARM carries a fixed rate for    REALTORS® has continuously
an initial period of time -- customarily   maintained that the cost, terms, and
three to seven years -- followed by rate   availability of mortgage financing are of
adjustments once a year for the balance    critical importance to the level of
of the 30-year loan term.                  homeownership. While our mortgage
                                           finance system provides a steady and
Support the creation of public/private
                                           reliable source of market-rate mortgage
partnerships promoting outreach
                                           money, transaction costs linked to home
encompassing the Section 8
                                           purchase and financing remain high. For
homeownership program and eliminate
                                           many potential homebuyers, the lack of
the disincentives associated with Public
                                           cash available to accumulate the
Housing Agencies (PHAs) participation.
HUD now permits tenant-based Section       required downpayment and closing costs
                                           is a key impediment to purchasing a
8 holders to use their voucher payment
                                           home. Other households do not have
towards the purchase of a home. This
                                           sufficient available income to make the
new initiative has the potential of
                                           monthly payments on mortgages
broadening the range of affordable
                                           financed at market interest rates for
housing opportunities and providing a
                                           standard loan terms. To address these
step up the housing ladder to
                                           barriers, the NATIONAL
homeownership. Yet, the program has
                                           ASSOCIATION OF REALTORS®
not received widespread recognition and
                                           recommends the following:
very few PHAs that administer the
Section 8 tenant-based program have        Lengthen the amortization period for
opted to offer the homeownership           FHA mortgage loans beyond the existing
program to their residents.                30-year term. Currently, the term of the
                                           mortgage insured under the FHA single-
Creating Underwriting/Financing
                                           family mortgage insurance program
Incentives


                                           58
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
cannot exceed thirty years. Extending        should be made a permanent feature of
the life of the loan above thirty years      the FHA single-family mortgage
would reduce the monthly mortgage            insurance program.
payment, allowing more households to         Support legislation that provides for
qualify for a mortgage and, hence,           detailed disclosure of mortgage lending
increase homeownership opportunities.        credit scores including meaningful
Research conducted by the NATIONAL           explanatory data. Consumers need to be
ASSOCIATION OF REALTORS® has                 fully informed as they make a decision
determined that approximately 52             to accept a mortgage offered by a lender.
percent of American households               The disclosure should permit a borrower
currently can qualify to purchase the        to evaluate the situation if denied credit,
U.S. median priced home of $139,000          or if the rate or credit terms do not meet
with a 30-year mortgage. This amounts        the borrower's criteria. Further,
to approximately 54.7 million                consumers should be empowered to ask
households. Extending the life of the        the lender if a credit scoring system was
loan to 35 years would enable almost 54      used, what characters or factors are used
percent of American households to            in that system, and the best ways to
qualify for a $139,000 home,                 improve or better the mortgage
representing an increase of 1.4 million      application.
households. And, extending the life of
the loan to 40 years would permit almost     Encourage the use of rental payment
55 percent of households to qualify for      history as credit information to improve
homeownership, an increase of 2.6            access to credit in the homebuying
million households above current levels.     process. With the movement of major
                                             lenders to automated processing to
Make permanent the FHA downpayment           streamline the availability of mortgage
simplification calculation. In 1996          credit, credit scoring is an emerging
Congress approved legislation                issue that will significantly influence
simplifying the FHA downpayment              mortgage credit availability and
calculation as a two-year pilot program      definitions of creditworthiness.
in Alaska and Hawaii. Simplifying the        Consequently, the types of supporting
calculation made it easier for FHA           information to be collected and used for
borrowers to understand the                  developing appropriate scoring models
downpayment process and it made the          and predicting borrower
downpayment on an FHA loan more              creditworthiness is a key factor. If
affordable. Recognizing the benefits         properly utilized and framed with
resulting from the simplification process,   appropriate consumer safeguards,
in 1998 Congress extended the                automated underwriting has the potential
calculation another two years and made       of making mortgage credit more widely
it applicable nationwide. In 2000            available at lower costs. However, the
Congress extended the simplification         challenge is to ensure that automated
calculation 27-months, to December 31,       underwriting does not perpetuate racial
2002. The NATIONAL ASSOCIATION               disparities in the loan process and to
OF REALTORS® believes that the               identify loan repayment predictor
simplified downpayment calculation


                                             59
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
mechanisms that do not disadvantage         of the United States; the Department of
special populations. Tracking rental        Veterans Affairs (DVA) home loan
payment history may serve as a useful       guaranty program provides an
predictor in determining the                entitlement homeownership benefit to
creditworthiness of a borrower and,         men and women veteran and service
hence, their acceptance for mortgage        personnel as appreciation for their
credit. With the FHA single-family          service to their country; and the Rural
mortgage program stronger than ever,        Housing Service's (RHS) loan and
we believe the timing is appropriate for    guarantee programs offer financing,
FHA to return to its mission as mortgage    homeownership and development
finance innovator and take the lead and     opportunities to rural families and
implement this recommendation.              communities to ensure the availability
                                            and accessibility of credit and housing
…
                                            assistance.
Support and promote legislation that
                                            Federally-assisted housing programs
expands designations and broadens
                                            facilitate the financing needed to deliver
resources encompassing HUD's urban
                                            and preserve affordable multifamily
Enterprise Zones and Enterprise
                                            rental housing opportunities. Through
Community Initiative. The Enterprise
                                            the FHA and RHS, a variety of
Zone/Enterprise Community (EZ/EC)
                                            multifamily programs have enabled
Initiative facilitates the conversion of
                                            individuals and families to attain
vacant lots and abandoned buildings to
                                            housing opportunities while helping
new business complexes and affordable
                                            developers produce multifamily housing.
housing, providing housing and
employment opportunities and                NAR strongly supports, and is an active
strengthening support services to benefit   participant in, government mortgage and
local residents and their communities.      federally-assisted housing programs and
NAR supports initiatives that foster job    believes their continued operation is
growth and retention matched with           necessary to provide homeownership
homeownership opportunities enhancing       and rental housing opportunities. While
community and economic revitalization       these programs have been beneficial
and the nation's continuing prosperity.     over the years in addressing the
                                            particular housing needs of program
…
                                            recipients, their ability to keep pace with
Enhancing the Mission and Delivery of       ever-growing demand has been
Existing Federal Housing Programs           constrained due to outdated or outmoded
Government mortgage programs                policies and procedures hampering their
represent the most important source of      mission and objectives. To ensure their
homeownership for many American             continued viability and goal of providing
families. The Federal Housing               safe, decent and affordable housing to
Administration's (FHA) single-family        American families, NAR recommends
mortgage insurance program is the only      the following:
mortgage insurance program that             VA Home Loan Guaranty Program
provides complete geographic coverage


                                            60
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Support legislation increasing and        requirement, accompanied by
indexing the veterans guaranty amount     verification of current employment,
to ensure VA mortgages maintain pace      would enable more veterans to achieve
with home sales prices. Currently, the    homeownership sooner from their
VA guaranty amount is $50,750             discharge dates.
allowing veterans to purchase a home      Make reservists' eligibility a permanent
loan up to a maximum of $203,000. The     feature of the VA home loan guaranty
VA guaranty was last increased in 1994    program. In 2000 reservists' participation
and currently lags the FHA high-cost      in the home loan program was extended
mortgage limit of $239,250 and the        by Congress through September 30,
conforming Fannie/Freddie loan amount     2007. Their eligibility started in 1992 as
of $275,000.                              a pilot program and has been re-
Support legislation re-establishing the   extended numerous times by Congress.
VA adjustable-rate mortgage (ARM)         Reservists' participation has resulted in
program and offer a hybrid ARM. The       tens of thousands of dedicated National
VA ARM was established in 1992 as a       Guard and Reserve members fulfilling
three-year pilot program. The program     their dreams of homeownership. Their
expired in 1995 because of budgetary      participation has helped to reinvigorate
concerns presented by the Congressional   the program and not only provided
Budget Office despite widespread appeal   financial stability to the VA program but
within the veteran community and real     also contributed a lower default rate than
estate industry. Creation of the VA       most other program participants.
ARM program helped to modernize the       Utilize public/private partnerships in the
VA home loan guaranty program and         management and marketing of VA's
make the VA mortgage program              property management operations. The
attractive and competitive with other     DVA is considering alternatives to its
mortgage products.                        existing Property Management
Eliminate the two-year work               operations to improve efficiency and
requirement for VA home loan              increase prompt delivery of properties to
purchasers. One obstacle to achieving     the sales marketplace. NAR encourages
homeownership more rapidly for veteran    the DVA to utilize the services and
borrowers is the requirement that         involvement of local real estate
veterans have two years of stable         professionals and to utilize the services
employment history in order to be         of more than one entity in a particular
eligible for a VA loan guarantee.         geographic region to limit the potential
Currently, many private lenders use       for monopoly and marketplace
more flexible underwriting standards,     disadvantages. Further, NAR
including demonstration of current        recommends that all properties be listed
employment. Additionally, many self-      with real estate professionals
employed veterans are unable to qualify   participating in local and regional
for a VA loan guarantee because of the    Multiple Listing Services, in compliance
two-year stable employment restriction.   with local MLS rules and guidelines, as
Elimination of this underwriting          an effective method of ensuring the


                                          61
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
widest possible access to properties by      obtain credit otherwise. The program
the general public.                          permits borrowers to obtain loans for
                                             100 percent of the appraised value of a
Expand the VA appraiser fee panels to
                                             house, thereby eliminating the
include more appraisers particularly in
                                             downpayment barrier that prevents many
markets where there is an acute shortage
                                             rural families from becoming
of VA appraisers. Current law requires
                                             homeowners. Last year Congress
that appraisers be assigned from the
                                             approved a provision increasing the
DVA's list of appraisers on a rotational
                                             guarantee fee from one to two percent of
basis. In some areas the rotation system
                                             the principal amount of the loan.
is causing imbalances in the number of
                                             Currently, RHS does not permit
appraisers in differing regions of the
                                             borrowers to finance the fee into their
country and are contributing to lengthy
                                             loan. Modifying this policy will ease
periods of time to complete VA-
                                             rural borrower's financial hardships
approved appraisals. This longer
                                             associated with the fee increase.
processing period either discourages a
seller from contracting with a veteran or    Third document on Web
precludes a veteran from finalizing his or
her purchase.                                site
…                                            Economic Impacts of the Housing Sector

Rural Housing Programs                       The real estate industry is one of the
                                             largest sectors of the economy. It is a
Commit increased resources to the            significant contributor to the U.S.
Section 502 direct loan program. The         economy, providing millions of
Section 502 direct loan program is the       Americans with jobs and generating
basic RHS individual homeownership           hundreds of billions of dollars of
loan program providing funding               economic output each year. It is also an
assistance to states for loans for very-     important source of wealth building.
low, low-, and moderate-income               And homeownership is an integral part
homebuyers. While the program has            of the ―American Dream.‖ There are
been instrumental in addressing rural        several different methods of measuring
housing needs, appropriations have not       the economic impact of the real estate
kept pace with the growing gap between       industry (see below). As large as the
the number of decent, affordable housing     resulting numbers may be, many
units in rural communities and the need      understate the financial impact. Beyond
for those units.                             economic measures, homeownership and
Permit borrowers to finance into their       adequate rental housing also contributes
mortgages the full two percent guarantee     to our society.
fee under the Section 502 guaranteed         For an appreciation of the scope of the
loan program. The Section 502                industry, consider the following:
guaranteed loan program was established
in 1991 to guarantee home loans made             The housing sector contributes about
by private lenders for moderate-income            14 percent to the nation‘s total
rural borrowers who might not be able to          production.


                                             62
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
   Home equity constitutes the largest        purchases of used structures from
    share of household net worth.              government agencies. Housing service is
                                               a component of personal consumption
   In the 1st quarter of 2001, 72.1           expenditures, purchased by residents in
    million households were
                                               the United States, usually in the form of
    homeowners for a national
                                               rent for tenants or as rental equivalence
    homeownership rate of 67.5 percent.
                                               for homeowners. It is important to note
   The stock of fixed residential assets      that this approach measures the value to
    is worth nearly $10 trillion –             the homeowner of the daily consumption
    equivalent to one-year worth of U.S.       of the flow-of-services provided by a
    GDP.                                       home (a place to fix meals, relax,
                                               entertain, garden, etc.) and not the value
   About 1.5 million newly housing
                                               of an investment in a long-lived asset
    units are started each year. Housing
                                               (home). Rental equivalence or implicit
    starts is one of the key factors in the
                                               rent is the amount of rent that
    macroeconomic business cycle.
                                               homeowners could charge if their homes
   About 40 percent of monthly                were leased to others instead of living in
    consumer expenditures are housing          the homes themselves. Because implicit
    related.                                   rent is not a market transaction, such as
                                               the payment to a landlord from a renter,
   More than $1 trillion exchanged
                                               it is estimated by measuring the change
    hands from the sale of existing and
                                               in market rents for rental housing units
    new homes.
                                               with similar characteristics and in
   There are 288,273 establishments           similar locations as the homeowner
    categorized as ―real estate & rental &     units. In 2000, residential fixed
    leasing with over 1.7 million paid         investment totaled $415 billion and
    employees.                                 housing service expenditure was $956
                                               billion. The combined total of $1.37
Impact on the National Economy
                                               trillion represented 14 percent of GDP.
Gross Domestic Product (GDP) is a
                                               The construction and sale of new homes
measure of all goods and services
                                               make direct contribution to GDP, based
produced in the economy. And the
                                               on the value of construction put in place.
housing sector contributes directly and
                                               However, the sales price for existing
significantly to overall production
                                               homes do not enter into the calculation
activity. The two line items in GDP
                                               of the nation‘s domestic output, just as a
directly associated with the housing
                                               used car sales price does not get entered
sector are residential fixed investment
                                               because the transaction does not
and housing service. Residential fixed
                                               represent a new production. However,
investment consists of value-put-in-place
                                               purchases related to the transaction of
of new housing units, production of
                                               existing home sale do get included in the
mobile homes, brokers‘ commissions on
                                               GDP. For example, all payments for
the sale of existing residential properties,
                                               services rendered, such as real estate
expenditures related to improving and
                                               agent commissions, home inspection,
additions to existing units, and net
                                               attorney, and loan origination fees, are


                                               63
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
included. The transfer payments, such as       Finally, all economic activity produces a
transfer taxes, escrows, title and other       ―Keynesian‖ multiplier effect. A home
insurance premiums, interest payments,         purchase usually results in further
and loan points are excluded.                  spending in other sectors of the economy
Furthermore, a sale of a home generates        (landscaping, appliances, and so on).
additional consumer expenditures. Home         The income earned by the landscapers is
sales naturally involve moving costs,          re-circulated into the economy as they
whether through a professional moving          spend, generating another round of
company or via ―self-move‖ from                income and purchases. The degree of
renting a moving van. Expenditures             multiplier depends on the degree of
accompanying the moves, though they            monetary policy accommodation and the
do not show up in the housing sector           ―crowding out‖ effect. NAR‘s
category of the GDP accounting, also           macroeconomic modeling suggests that
need to be considered.                         the multiplier is between 1.34 and 1.62
                                               in the first year or two after an
By examining the Consumer
                                               autonomous increase in spending. This
Expenditure Survey, which contains
                                               means that for each dollar increase in
detailed information on all household
                                               direct housing activity will increase the
expenditures over the course of 12
                                               overall GDP by $1.34 to $1.62.
consecutive months, it is possible to
assess different spending patterns             Recently, consumer expenditure arising
between recent movers who are current          from the wealth effect has gained wide
homeowners and the rest of the                 attention. Research indicates that
population. By comparing expenditures          consumer spending and the real
for recent homebuyers with the rest of         economy is affected by the rise and fall
the group, it is possible to assess the cost   of the stock market. Paper wealth
associated with homeowner moves. For           creation and destruction also can
example, fix-up and furnishing                 influence spending decisions. The
expenditures were $884 higher for recent       estimated wealth effect is on the order of
homebuyers than for non-moving                 3 to 7 cents for each one dollar change in
homeowners, according a 1991 Price             the equity value of the stock market.
Waterhouse study for the National              Interestingly, the wealth effect of home
Association of Realtors (NAR). There           equity has not yet been thoroughly
are also the actual moving costs, both the     studied. According to a Federal Reserve
purchase of professional moving                survey, home equity is the largest
services and the out-of-pocket costs of        component of total household assets.
―self-moving.‖ Based on the number of          NAR estimates that home equity build-
home sales and accounting for these pre-       up from home price appreciation is more
move, post-move, and moving costs of           than $700 billion in 2000. The gains are
each homeowner move, the additional            mostly tax-free given the preferential
expenditure from existing home sales           treatment of home purchase/sale in the
amounts to about 0.28% of GDP. This            tax code. The impact on the economic
figure is in addition to the brokerage         activity from home price appreciation is
commission already accounted for in the        likely to be greater than that from stock
GDP computation.


                                               64
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
price changes since homeownership is          redistribution of income between
more egalitarian ownership of homes           borrowers and lenders or among
than stockownership. Assuming a 5 cent        insurance policy holders.
wealth effect, this could be as much as       Many people‘s livelihoods depend on
$35 billion in additional spending or         real estate. BLS produces monthly
about 0.35 percentage addition to the         employment reports listing employees
annual GDP growth. Though not large, it       on payrolls by industry. The February
is certainly not an insignificant amount.     2001 report showed that 1.49 million
Another method of calculating the             workers were employed in the real estate
contribution of housing to the economy        industry. In addition BLS also tracks
is by examining levels of household           numbers of employees by occupational
expenditure. The Bureau of Labor              code as defined by Standard Industry
Statistics provides the relative weights      Code (SIC/NAICS). The Real Estate and
according the relative importance in the      Rental and Leasing sector, which
overall consumer expenditure basket           comprises establishments primarily
(which is used in the construction the        engaged in renting, leasing, selling, and
consumer price index). The table below        buying real estate for others, and
used by the BLS shows the structure of        appraising real estate, totaled 288,273
the shelter component of total consumer       establishments with 1.7 million paid
expenditures. Spending for shelter            employees. The annual payroll
comprises 28.3 percent of the total. If       amounted to $41.6 billion. A detailed
expenditures for household operation,         breakdown by industry code is shown
such as utility usage, were included, then    below.
the figure would approach 40 percent of
                                              [TABLE FALLS HEREREFER TO
monthly consumer‘s expenditure.
                                              ACTUAL DOCUMENT]
[TABLE FALLS HEREREFER TO                    In addition to its direct contribution to
ACTUAL DOCUMENT]                              GDP, the housing sector plays an
Even though the out-of-pocket expense         important role in the overall direction of
for shelter by consumers on a monthly         the nation‘s economy over the course of
basis for home consumption is large, it is    macroeconomic business cycles. New
worth reiterating that the full amount of     home construction, in particular, can
payments to financial intermediaries,         undergo large swings. For example,
such as to insurance companies and            during the last two economic recessions
mortgage banks, are not included in           in the early 1980s and the early 1990s,
GDP. Only the net value added from            housing starts dropped drastically from
financial intermediary services is            its historical norm, decreasing by more
included. This is computed by adding up       than half from a few years earlier.
factor incomes such as employee               Conversely, housing starts make just as
compensation, rental income, and              dramatic a change, coming out of a
corporate profits. In effect, only a small    recession. In fact, housing starts lead the
portion of insurance premiums and             rest of the economy preceding changes
mortgage payments enter into GDP, as          in GDP. In other words, disruptions to
discussed earlier. The rest is treated as a   the housing sector (arising from policy


                                              65
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
changes) are likely to be followed by a        Impact on Communities
significant macroeconomic slowdown,            Construction of new homes provides
while a stimulus to housing can lead the       jobs and higher tax revenues for local,
rest of the economy out of a slowdown.         state, and federal governments.
During an economic slowdown, the               According to a BLS study, construction
Federal Reserve lowers interest rates,         of each new single-family home requires
other things equal. Consequently, the fall     1,591 worker-hours or the equivalent of
in interest rates during an economic           0.869 year of full-time labor. Each
slowdown acts as a strong buffer often         multifamily unit requires 0.402 year of
providing a stimulus to the interest-          full-time labor. Projecting these
sensitive housing sector. A drop in            estimates and accounting for
mortgage rates mean lower monthly              productivity and price changes over the
mortgage payments. This, in turn, means        years, the National Association of Home
a lower qualifying income necessary to         Builders (NAHB) estimates that the
purchase a home. Conservatively, a one         construction of 1,000 single-family
percentage drop in mortgage rates              homes generates 2,448 full-time jobs in
translates into roughly 3 million              construction and construction-related
additional households who would have           industries, $79.4 million in wages, and
the necessary income to qualify for a          $42.5 million in combined federal, state
mortgage for purchasing a median priced        and local revenues and fees. The
home. Furthermore, many homeowners             construction of 1,000 multifamily units
refinance their mortgages with the             generates 1,030 full-time jobs in
falling interest rates, leaving additional     construction and construction-related
spending money to counter economic             industries, $33.5 million in wages; and
downturns. The economic slowdown               $17.8 million in combined federal, state
from the mid-2000 to 2001 is a prime           and local tax revenues and fees.
example of how this scenario is being          Furthermore, NAHB estimates that
played out. Housing starts and home            roughly 30 percent of the new home
sales began declining in spring of 2000        occupant‘s income is spent on items
as the Fed raised interest rates to cool the   produced by local businesses, such as
exceptionally fast growing economy.            hospitals, daycare centers, dry cleaners,
However, the economy cooled much               and auto repair shops.
more drastically than desired and the Fed      Almost 70 percent of all tax revenues
began reversing the interest rate policy       raised by local governments in the
by cutting the rates in early 2001. The        United States come from property taxes.
subsequent falling interest rates have         Homeowners contribute about 43
kept the housing starts and home sales to      percent of property taxes, while
rebound to healthy levels even as the          commercial property account for 57
overall economy began sinking further.         percent of real property tax revenues.
The economy would have undoubtedly             Construction of new homes expands the
tipped into a recession in early 2001          tax base and so increases property tax
without the support of the housing sector      revenues. Using the average sales price
during this period.                            of new homes in 2000, the local tax


                                               66
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
revenue base will increase by $185          asset. Furthermore, the survey shows
billion. Assuming a property tax rate of    that 12.8% of families had some form of
1% of value, the local tax revenue will     residential real estate in addition to
rise by $1.85 billion in the first year     primary residence (second homes, time
across the nation. Because home prices      shares, and other type of residential
historically have outpaced inflation rate   property), an increase from 11.8% in
by a couple of percentage points, the       1995. The value of the asset in other
local tax base and revenue also is likely   residential property accounted for
to continue to outpace inflation.           additional 5% of the total household
                                            asset. Retirement accounts were the
Aside from tax revenue to local
                                            largest financial assets outside of
communities, home production and
                                            primary residence, with 19.8% of the
subsequent homeownership provide
                                            total. Only for the very wealthy (income
additional intangible values.
                                            over $100,000 per year) did the home
Homeowners do not move as frequently
                                            equity portion of wealth fall below 50%
as renters, providing a source of
                                            of the total household wealth.
neighborhood stability. Neighborhood
stability in turn confers benefits of       A separate survey from the Census
higher social and community                 Bureau also shows the dominant
involvement such as crime prevention        importance of home equity in
programs. Homeowners have a stake in        determining household net worth. The
their neighborhoods and communities,        Survey of Income and Program
and so are likely to behave in ways that    Participation periodically collects
benefit everyone in the community.          detailed wealth and asset data as a
Owners maintain their properties in         supplement to its core questions about
better condition than do renters of         labor force participation, income,
comparable housing. Such behavioral         demographic characteristics, and
differences have been observed              program participation. In 1995, median
regardless of the age or income of          household net worth was $40,200;
homeowners. All of these social benefits    Median home equity for home-owning
to homeownership can impact property        households was $50,000. Home equity
values.                                     constituted the largest share of
                                            household net worth, accounting for 44
Impact on Individuals
                                            percent of total net worth.
Homeownership also provides
                                            A privately owned home, therefore, is an
individuals with a way to accumulate
                                            important vehicle for wealth
wealth for the future while benefiting
                                            accumulation for a large segment of
from the provision of shelter. A
                                            society. In addition, home investment
tabulation of household wealth from the
                                            plays an important role in portfolio
Federal Reserve‘s Survey of Consumer
                                            diversification. Home prices in the U.S.,
Finances (1998) shows that home equity
                                            on average, have risen steadily, and have
(the value of the home net of mortgages)
                                            much lower volatility than stock or bond
was the largest component of total
                                            prices. The historically standard
wealth. Equity in primary residences
                                            deviation for stocks and bonds has been
accounted for 28% of the total family


                                            67
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
20% and 9%, respectively. For housing,       maintaining their residence. (Rossi and
the standard deviation is about 4%.          Webb, Housing Policy Debate 1996;
Furthermore, the correlation between         Rohe and Stewart, Housing Policy
home prices with stock or bond prices is     Debate 1996)
very low. Homeowners also benefit from       Homeowners are twice as likely to hold
the easy availability of home equity         direct ownership in business ventures
loans. Whether as a readily available        than renters. The 1995 Survey of
source of funds, or just the security of a   Consumer Finances reports that 13.4
credit source, certainly adds value to       percent of owners held some form of
homeownership.                               nonstock business equity, compared to
[CHART FALLS HEREREFER TO                   only 6.4 percent of renters. Furthermore,
ACTUAL DOCUMENT]                             a typical homeowner held almost twice
                                             as much in business equity as a typical
Housing Contribution to Society
                                             renter. The median nonstock business
Outside the scope of this paper, but         equity holding for owners was $50,000
worth briefly reviewing, is the impact of    in 1995, compared to $26,000 for
homeownership other outcomes. Several        renters.
researchers have reached the conclusion
                                             Home equity is one of the largest
that, all else being equal,
                                             sources of collateral for bank loans to
homeownership has a positive impact on
                                             start new businesses. Over 740,000
children within the household. Among
                                             businesses in 1992 reported a mortgage
these benefits are an increased
                                             or home equity loan as a source of start-
educational attainment for children, a
                                             up capital for their business. (Census,
lower teen-age pregnancy rate, a higher
                                             Characteristics of Business Owners,
lifetime annual income for children
                                             1992.) It has been estimated in the UK
raised in an owned home. (Green and
                                             that a 10 percent rise in the aggregate
White, Journal of Urban Economics
                                             value of home equity increases the
1996; Kane, Journal of Political
                                             number of new business registration by 5
Economy 1994.)
                                             percent. (Black, DeMeza, Jeffreys,
Although the level and benefits of           Economic Journal, 1996.)
community involvement are hard to
                                             Furthermore, people want to be
measure, several researchers have found
                                             homeowners. Fifty eight percent of the
that homeowners tend to be more
                                             renters responded that owning a home is
involved in their communities and local
                                             either the top or very important priority
governments then renters. For instance,
                                             according to 2000 Fannie Mae‘s
owners participate in a greater number of
                                             National Housing Survey. On question
non-professional organizations and have
                                             regarding personal satisfaction,
higher voter participation rates. In
                                             homeowners are more satisfied
addition to higher civic participation,
                                             (Saunders, 1990 International Journal of
owners also tend to remain in their
                                             Urban and Regional Research). Freedom
homes longer, adding stability and
                                             to alter their homes or engaging in home
familiarity to the neighborhood, and also
                                             maintenance and improving may provide
tend to spend more time and money
                                             intrinsic joys.


                                             68
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Rohe and Stegman (Housing Policy             Capital Gains deductions for individual
Debate, 1996) provided evidence of           homeowners should be maintained in
higher satisfaction among homeowners         their present forms. And, institutions
compared to renters. Furthermore, others     including the Government Sponsored
have noted that the homebuying process       Enterprises (GSE‘s), FHA, private
and homeownership improve self-              mortgage insurance companies and the
efficacy or a person‘s sense of control      nation‘s mortgage lenders should be
over life events. And from extensive         strongly encouraged to promote
psychological studies self-efficacy is       homeownership opportunities among
associated with better health status.        minorities.
Homeownership – The American Dream           However, affordable rental and special
                                             needs housing should not be a second
The American Dream is to own a home.
                                             tier priority in this country. We must
Currently 67.5% of households are
                                             find new ways to encourage the GSE‘s,
realizing this dream. This translates into
                                             FHA and a wider array of private
71.9 million households who are
                                             institutions, both for profit and not-for-
homeowners. While whites have a
                                             profit, to do more to promote expanded
homeownership rate of 73 percent
                                             rental housing opportunities
homeownership rate the fastest growing
                                             (reinsurance, co-insurance, delegated
rates have been minority owners. The
                                             underwriting).
homeownership rate for Blacks is now
46 percent, and for other races and          National Housing Law
ethnicities is 54 percent.
                                             ProjectFirst document
The Bureau of the Census projects an
additional 11.7 million new households       on Web site
will form over the next decade, with the     Rampantly escalating housing costs in
larger percentage growth among               many jurisdictions have made the
minorities. The demand for housing,          voucher program unworkable, forcing
therefore, will continue to over the next    low income residents to concentrate in
decade. Freddie Mac estimates that 50        racially and economically impacted
million families will be buy homes in the    neighborhoods or to relocate to more
next 10 years - more than 10 million of      affordable communities and to travel
them for the first time. Clearly, a          tens if not hundreds of miles to jobs.
substantial segment of society is and will   Congress should significantly increase
continue to realize the American Dream.      the resources available for the
                                             production of housing affordable to low-
National Housing                             very low- and extremely low-income
Conference                                   households, especially in communities
                                             where the voucher programs are not
So there is no misunderstanding, NHC
                                             functioning adequately and where there
firmly supports the policies and
                                             is a demonstrated demand for affordable
resources which support
                                             housing. A new housing production
homeownership. The Home Mortgage
                                             program geared to families should be
Interest, Individual Property Tax and
                                             instituted in urban areas and existing


                                             69
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
housing production programs, that serve     Second document on
special populations, such as the 202 and
the Section 811 programs. or directed at    Web site
special areas, such as the Section 515      Public Housing Residents Are Being
Rural Rental Housing Program, should        Excluded from New HOPE VI Housing
be expanded to meet the needs of those
                                            As a result of the reductions in the
populations and areas. Similarly, funding
                                            number of public housing units on sites
for homeownership programs such as the
                                            redeveloped with HOPE VI funding,
Rural Housing Service‘s Section 502
                                            public housing families are often largely
single family homeownership program
                                            excluded from the new housing
must be restored to the funding levels of
                                            constructed on the site of their former
the early 1990s.
                                            homes. This exclusion of families is
…                                           tremendously unfair. Families who have
With the recent emphasis on                 had to live in severely distressed public
homeownership housing, it is important      housing—often the only housing
that Congress adopt policies that not       available and affordable to them—are
only expand homeownership                   being not permitted to share in the
opportunities but also protect the          revitalization of their communities.
interests of those that are already         This fact has not been squarely
homeowners. Counseling programs,            addressed by HUD or by public housing
particularly post-purchase counseling       authorities participating in the HOPE VI
programs must be expanded to ensure         program. For example, Miami-Dade,
that those who have become                  Florida mayor Alex Penelas was quoted
homeowners are able to physically           in a 1999 HUD press release announcing
maintain their homes and avoid              a $35 million HOPE VI revitalization
foreclosure due to predatory lending        grant for the Scott and Carver Homes
practices or hardships brought on by the    public housing developments: ―The
economic vicissitudes that frequently       residents of Scott and Carver Homes will
befall all households but have a            now have a greater opportunity to
particularly devastating impact on low-     become self-sufficient homeowners,
income households. Foreclosure              productive employees and residents who
avoidance mechanisms and programs,          can be proud of their neighborhood.‖
such as the Rural Housing Service
                                            In fact, almost no Scott and Carver
Moratorium on Payments Program,
                                            Homes residents can expect to return to
authorized by Section 505 of the
                                            their neighborhood under the Miami-
Housing Act of 1949, must be put in
                                            Dade HOPE VI plan. The Miami-Dade
place for all other homeownership
                                            application called for the demolition of
programs serving low-income
                                            850 units of public housing. These units
households.
                                            were to be replaced with only 80 units of
                                            rental public housing and 382
                                            homeownership units. The bulk of these
                                            homeownership units, while described as
                                            ―affordable,‖ will be well beyond the


                                            70
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
means of current Scott and Carver            contingent effects on their social and
Homes residents. According to the            economic well-being, it will help us
Miami-Dade HOPE VI application, the          achieve a greater degree of fairness, a
minimum qualifying income levels for         fundamental American value.
these units all range from nearly twice to   Balanced Housing Policy
over three times the income of the
average Scott and Carver Homes family.       The National Low Income Housing
                                             Coalition supports policies that promote
National Low Income                          home ownership, recognizing the
                                             important asset development objective of
Housing Coalition                            home ownership. However, support for
The mounting inequity between                home ownership while rental housing is
spending on direct housing assistance        neglected is incomplete housing policy.
and tax expenditures on home ownership       One effect of the current over-
is a key area for reform. The accelerating   idealization of home ownership is the
growth of the mortgage interest tax          perception of rental housing, especially
deduction and related home owner tax         affordable housing, as undesirable. Once
benefits is driven by the rising cost of     that dichotomy is created, the corollary
housing and the increase in the rate of      idealization of the people who are home
home ownership. Those fortunate              owners and perception of renters as
enough to be homeowners with enough          undesirable people easily follows.
income to take advantage of the tax          Balanced housing policy recognizes
benefits receive a housing subsidy that is   different housing needs at various stages
a federal entitlement. Most renters          of the life cycle. The housing needs of
receive no housing subsidy, and those        single people and young couples are
who do are only a fraction of those who      significantly different than those of
are eligible, leaving millions of families   families. Housing needs and preferences
with untenable housing costs. This           change as children grow up and leave
bifurcation of federal housing subsidies     home, and middle aged adults prefer
contributes to the lack of public and        greater flexibility. Rather than the false
political support for housing aid to the     dichotomy of rental housing vs. home
poor.                                        ownership, we should see housing along
The top heavy distribution of federal        a continuum with literal homelessness as
housing subsidies is symptomatic of the      the extreme on one end and long term
growing economic inequality in the           housing stability and economic security
United States. The greater the degree of     at the other end. Along the way, a lot has
economic inequality, the more                to happen to successfully make it to the
disadvantaged are those at the bottom.       stable and secure end. Access to rental
Significantly increased investment in        housing assistance and access to good
housing support for low income people        rental housing are two key ingredients to
will reduce economic inequality. Thus,       success. The single most important
not only will new investment in housing      factor explaining five years of stable
for low income people improve their          housing for formerly homeless families
housing circumstances with many              was the receipt of rental assistance.


                                             71
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Balanced housing policy reflects              financially better off because they are
variations needed in forms of tenancy         owners. Unfortunately, though these
based on economic and employment              assertions are common, they are actually
circumstances. It argues for a healthy        more myth than fact.
supply of good quality, affordable            National survey data from the General
(subsidized, if need be) rental housing.      Social Survey conducted by the
For example, if there are two low wage        University of Michigan show that
earners in a family, it is likely with down   apartment residents are more socially
payment assistance, they could afford         engaged than single-family home
monthly mortgage payments just as             owners. They are equally involved in
easily as they can afford to pay rent. But    community groups and similarly
both wage earners are in service sector       attached to their communities and
jobs and as the economy slows down,           religious institutions. In other words,
one or the other is at risk of being laid     there is no basis in fact for the implied
off. Without savings to draw on, they are     claim that renters are somehow less
in jeopardy of losing their home for lack     desirable for a community.
of payment. Once foreclosure occurs,
not only do they have to vacate their         Our country is facing a long list of
home, but their credit rating goes down       housing-related problems that higher
precipitously, making it harder to get        homeownership rates simply cannot
back to at least where they were before       solve, such as our growing affordable
they bought their house. This family          housing crisis, suburban sprawl, urban
would be better served in rental housing,     decay and even the housing needs of our
if they could receive short term rent         aging parents. Some of the often-
assistance until the second wage earner       overlooked benefits of apartment homes
found another job. Home ownership             include the following:
should come with a greater employment             they promote balanced suburban
security.                                          development;
National Multi Housing                            they help revitalize urban
Council                                            neighborhoods;
Balanced Housing Policy, Smart                    they conserve land and help promote
Growth, and Attractive Density                     open space;
A smarter, more balanced housing policy           they use municipal infrastructure
is critical to meeting the nation‘s                more efficiently than single family
housing needs. Unfortunately, our                  houses;
housing policy has become increasingly            they reduce demand for new road
oriented toward homeownership in                   and school construction;
recent years. The common justification
for this is a presumption that                    they help create the pedestrian-
homeowners make neighborhoods more                 friendly neighborhoods so many
stable, are more committed to                      citizens are calling for; and
neighborhood improvement, and are


                                              72
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
   they provide necessary housing for       We agree that homeownership is an
    millions of public service employees,    important part of providing safe, decent
    such as teachers, nurses, and public     and affordable housing. But, programs
    safety officials.                        such as tax credits for first time home
                                             buyers, down payment assistance,
Nevertheless, we continue to allocate the
                                             preferential loan programs, and
lion's share of our housing resources,
                                             homeownership outreach and
and our housing rhetoric, toward further
                                             educational programs fail to address
increasing the homeownership rate, and
                                             some of our most pressing housing
we continue to attach a stigma to renting.
                                             needs; may inadvertently push some
The nearly exclusive public policy bent      families into unsustainable
toward homeownership has other costs         homeownership; and reinforce the
as well. A recent report by the Research     misperception that renters are second-
Institute for Housing America (RIHA), a      class citizens.
research organization founded by the
Mortgage Bankers Association, finds          National Neighborhood
that lower-income families tend to over-     Housing Network
invest in housing and live in
neighborhoods that have more volatile        Predatory Lending
house prices. They also note that owning     The National Neighborhood Housing
a home reduces the labor mobility of         Network supports the increased flow of
these households, making it difficult for    mortgage credit into low-income and
them to move to areas with better job        minority communities. NNHN is made
opportunities. They conclude that            up of organizations that are committed to
unsustainable homeownership is in no         working with low- and moderate-income
one's interest, and that many of the         individuals who for a variety of reasons,
recent gains in homeownership among          including poor or non-existing credit
lower-income households "hinge on            histories or unstable employment
highly leveraged mortgage products."         background, are unable to secure
Finally, a homeownership-focused             conventional mortgage financing. As
housing policy fails to reflect the          responsible ―subprime lenders‖ NWOs
changing housing preferences of our          work to provide these consumers with a
citizens. Renting is no longer housing of    range of financial services and products
the last resort. A growing number of         to enable them to become homeowners.
upscale and moderate households are          We do this both a direct lenders as well
opting to rent even though they could        as by working with conventional lenders.
afford to own because renting better fits    Responsible subprime lending entails
their busy lifestyles or makes more          working with a consumer to come up
financial sense. For the past three years,   with a loan product at a price and with
the fastest growing segment of renters is    terms that appropriately compensate the
households making $50,000 or more.           lender for any risk they are taking on,
Many of these renters are actively           inclusion of reasonable return for the
engaged in improving their                   lender, and understandable by and
communities.                                 appropriate for the borrower. Our


                                             73
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
concern is that the credit and other              points and fees from being financed
financing tools be made available to               as part of a home loan;
low- and moderate- income individuals
                                                  equity stripping, whereby lenders
in a responsible manner and that these
                                                   make loans based on the equity
consumers are educated and empowered
                                                   existing in a home as opposed to the
through the process of becoming a
                                                   borrower‘s ability to repay the loan;
homeowner.
There is a distinct difference between            abusive lending practices such as
subprime lending and predatory lending.            ―flipping‖ when repeated refinancing
Whereas subprime lending takes a                   of a home, enabling the lender to
borrower‘s potential risk into account             collect up-front fees and eat away at
and provides manageable lending rates,             home equity; and
predatory lending includes tactics which          ―insurance packing‖ whereby
purposefully damage a borrower‘s equity            unnecessary and overpriced
and credit, enabling the lender to take            insurance is financed as part of the
advantage of the borrower. These tactics           financing package often without
include inflated pointes and fees, and             properly informing the consumer.
encouraging loans that rely on the home
                                              Legislation must strengthen the
equity rather than the borrower‘s income
                                              protection of loans covered by the Home
and ability to pay. These tactics often
                                              Ownership and Equity Protection Act
end in borrowers‘ losing their homes.
                                              (HOEPA), and expand the coverage to
Home ownership counseling is an               include loans with lower interest rates.
important tool in the fight against           The Home Mortgage Disclosure Act
predatory lending. NeighborWorks®             (HMDA) must be expanded at least to
organizations provide pre- and post-          cover all home equity lending and to
counseling to all of their participants.      require that the interest rate and APR on
One such type of counseling is the            a loan are recorded.
Foreclosure Intervention Program, which
                                              Suggestion: Support legislation that
offers mortgage delinquency counseling
                                              prohibits predatory lending practices.
and intervention and, in some cases,
small, low-interest loans to help             The government‘s own funds are at stake
customers become current on their             when Federal Housing Administration
mortgage. Some organizations report           (FHA) mortgages and Neighborhood
that up to 50 percent of their counseling     Reinvestment loans fall prey to
participants have been victims of             unregulated lenders. The National
predatory lending.                            Neighborhood Housing Network
                                              supports the Predatory Lending
Because of the rapidly expanding market
                                              Consumer Protection Act of 2001
and predatory practices, counseling
                                              (H.R.1051) to amend HOEPA,
alone is not enough. It is vital to curtail
                                              introduced by Representative John
predatory lending practices through
                                              LaFalce, and soon to be introduced by
legislation. Effective legislation must at
                                              Senator Paul Sarbanes. NNHN also
least prohibit:
                                              supports the Equal Credit Enhancement


                                              74
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
and Neighborhood Protection Act of            housing quality, higher mortgage costs
2001 (H.R.1053) to amend HMDA,                and infrastructure costs, it is apparent
introduced by Representative John             many rural home owners do not gain the
LaFalce.                                      benefits that typically accrue to home
                                              owners.
We ask the Millennial Housing
Commission to support legislation that        Rural households pay more of their
would prohibit predatory lending              income for housing than their urban
practices and protect home equity for         counterparts. Housing "cost burdens" are
low-income and minority households.           generally measured as a percentage of
                                              income, with 30 percent being the
National Rural Housing                        acceptable standard for housing. Overall,
Coalition                                     21 percent of all rural households pay
                                              more than 30 percent of their income for
Mobile homes are increasingly pervasive
                                              housing, which means that some 5
in rural areas, in part because of the lack
                                              million rural homeowners are cost-
of available housing. While mobile
                                              burdened. Of these, more than 1.1
homes may meet the short-term need to
                                              million are severely cost-burdened,
house lower-income families, their
                                              paying over 70 percent of their incomes
prevalence in a local housing market
                                              for housing, while another 1.9 million
often acts as a deterrent to construction
                                              homeowners pay over 50 percent of their
of permanent housing. According to the
                                              incomes in housing costs.
1997 American Housing Survey, the
number of mobile homes has increased          …
by 38 percent since 1987. Fifteen             Section 502
percent of rural homeowners live in
mobile homes, compared to seven               Section 502 of the Housing Act of 1949
percent of urban homeowners. Mobile           is the only remaining federal program
homes may decrease in value over time         that provides direct homeownership
and sometimes do not endure long              assistance to low-income households in
enough to be passed down. But with            rural areas. The principal purpose of
permanent housing in short supply,            Section 502 is to provide subsidized
mobile homes are often the only choice        loans to low-income families to acquire,
for very low- to low-income families.         rehabilitate, or construct single family
                                              homes.
Homeownership is the principal form of
housing in rural America. According to        Section 502 borrowers are
preliminary results from the 1997             predominately married couples or female
American Housing Survey (AHS),                single parents, in both cases with
households in non-metropolitan areas are      children under 18 years old. In a survey
far more likely to be homeowners than         undertaken by ERS in 1998, these
urban households, with 75 percent of all      households accounted for 71 percent of
non-metro households owning a home            the families using the direct loan
compared to the central-cities rate of 49     program. Ten percent of the borrowers
percent. (The rate in suburban areas was      were women living alone and 7 percent
73 percent.) Yet, because of poor             were married couples without young


                                              75
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
children. According to RHS staff, the         result of reduced subsidies. The rest is a
average adjusted household income for         result of lower lending levels. Some
FY 1999 of a Section 502 household is         measure of the desperate housing
$18,459. About 9 percent of households        situation of many low-income rural
have annual incomes less than $10,000.        families is the backlog of mortgage
                                              requests for Section 502 direct loans,
In 2001, Congress appropriated $1.1
                                              which exceeds $5.5 billion as of June 19,
billion for direct loans, $600 million less
                                              2001.
than the 1994 appropriation. In addition,
the average subsidy level for Section 502     The trend in rural housing appropriations
households dropped. In 2001, RHS will         is toward guarantees. In the Section 502
finance roughly 15,000 units.                 guaranteed loan program, RHS
                                              guarantees unsubsidized loans to low-
Not only have the Administration and
                                              and moderate-income households made
Congress cut lending levels for Section
                                              by commercial lenders. The government
502, but the amount of subsidy available
                                              backing of these loans is an incentive to
has also been reduced. In October 1995,
                                              commercial lenders who may not
RHS changed the subsidy mechanism
                                              otherwise lend to lower income families.
for Section 502 from an interest credit
                                              Applicants must have an income no
system to payment assistance. Under
                                              greater than 115 percent of AMI. In
interest credit, eligible households could
                                              1979, the direct program funded 93,400
receive a mortgage interest rate as low as
                                              units and the guaranteed program, 374;
one percent. Under payment assistance,
                                              in 1998, the direct loan program funded
subsidy is reduced, as families with
                                              15,563 units and the guaranteed
incomes between 50 to 80 percent of
                                              program, 39,144.
median are required to pay either 22
percent or 26 percent of their income for     The federal policy movement in the
housing costs. As a result the average        direction of guarantees has resulted in
income of families assisted under             the predominance of moderate-income
Section 502 direct loans has increased.       borrowers. In 1999, the guaranteed
For FY 1995, the last year of interest        program served primarily moderate-
credit, the average income of the             income families, although one-quarter of
households assisted was $16,967. At the       the families are low-income. Of the
end of FY 1999, the average income was        38,555 guaranteed loans that RHS made
$18,459. This is an increase of nine          in 1999, 68 percent went to moderate-
percent.                                      income households, 26 percent to low-
                                              income and only 3 percent to very low-
There is anecdotal evidence that this
                                              income. The average income of the
change has fallen the hardest on low-
                                              families served was $33,318, contrasted
income borrowers - those with incomes
                                              with $18,459 in the direct loan program.
50 to 80 percent of area median income
(AMI). The result of reducing subsidy         In recent years, RHS has employed new
and lending levels of Section 502 is a far    and important efforts to make good use
less costly program for the federal           of dwindling Section 502 funds. RHS
government. About one-third of the            has successfully sought from Congress
reduction in Section 502 spending is a        increased appropriations for Section 523


                                              76
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Mutual and Self-Help Housing. Under           Therefore, when a rural community does
this program, local organizations help        not have such an organization, it often
low-income families to build their own        goes without this important assistance to
housing, at a substantial savings to the      low-income homeowners.
families and the government. Self-help        There is not a dedicated source of
families are poorer than other families       federal support to promote a non-profit
participating in rural home ownership,        delivery system for rural housing. Nor is
yet have better records on making             there an easy mechanism for replicating
mortgage payments.                            successful models. With the exception of
RHS also initiated the Rural Home Loan        self-help housing technical assistance
Partnership that is designed to pair          grants, a uniform method of support or
limited Section 502 funding with              encouragement for low-income
financial resources from other public and     homeownership efforts is not available
private sources. With non-profit              to rural communities across the country.
organizations often at the center, this       …
program has also had the effect of
extending limited RHS funding.                States are increasingly important players
However, because of the limited subsidy       in rural housing efforts. One of the
available from other sources, the income      important ways that states participate in
of families participating in this program     rural housing is through HUD block
is higher than many other Section 502         grant programs.
borrowers.                                    HUD provides two main sources of
…                                             funding to support low-income
                                              homeownership efforts: Community
In some rural areas, non-profits have         Development Block Grants (CDBG) and
picked up the slack and pursued a             HOME Investment Partnerships
multiple funding strategy for                 Program (HOME). These programs
homeownership. Funding for home               provide formula allocations to states and
mortgages and rental housing comes            localities, with a focus on entitlement
from several sources -- federal, state, and   communities and participating
local, as well as private. Skilled local      jurisdictions, respectively.
organizations meld these resources
together to provide financing packages        …
affordable to low-income families. The        Over the years, more than 132,000 home
National Rural Housing Coalition              buyers have used HOME funds to help
documents the success of the emerging         purchase a home, and 104,000
new delivery system in its October 2000       homeowners have used such funds for
report entitled, Opening Doors to Rural       home rehabilitation. Nearly one in three
Homeownership.                                home buyers and seven in ten
This approach is more complex and             homeowners (almost half of them
time-consuming and is contingent upon         elderly) who receive HOME assistance
the capacity -- both technical and            earn 50 percent or less of area median
financial -- of local organizations.          income. funds have been increasingly



                                              77
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
used for homeownership assistance, with       CDBG and HOME do not adequately
27.1 percent of HOME used in FY 1994,         address the distribution of funds with
compared to 32 percent in FY 1995 and         non-metro and rural areas. While both
44 percent in FY 1997.                        CDBG and HOME provide assistance to
                                              rural areas, it is not clear precisely where
HOME appears to be a focal point for
                                              those funds go. In the CDBG Small
non-profits in the field. There are several
                                              Cities program states must provide funds
reasons for this. First, the funds are
                                              to communities below 50,000
exclusively for housing. Second, many
                                              population. For HOME, states have the
rural non-profit housing organizations
                                              authority to use funds in non-pj areas,
are CHDOs and therefore qualify for the
                                              but are not required. Recent data from
15 percent of HOME funds are set aside
                                              National Council of State Housing
for such organizations. Finally, the
                                              Agencies indicates that 25 percent of
leveraging requirement has necessitated
                                              HOME funds went to non-metro and
housing organizations to become more
                                              rural areas, but states have varying
entrepreneurial in their funding and has
                                              definitions of rural. And, just as there is
dovetailed with the recent changes in
                                              anecdotal evidence of the importance of
Section 502‘s encouraging leveraged
                                              these programs, there is evidence on the
loans. The following two examples from
                                              other side that smaller, poorer
the symposium demonstrate how HUD
                                              communities, particularly those with a
block grant funds can be used by rural
                                              non-profit infrastructure have difficulty
non-profits to promote low-income
                                              gaining access to these funds.
homeownership.
                                              HOME and CDBG are not a permanent
Members of the National Rural Housing
                                              resource for rural areas – Members of
Coalition find CDBG and HOME
                                              the Coalition express concern about the
extremely effective tools to provide
                                              structure of CDBG and HOME funding.
increased housing opportunities to low
                                              Few states provide rural areas with
income rural families. In a number states
                                              multi-year funding through these block
– Kentucky, Pennsylvania, Wisconsin
and California there is anecdotal             grants. As a result, when a small
                                              communities is lucky enough to gain
evidence that states are working with
                                              access to funding, it is usually for a
non-profit organizations to fill the gap
                                              discreet, one time project. Therefore,
left by the decline in rural housing
                                              small communities are unable to count
resources at USDA. Most often, non-
                                              on a continuing resource to provide
profits are using CDBG and HOME in
                                              housing assistance.
conjunction with USDA resources to
provide housing.                              Furthermore, a number of states require
                                              non-profit grantees of HOME funds to
That said, there are important limitations
                                              return grants originally made for a
and drawbacks to a system that relies on
                                              revolving loan fund. Again, after a
states to serve rural housing needs.
                                              project is completed, the funds are
These include:
                                              removed from the community and the
Equity in funding and reach to smaller,       community is deprived of a permanent
poorer communities – Data on both             asset.


                                              78
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
…                                                  Without a uniform system of housing
                                                   assistance in rural areas, non-profit
I. HOMEOWNERSHIP
                                                   organizations are increasing
   Increase assistance to low-income              important as a vehicle to deliver
    households by reinvigorating                   housing assistance. However, there is
    USDA‘s Section 502.                            only meager funding available for
    NRHC suggests that Section 502 be              the Rural Community Development
    reinvigorated to serve lower-income            Initiative (RDCI), a new program
    families by: increasing subsidies in           that provides capacity building
    Section 502, improving the                     support to non-profits through
    guaranteed loan program, supporting            intermediaries. Funding for RCDI
    home loan partnership expanding the            should be expanded from $6 million
    housing counseling program, and                to $25 million.
    institutionalizing grant programs for         Expand the housing counseling
    non-profits such as self help housing.         program.
    This includes increasing the loan
                                                   Counseling both before and after
    totals on Section 502 direct loans to
                                                   buying a home is a key to successful
    $1.7 billion and providing additional
                                                   homeownership. RHS‘s Section 502
    subsidy for families with incomes
                                                   self-help program, which includes
    between 50 percent and 80 percent of
                                                   funds for housing counseling, is
    median.
                                                   highly successful, in part because the
   Build non-profit organization                  counseling is so effective. Despite
    capacity.                                      the proven value of counseling,
    With dramatic reductions in federal            however, non-profit organizations
    funding and new opportunities                  generally lack access to resources to
    presented by a good economy for                help defray its costs. RHS should
    building higher end housing, the               incorporate housing counseling into
    private sector delivery system is no           its programs and allow its rural
    longer dominant as it was when                 program managers to refer renters to
    funding levels were higher, and in             organizations that provide
    many rural communities does not                homeownership counseling. A $500
    exist. In some rural areas, non-profits        housing counseling fee for non-
    have picked up the slack and pursued           profits providing housing counseling
    a multiple funding strategy. Skilled           for 502 borrowers should be an
    local organizations meld federal,              allowable fee covered by the loan,
    state, local and private resources             even if it is in excess of the
    together to provide affordable                 appraisal. (Note: Other fees/costs
    financing packages to low-income               which are currently allowed to be
    families. But there is not a dedicated         included in the loan even if they
    source of federal support to promote           exceed appraisal are: tax service fee,
    a non-profit delivery system for rural         initial escrow, and appraisal.)
    housing.



                                              79
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter

Neighborhood                                      Give serious consideration to
                                                   allowing every family receiving
Reinvestment                                       Section 8 assistance to make the
Corporation                                        decision for themselves as to
Use of Section 8 for homeownership                 whether to use the Section 8 subsidy
                                                   for rental housing or for
The Neighborhood Reinvestment                      homeownership.
Corporation has been leading a national
effort to help existing Section 8             …
households to use their vouchers in           About eight years ago, Neighborhood
support of homeownership. An initial          Reinvestment was proposing to launch a
pilot effort involving four sites (in         national campaign to assist underserved
Nashville, TN; Long Island, NY;               households into homeownership. As part
Syracuse, NY; and Burlington, VT has          of this effort we were in discussion with
helped families with incomes as low as        the secondary mortgage markets
29 percent of the Area Median Income          regarding their willingness to purchase
purchase attractive homes in desirable        first mortgage loans originated pursuant
neighborhoods. This small pilot effort        to this effort. We were initially seeking a
has recently been expanded to 25              commitment by each Government
NeighborWorks® communities, and the           Sponsored Enterprise (GSE) to purchase
strategy clearly has broad potential.         $20 million in mortgage loans. In a
The Section 8 homeownership option is         meeting with one of the GSEs and a
an example of innovative public-private       private mortgage insurer, a concern was
partnerships that can expand                  raised that since we were proposing to
homeownership opportunities to low-           lend to low-income families, for
income families - but its sustainability is   properties needing rehab, in distressed
uncertain given the significant costs         communities, with low downpayments
involved in establishing and running          and high loan-to-value ratios, these loans
programs at the local level.                  could be riskier than loans they would
                                              normally purchase. As a result, the GSE
Recommended Strategies:                       initially refused to commit to the
   Provide federal funding to Public         purchase of such loans. Discussion
    Housing Authorities (PHAs) to fund        moved to the question of how much
    ongoing housing counseling – or           riskier these loans were believed to be,
    alternatively, require PHAs to fund       with the GSE and private mortgage
    housing counseling services (perhaps      insurer being asked to ―price the risk.‖
    through PHA administrative fees.)         The GSE and private mortgage insurer
                                              took the challenge seriously, and after a
   Expand sources of capital for Section     period of several months (spent looking
    8-backed home mortgages.                  at the performance of existing
   Create incentives for Public Housing      NeighborWorks® loan portfolios), they
    Authorities to pursue the Section 8       returned with an assessment that the risk
    homeownership option -- and create        could potentially increase the loan
    other innovative ideas like this.         default rate from a then current rate of


                                              80
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
about 1.9 percent for conventional              A $50 million loan-loss reserve
mortgages, to about 2.5 percent for the          would generate approximately $8.3
type of mortgages proposed (six basis            billion.
points).
                                            Improving access to capital for
Within minutes, we were able to propose     homeownership for low-income and
the use of a loan-loss reserve to protect   minority communities
them from the risk of increased defaults
                                            Low-income and minority communities
(which meant that for an amount of
                                            are currently awash with loan capital.
$120,000 held in escrow as a loan-loss
                                            Issues of credit rationing are no longer
reserve, they would agree to purchase
                                            the dominate issue in mortgage and
$20 million in loans).
                                            home improvement finance. The issue
That was eight years ago, and to date,      today is accessing capital at competitive
not one cent of the loan-loss reserve has   interest rates and loan-related fees.
been drawn down. With an agreement by       Supra-normal interest rates and fees (and
the GSEs to purchase loans, lenders         predatory lending practices) eat away at
originated loans. As of March 31, 2001,     the ability of families, and the
nearly 45,000 mortgage loans had been       communities in which they live, to
made through the NeighborWorks®             accumulate net home equity assets and
Campaign for Homeownership, with a          other forms of wealth.
value of more than $3.7 billion.
                                            Recommended Strategies:
We propose that we build on this
                                                Expansion of Full Cycle Lending(sm)
experience by having the federal
                                                 style programs to help families
government establish a loan-loss reserve
                                                 through the continuum of counseling
in exchange for Fannie Mae and Freddie
                                                 services -- from financial skills
Mac ‗stretching‘ their
                                                 building to pre-purchase home buyer
underwriting/approval criteria to new
                                                 education to post-purchase budgeting
limits. The loan-loss reserve should be
                                                 and home maintenance.
structured to essentially hold Fannie
Mae and Freddie Mac harmless against            Expand the level of housing
additional loss, as we all work together         counseling funding provided by
to push-the-envelop regarding loans that         HUD, and expand incentives for
can prudently be made without                    consumers and third parties to pay
experiencing loss to investors in GSE-           the costs of obtaining Full Cycle
issued mortgage backed securities.               Lending-style counseling.
If, for example, the same six basis point       Increased disclosure of loan terms
loan-loss reserve were used:                     and fees in HMDA, as suggested by
   A $100 million loan-loss reserve             recent Federal Reserve proposals.
    would generate approximately $16.6          Focus on preservation of existing
    billion.                                     homeowners in lower-income and
                                                 minority areas.




                                            81
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Support efforts that prohibit/end              consumers and third parties to pay
predatory lending practices                    the costs of obtaining Full Cycle
                                               Lending-style programs.
Gains in community and asset
development are increasingly threatened       Other strategies and increased
by predatory lending practices, in the         enforcement to aggressively combat
form of payday loans, and                      abusive/predatory lending practices.
inappropriately structured home equity
                                          …
loans, or home improvement loans.
                                          Tax Policy
There are several legislative proposals
(including H.R. 1051 and H.R. 1053)       Support for a Homeownership Tax
aimed at curbing the abusive/predatory    Credit
lending practices of primarily            Currently, at least five separate tax credit
unregulated lenders. Predatory lenders    bills have been introduced in the House
are using very sophisticated technology   and Senate in support of
and data mining techniques designed to    homeownership. While Neighborhood
strip vulnerable home owners (including   Reinvestment is extremely supportive of
the elderly, minorities, immigrants and   a homeownership tax credit, we are also
low-income households) of the equity      sensitive to a growing concern among
they currently have in their homes.       many advocacy groups that the
These practices can undermine the         Administration‘s support of
federal government‘s own affordable       homeownership not be at the expense of
housing and community revitalization      continued (and indeed increased) support
efforts, and is resulting in              of rental housing, meeting the ―worst
disproportionate delinquencies and        case housing needs‖ and the needs of
defaults in FHA-insured properties.       America‘s growing homeless population.
The Millennial Housing Commission         Neighborhood Reinvestment encourages
should encourage:                         the Millennial Housing Commission to
   support of legislative/regulatory     help policy makers understand that there
    efforts aimed at curbing predatory    is a tremendous difference in economic
    lending practices, and                conditions and housing needs across the
                                          country. Some of the current
   increased resources in support of     homeownership tax credit proposals
    federal prosecution of the most       attempt to stimulate the supply of
    abusive offenders.                    housing, by creating economic
Recommended Strategies:                   incentives for developers and investors
                                          in affordable housing. Other proposals
   Expansion of Full Cycle Lending-      attempt to respond to the affordability
    style counseling programs for pre-
                                          problem by providing a tax credit
    purchase and post-purchase
                                          directly to the new homebuyer. The
    homebuyer education.
                                          reality is that some communities need to
   More HUD housing counseling           increase supply, but others (with
    funds, and expanded incentives for    declining or stable populations) do not.



                                          82
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
Providing a tax credit which creates an       lower the downpayment amount, and
economic incentive to build new housing       lower the first mortgage amount below
in a community that does not need to          the threshold of mortgage insurance.
increase its current supply of housing        These second position loans are
would not be a sound policy decision –        somewhat riskier, and will therefore
with potentially harmful impacts on the       carry offsetting higher rates, unless
existing housing stock. We believe it is      below market sources of capital are
important to blend elements of the            found. By offering a tax incentive, or
various homeownership tax credit              credit, to investors in pools of second
proposals currently ‗on-the-table‘ in a       mortgages, lower rates can be had, and
manner that provides maximum                  more potential families can become
flexibility to apply the credit in a number   homebuyers.
of different ways – that make sense to        …
first-time homebuyers in a wide variety
of economic markets. We also believe it       Manufactured homes
is critically important to target             Much of the low-income
homeownership tax credits to low-             homeownership boom in the South and
income families. Providing a                  West has been due to mobile homes - as
homeownership tax credit to any new           much as half of which do not include
homeowners (as some of the current            land ownership. While the manufactured
proposals suggest) would have little          home industry has evolved to develop an
effect other than to cause a                  affordable, quality product, issues about
corresponding escalation in the price of      marketing, financing and ownership
the homes.                                    remain. Most owners of ‗stick-built‘
Simultaneously overcome the wealth and        housing can anticipate a reasonable
income barriers to home ownership             appreciation in property value over time
                                              – and the increased equity in their homes
Studies show that even with expanded          has been the vehicle for many American
underwriting guidelines, many lower-          families to send their children to college,
income families lack either the               start a business or save for retirement.
accumulated wealth for downpayment or         Most owners of manufactured homes
income needed to afford a home priced         experience depreciation in value over
at half the area median. Moreover, low-       time.
downpayments often trigger higher
interest rates (through mortgage              Recommended Strategies:
insurance or higher fees or rates), and           Federally supported studies and
lower rates alone do not help with                 research on how best to use
downpayments. Therefore, both issues               manufactured homes in
need to be addressed at the same time              neighborhoods from a design
Recommended Strategy:                              standpoint.
Expanded use of second mortgages                  Objective studies on the relative
(through community-based nonprofit                 costs and benefits of owning a
organizations and other vehicles), which           typical mobile home or other


                                              83
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
    manufactured home, in comparison          While HUD‘s 1999 American Housing
    with ‗stick-built‘ homes.                 Survey also found that 75 percent of
                                              rural households owned their own homes
   A government supported competition
                                              (compared with 67 percent of
    between manufactured home
                                              households nationwide and 50 percent of
    producers and traditional ‗stick-built‘
                                              households in central cities), a higher
    homebuilders in areas of significant
                                              incidence of housing quality problems in
    housing need – such as a Native-
                                              rural areas nullifies many of the
    American community (e.g. the
                                              advantages of homeownership --
    Navajo Nation).
                                              including the ability to use homes as
   From such studies and the                 investments or as collateral for credit.
    experience of such a competition,         For example, a large percentage of
    identify and promote                      owner-occupied units in rural areas are
    recommendations and winning               manufactured homes. Rather than
    strategies (if any) regarding the use     appreciate in value, typically these
    of manufactured units for affordable      mobile units depreciate in value.
    housing needs.                            Moreover, many owners of
…                                             manufactured homes are burdened by
                                              the high cost of financing these units.
Rural housing                                 Not surprisingly, a 1999 HUD report
Since the inception of rural housing          concluded that the most severe rural
programs in the 1930s, the quality of         housing problems are found farthest
rural housing has improved, but there are     from the nation‘s major cities, especially
still very serious housing issues affecting   in such places as the Mississippi Delta,
rural areas, and much more still needs to     Appalachia, the Colonias on the
be done. A higher proportion of rural         Mexican border, and Indian trust lands.
units are substandard, and according to       Furthermore, for some rural residents,
HUD‘s 1999 American Housing Survey,           such as migrant farm workers, a shortage
rural households lived in moderately or       of affordable rural housing persists.
severely inadequate housing more often        A shift in federal housing policy to a
than their urban counterparts. The 1990       more holistic community planning
Census found that 6 percent of rural          approach is imperative to sustaining
African-American homes and 12 percent         community development – particularly
of rural Native American homes lacked         in rural communities. The following
complete plumbing. In comparison, 2.4         example shows the benefit of using a
percent or less of all the remaining          holistic approach to community
homes (regardless of location) lacked         development.
complete plumbing. In addition, the
Housing Assistance Council reported           Neighborhood Housing Services of
that 9 percent of owner-occupied rural        Dimmit County (NHS) was created in
units in 1991 were substandard,               1986 to combat the county‘s economic,
compared with 6 percent in central            social and housing deterioration. Once
cities.                                       agriculture-based, Dimmit County‘s
                                              biggest employers now are the local


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            MHC Solicitation Letter
government, the hospital, the school         homeowners with severe housing cost
system and the border patrol.                burdens? If so, how should this be done?
Unemployment is stuck at around 17           I suggest that many programs currently
percent, and more than half the residents    exist to help low-income residents obtain
live below the poverty line. In response     homeownership. With such assistance, it
to community needs, NHS has                  is possible for tenants to make the
rehabilitated more than 60 homes for         transition to homeownership. From the
low-income, elderly and handicapped          demographics of tenants in RHS rental
residents, completed an affordable 22-       housing, it would appear that current
home subdivision, and ―graduates‖ 25         tenant households fall into two
families a year from an intensive            categories – elderly who have decided to
homebuyer counseling course.                 no longer own their own home, and
However, building and rehabilitating         young families or female headed
affordable housing doesn‘t make sense        households who may be candidates for
unless the NHS‘s customers have jobs         homeownership at some point in the
that allow them to pay for the housing.      future. Both groups need tenant
In response, NHS thought of innovative       assistance to afford rents. Scarce
ways to create jobs.                         assistance programs should be targeted
                                             to these high need groups.
NHS developed a recycling plant for
cardboard, newspaper and other paper         …
products; set up other plants to process     How can access to capital for
mesquite and pecans; and organized a
                                             homeownership (for refinancing as well
distribution center for fresh vegetables.    as purchase) be improved for those who
With a $1 million business-development       currently fall through the gaps?
loan from the USDA, the NHS assisted
in the start-up of four new, private         The RHS Single Family Housing
businesses. Additionally, Neighborhood       programs, both direct and guaranteed
Reinvestment, USDA‘s Rural                   work well. For low-income potential
Development, and a San Antonio based         homeowners, the RHS field offices have
bank financed a jalapeno plant in            provided an effective method for
Dimmit County. The venture‘s short-          reaching rural residents. However, with
term goal is production of 60,000 large-     recent reductions in staff, consolidations
size cans of jalapeno a month, with          of offices have become necessary, often
expansion into other products on the         with the result that access to staff that
horizon. ―The once, very, very, very dim     can counsel applicants has been reduced.
light at the end of our tunnel,‖ says NHS    Nonprofit groups or technical assistance
executive director Manuel Estrada, ―just     contractors may be able to pick up some
continues to shine brighter and brighter.‖   of the slack. However, like with many
                                             services in rural areas, many areas do not
Patrick N. Sheridan                          have such contractors to provide the
Should consumer based assistance also        services and the contractor capacity
be made available to low income              itself must be built.




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 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter

Smart Growth America                          The federal government could also play
                                              a role in encouraging housing
We also believe that the location of          affordability. There are several bi-
affordable housing is as important as its     partisan pieces of legislation being
production and preservation. Wherever         considered in Congress that could
possible, affordable housing should be        contribute to an integrated approach to
collocated near convenient, affordable        housing and smart growth. For example,
transportation choices. According to the      the Historic Homeownership Assistance
Bureau of Labor Statistics, American          Act would provide a tax credit for the
families now spend as much of their           purchase or rehabilitation of a historic
family budget on transportation as they       home. Many of the nation‘s historic
do on shelter: 18.9 percent. For the          districts are low-income areas (e.g. much
poorest fifth of America‘s households,        of downtown Baltimore), and tax credits
the percentage of reported income is 39       to support reinvestment of historic
percent, the vast majority of which is        homes could stimulate the creation of
costs associated with automobile              more vibrant mixed-income
ownership and operation. Reductions in        neighborhoods.
transportation costs can free up
resources that can be better dedicated to     Surface Transportation
housing, savings or other uses. In fact, if   Policy Project
a typical American family got rid of one
of its cars (their largest depreciating       The poorest American families often
asset) and devoted the savings to home        have to compromise their savings (and
ownership, it could build roughly             opportunities to move from poverty
$28,000 in equity.                            through home ownership) to be mobile.
…                                             All of these statistics point to the need to
                                              take a hard look at transportation when
Other measures attempt to capture the         considering affordable housing policies.
household savings that a good location        STPP‘s report, Driven to Spend, found
or reliable public transit can provide.       that residents of more sprawling metro
The Center for Neighborhood                   areas tend to spend a much higher
Technology, the Surface Transportation        portion of their family budget than
Policy Project, and the Natural               residents of more compact, traditional
Resources Defense Council have                metro areas with good public
developed a mortgage product called the       transportation service. Therefore, one
―Location-Efficient Mortgage‖ (LEM)           way to increase home ownership may be
which enables financial institutions to       to reduce auto-dependence, thereby
consider these savings in mortgage            increasing disposable income, savings
lending criteria. Fannie Mae has              for homeownership or college
committed to supporting the LEM in            educations, and retirement.
hopes that it will enable families to
qualify for larger mortgages; it could        Thomas C. Wright
also bring home ownership within reach
                                              There should be greater emphasis on
of lower-income households.
                                              home ownership in rural communities


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where ownership levels are low.             Whether it is a direct result of NAFTA
Outreach efforts must begin with            or a dramatic shift within the
education designed to heighten              employment base nationally, rural
awareness of federally sponsored            America has seen deterioration in job
lending programs and the availability of    quality over the last decade. Small
down payment assistance for low and         industrial operations have closed down
moderate income families. Tribal            as the manufacturing sector consolidates
Housing Authorities/Departments and         and/or moves abroad. Service sector
local community Housing Agencies are        positions have served as adequate
the likely vehicles to spearhead this       interim sources of income, but offer little
activity. To enhance the impact of the      long-term potential as sustainable
education process, it would be a logical    employment. The inflation adjusted
progression to encourage these entities     wage increases over the past decade
to become correspondent lenders. This       barely exceed the inflation rates (by
proposition would increase access to        approximately 1 percent), and thus have
some of the federally sponsored lending     not kept pace with the costs for entry-
products that are not always readily        level housing. Under employment has
available through community banks.          reach epidemic levels. Income and debt
Mortgage financing could be part of a       as a percentage of discretionary income
comprehensive home ownership and            are becoming a major obstacle to home
credit-counseling program that would        ownership.
culminate with client receiving a           …
mortgage through the sponsor
organization. An important component        Home ownership should be the primary
of this process involves educating the      focal point of a domestic economic
entire community about the benefits of      agenda that places a premium on job
affordable home ownership. The              creation for the in rural communities and
pervasive existence of the Not-In-My-       for the urban poor. While it is not
Backyard attitude often derails proposals   prudent to become protectionist in
of this nature.                             nature, we need to proceed on a course
                                            that places greater importance on our
The economic news coming out of             citizen. Quality of life begins at home.
Washington underscores a fundamental        By fostering an environment wherein
problem in America. The disparity in        more families are positioned to make the
home ownership rates among minorities       decision as to whether home ownership
and lower incomes families‘ highlights      is right for them rather than remaining
the delicate nature of the stock market     rents by default; the country will benefit
propelled economic expansion of the         from a resurgence of pride. It is a well-
90‘s. Rural America and many low-           documented fact that home ownership
income households are perplexed by the      stimulates civic pride through
news of recessionary concerns that make     commitment. Increasing the home
headlines with regularity. To them, the     ownership rate among minorities should
longest period of economic expansion in     not be viewed as a social responsible
history was nothing more than increased     initiative. It is a means to invest in
liquidity among higher wage earners.


                                            87
 Homeownership-Related Comments from Responses to
             MHC Solicitation Letter
America. The presidential election            housing starts are at record levels in
delays highlight a feeling of                 Indian Country. Nonetheless, at its
disenfranchisement among many                 current funding levels NAHASDA
Americans. Sociologists suggest, when         cannot keep pace with growing needs
people feel as though their concerns are      within Native communities. States
not being validated attitudes deteriorate.    should be required to set-aside a
We need to find issues that unite             percentage of LIHTC for Native
Americans; housing and jobs are a good        communities based on housing
starting point. Keep in mind, it is           conditions and poverty statistics. The
impossible to co-exist with equality          same principals should be applied to the
when access to credit is not readily          ―new markets‖ and ―single-family tax
available to everyone based on                credits‖ when and if they become
consistently applied terms and                available. The GSE‘s should be required
conditions.                                   to put more money at risk by providing
                                              equity investments in affordable housing
When the President‘s budget zeroed out
                                              activities.
HUD‘s Rural Housing and Economic
Development Grant, the administration         …
sent a tough message to communities           The message is clear. Home ownership
that rely on this valuable program. Self-     and equal opportunity education must be
sufficiency, self-determination, and self-    priorities for America to move forward
reliance are all terms used to describe       in a positive manner. No one in America
the goals for Native American and rural       should feel the pain of disenfranchised
stimulus initiatives. The sustainability of   caused by unequal access or treatment.
these programs is often doubtful before       When we improve the quality of life for
the individual projects reach their final     the least privileged segments of the
planning stages because the funding           population, we enrich the entirety of
levels are inadequate. America has            humanity.
experienced urban renewal I, II, and III.
When does the rural renaissance series        Vermont’s State Housing
begin?
                                              Agencies
For example: Look to the census data for
                                              How can vouchers best support mobility
demographic statistics for Native
                                              and self-sufficiency for the families that
Americans. Indian Country continues to
                                              receive them?
lag behind the rest of the country in
economic development and home                 Vouchers best support mobility and self-
ownership rates. How can the budgetary        sufficiency by allowing families to move
process identify education, healthcare,       closer to job training programs,
and home ownership as major emphasis          institutions of higher learning, and jobs.
without increasing the appropriations for     Affordable, safe housing is a basic need
Native Americans? NAHASDA is up for           and achieving self-sufficiency for very
reauthorization. This legislation by          low income families is nearly impossible
proclamation promotes self-                   without affordable housing – or a
determination. Under NAHASDA,                 housing voucher. Many low-income


                                              88
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
families reside in areas of high poverty,    support. Tax credits for cash burdened
which makes it even more difficult for       low-income families don‘t work.
them to achieve self-sufficiency –           …
employers often discriminate against
families based on the address they put on    On the surface, this sounds like a good
the employment application. A housing        idea. It helps low income families
voucher, and its ‗mobility feature‘          remain homeowners, decreases mortgage
allows low income families to live in        defaults and tracks the administration‘s
neighborhood that they otherwise could       emphasis on homeownership.
not afford. The Section 8                    If this is attempted, it should not be at
homeownership option can also promote        the expense of the existing Section 8
self sufficiency.                            Voucher Program. A demonstration
…                                            program should be established to test the
                                             viability of such a program. In setting up
Should consumer based assistance also        a Section 8 Program for low income
be made available to low income              homeowners, several things should be
homeowners with severe housing cost          considered.
burdens? If so, how should this be done?
                                                 What income limits (30%, 50%,
Section 8 vouchers or a similar program
                                                  80%) would be used?
should become available to assist current
homeowners who are unable to continue            What eligibility criteria would be
to afford their home due to                       used? For example, would a family
illness/disability or reduction in income.        be eligible for assistance if the initial
VHFA sees some homeowners who have                housing costs created a severe
had to sell their home and move. In at            burden, or only if some circumstance
least two cases the homeowners either             caused their housing costs to become
moved into a rent-assisted project or             a severe burden.
received a Section 8 voucher. In both
                                                 Would the house have to meet the
cases the monthly costs for
                                                  same requirements as under the
homeownership were less than market
                                                  current Section 8 Homeownership
rental so it would have been more cost
                                                  Program?
effective if the vouchers were used to
assist them to pay their current             …
homeownership costs. Since many              How well do current programs operate
homeownership programs serve persons         as production tools (e.g., HOME,
up to 110% of median and vouchers            CDBG, HOPE VI, §202, §811)? How
serve persons below 50% of median, if a      well do they work with each other? How
families income drops to the income          can they be improved?
eligibility level for a voucher or other
type of assistance you need that             Rural Development 515 – RD rules and
assistance to remain a homeowner.            implementation should reflect
Assistance for these homeowners should       communities‘ desires to build in village
be in some form of monthly operating         centers and do substantial renovation.
                                             Approved project designs should reflect


                                             89
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
the rural community (multiple buildings,     support of organizational capacity and
rather than one building, designs that       technical assistance geared to meet the
might adapt to future homeownership).        needs of specific organizations, and (8)
Consider changing the funding to be like     the establishment of every conceivable
202 with a capital advance and rental        type of partnership imaginable to ―get
assistance, and administer the advance       the job done‖ whether it be between a
like a grant (i.e. don‘t supervise every     social service agency and housing
detail of the production). Provide           developer, local government and a
automatic access to 4% housing credits.      housing developer, an educational
                                             institution and a housing developer, or
…
                                             multiple developers and/or funders with
What innovative and creative programs        specific roles to play.
are being used by states and local
governments to produce affordable            Warren Lasko
housing?                                     Fannie Mae and Freddie Mac
We are aware of a number of innovative       These organizations deliver a
and creative approaches being used by        worthwhile public service, but there is
the State and by local governments in        room for significant improvement. They
Vermont to produce affordable housing.       are inherently profit maximizing, risk
They include: (1) creation of a state        averse institutions, to the disadvantage
housing trust fund that has successfully     of the very people they are intended to
provided a vehicle for investment of         serve. A Federal Reserve Board staff
state funds in affordable housing            report some eight years ago argued
production and for helping to implement      persuasively that they behave as
state policy related to these issues (2)     duopolists in their pricing policies. The
reliance on a non-profit housing delivery    more recent CBO reports are compelling
system including community land trusts       in their estimates that only about two-
(3) creation of a statewide non-profit       thirds of the public benefit received by
corporation to develop affordable            the GSE‘s is passed on to housing
housing in partnership with local groups     consumers.
and to syndicate the low income housing
tax credit and thereby bring much            Two suggestions: First, they should be
needed equity to the project, (4) creation   treated as the ―public utilities‖ that in
of a state tax credit low income housing     effect they are. Their pricing, or rate
tax credit, (5) creation of a state tax      setting, practices should be regulated by
credit for projects in designated            one of their regulators. Second, and this
downtowns (6) development of non-            is not a new thought, they should not be
profit operated Homeownership Centers        exempt from local taxes. While it may
that not only counsel prospective            not be practical to simply revoke their
homebuyers and assist them with the          existing exemption, a payment to the
process of purchasing a home but also        Federal government in lieu of the local
sometimes engage in the development of       tax payment is in order.
new homeownership opportunities for          Without having specific suggestions, I
lower income households, (7) ongoing         would nonetheless add that Fannie Mae


                                             90
Homeownership-Related Comments from Responses to
            MHC Solicitation Letter
and Freddie Mac could and should do         Resist if you can the urge to jump on the
considerably more in the areas of           bandwagon for this legislation. Yes there
affordable rental housing and               is a great need for more affordable
homeownership assistance. As recent         housing, and yes the budget is very tight.
studies published by HUD document           But it is wrong to tap one group of
(Cityscape, Volume 5, Number 3), the        housing consumers (FHA-VA
―GSE‘s have not performed as well as        borrowers) in order to cross subsidize
the conventional lenders‖ in helping        another group (low income renters).
low-income homebuyers or helping            If there are excess reserves in the FHA
underserved areas; and they exhibit a       and Ginnie Mae programs, lower the
―flight to safety‖ in their underwriting    fees charged in those programs so that
practices.                                  those beneficiaries can get the full
Ginnie Mae                                  benefits of the programs. And,
                                            appropriate the funds necessary for
Ginnie Mae is a remarkably successful
                                            affordable rental housing in the regular
agency. It delivers for FHA and VA
                                            budget process. That way, the urgently
borrowers essentially the same
                                            needed rental housing is paid for by the
securitization services as Fannie and
                                            full tax-paying public, rather than
Freddie provide for conventional
                                            through a narrow, targeted, regressive
borrowers, but at about one-third the
                                            ―tax‖ on FHA and VA borrowers.
cost in guarantee fees to lenders and at
significant ―profit‖ to the government.
But Ginnie Mae is tightly constrained in
staffing and other resources, and in
program and management flexibilities.
These constraints in the long run could
undermine program effectiveness and
risk management abilities.
Suggestions: Ginnie Mae should be
given the staff, other resource, and
program enhancements needed to stay
abreast of market requirements.
Authority should be provided to try a
conventional mortgage backed securities
program on a demonstration basis. Also,
inclusion of Ginnie Mae securities in
Social Security and Civil Service
Retirement fund investments should be
allowed, both as a means to raise the
returns in those funds without increasing
credit risk and as a way to deepen the
market for these securities.
National Affordable Housing Trust Fund


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