As Fiscal Cliff Draws Nearer, There Is No Time For a Plan B

By Janis Bowdler, Director, Wealth-Building Policy Project

This New Year’s, many Americans across the country will have quite a bit weighing on their minds at a time when they are supposed to be clinking champagne glasses and making their resolutions for 2013.  In less than two weeks, our country will go over the fiscal cliff, resulting in a tax hike for millions of Americans and severe funding cuts to education, health care, and housing programs, to name a few.  That is unless Congress and the Obama administration can reach a deal on the federal budget.

For a brief moment earlier this week, it appeared that both sides were willing to compromise.

But that glimmer of hope was fleeting, and it seems negotiations are at a standstill.  Republican leadership is now pushing “Plan B,” which the House will vote on tonight at 6:00 p.m.

Simply put, “Plan B” is bad for Hispanic families.  It fails to meet NCLR’s principles for a fairer federal budget.  The plan further reduces tax liability for those at the top while pushing working families toward poverty.

The wealthiest would be the big winners should this plan pass.  Under “Plan B,” millionaires would get an estimated $50,000 tax cut, while 25 million middle class families making less than $250,000 a year would see their income taxes increase by an average of $1,000 apiece.  And,millions would lose access to the Child Tax Credit, as well as the Earned Income Tax Credit, which are valuable tools that help prevent many Latinos from falling below the poverty line.

All of this while also allowing the sequester to move forward, gutting critical investments in education, jobs, and housing.  For example, in many poor districts, where federal funding covers a substantial portion of their budgets, for every $1 million that a school district receives in federal funding, sequestration will take away $82,000.  For districts with disproportionately large Hispanic and Black populations, that loss could have devastating effects.

“Plan B” is not a viable option for Latinos or this country.  Thankfully, President Obama has already issued a veto threat.  However, that does not mean both sides should stop trying to reach an agreement.  We strongly urge House Speaker Boehner and President Obama to put America’s working and middle-class families ahead of politics.  We need a fair approach to deficit reduction where everyone pays their share.

We must end this stalemate.  Far too much is at stake for the American people.  Nobody wins if we go over the fiscal cliff, and the clock is almost up.

The Federal Housing Administration: Unsung Hero of the Housing Market

By Jose A. Garcia, Policy Fellow, Wealth-Building Policy Project

The Federal Housing Agency (FHA) is one of the unsung heroes of the housing market.  Despite helping to save the housing market following the mortgage crisis in 2007, the FHA is continuously attacked, erroneously, for its commitment to provide mortgage liquidity in times of need and encourage lending to low income households.

American Enterprise Institute (AEI) recently released a report on the riskiness of the Federal Housing Administration’s (FHA) lending practices.  The report conflates and confounds data to reach misleading conclusions and recommends unnecessary changes.  FHA’s current financial challenges are overwhelming due to loans insured between 2007 and early 2010 as well as a single loan product:  seller-financed mortgages.  However, its losses are not due to creditworthy borrowers with lower credit scores and lower down payments, and AEI would do well to remember that correlation is not causation.  Furthermore, FHA no longer insures seller-financed loans.

If that is not enough for you, let’s look into this further.  For decades, lenders have been able to successfully provide reliable and sustainable mortgage products to low income communities across the country that are profitable for the markets and fair to vulnerable borrowers. A decade long study conducted by UNC Center for Community Capital of 46,000 low-income homeowners found that of those who received traditional 30-year, fixed-rate mortgages with a small down payment, 95% of homeowners were paying their mortgages. UNC’s study shows that correctly structured home loans to low-income households perform quite well, leading to sustainable homeownership and sound business opportunities for lenders.

For many low- and middle-income American households and communities of color, the FHA is a critical part of the mortgage lending repertoire to access homeownership.  By insuring loans made by private lenders—even during severe economic downturns—the FHA provides stability to the housing market and access to credit.  This was never truer than after the recent housing crisis, when credit became difficult to access and many lenders turned to the FHA.  Now the 78-year-old agency may need help to continue its good work, and if it does, American taxpayers should lend a hand.  Doing so benefits not only families looking to purchase their first home but the economy at large.

The FHA helped hold down the fort as the housing market reeled from the aftermath of bad loans and Wall Street greed.  Based on an analysis by Moody’s analytics, the agency’s actions in 2011 alone helped prevent housing prices from decreasing an additional 25% and from a 40% decrease in the sales of new and existing homes, saving three million jobs and half a trillion dollars in economic output.  By stepping in, the FHA rescued tens of thousands of middle-class families from losing their home equity and, in many instances, their homes.  The agency did this by backing a larger share of mortgage originations as private investors fled the housing market.  At the peak of the housing bubble,  FHA insured one-third of loans made in 2009, compared to 5% before the alarms rang in 2006.

Despite the important role that the FHA played in keeping the housing market from total economic collapse, Edward Pinto from AEI stated that, “This paper reports on a comprehensive study that shows the FHA is engaging in practices resulting in a high proportion of low- and moderate-income families losing their homes.”  Fiscal projections point to a shortfall between what the FHA needs to cover all its claims over the next 30 years and how much it has on hand.  FHA’s possible shortfall was not caused by lending to low- and middle-income households but rather due to maintaining liquidity in the housing market.  The shortfall does not mean a definitive need for taxpayer monies to cover it—it will be months before we know that for sure.

The FHA has already addressed unsustainable programs that contributed to its trouble.  Its seller-financed down payment assistance program, which called for the originator to cover the down payment, often resulted in originators inflating the purchase price of a home in order to do so.  This in turn led to financially unstable loans, especially during the recession, that resulted from the subprime debacle.  Congress banned the program from FHA insurance in 2008, after FHA had tried to eliminate the program for years.

While the seller-financed down payment program did not work, most FHA products do.  Low- and middle-income borrowers and communities of color have benefited from sustainable and profitable mortgage loans insured by the FHA.  The FHA provides a necessary service that the conventional market does not provide.  However, by pointing fingers at the FHA, critics are undermining the ability of an agency that has been critical in keeping the mortgage market accessible and affordable, providing sustainable pathways to homeownership for millions of Americans.

Housing on the Precipice

By Jose Garcia, Policy Fellow, Wealth-Building Policy Project, NCLR

Home for GoodAs 2013 approaches, the clock most people are watching is not in Times Square but in Washington, DC, where the countdown to the fiscal cliff has begun.  Lawmakers face a self-imposed deadline of December 31 to figure out how to deal with tax hikes and spending cuts.  If an agreement is not reached, the Congressional Budget Office projects that it could cost the U.S. two million jobs next year.  This drastic job loss could hamper the housing recovery, and the timing could not be worse.

The U.S. is still reeling from a recession that drained more than $17 trillion in wealth from American families, disproportionately affecting low- and middle-income families and communities of color.  Hispanic families lost an alarming 66% of their household wealth.  Their ability to save and invest in their families, their communities, and our nation’s economy has been severely limited by high rates of unemployment, stagnant wages, and an increased cost of living.  Yet on the cusp of a new year, the U.S. is trying to balance the budget by putting the confidence of consumers and our few, hard-earned economic inroads at risk.  For Latino families, the fiscal cliff could mean a return to double-digit unemployment, affecting their ability to keep a roof over their heads.

If an agreement is not reached, the U.S. Department of Housing and Urban Development will suffer 8.2% in cuts to a number of programs, including $1.5 billion to tenant-based rental assistance and $4 million to its Housing Counseling Program.  For homeowners, fewer jobs could lead to a new wave of foreclosures as newly unemployed workers struggle to make mortgage payments.  Decreases to funding for housing counseling could further erode Latino home equity, as there will be less assistance available to help families save their homes.

Cuts to housing subsidies put at risk the housing of millions of families who rely on these subsidies to make ends meet.  For these renters, this assistance provides a way to cover the cost of basic living expenses and survive economic shocks from unplanned emergencies like car repairs.

The fiscal cliff also threatens to slow the momentum in the housing market, as nervous consumers may be less likely to purchase a new home.  Uncertain about tax hikes or job losses, prospective buyers may hold off on purchasing a home until they feel more secure about their economic prospects.  Fewer homebuyers could stall growth of the housing market, and from there the fiscal cliff could lead to an economic slump that may result in greater reliance on economic assistance.

As was evident during the last election, the issues that are important to Latinos can no longer be ignored.  Hispanic voters have rejected a strategy that would focus only on spending cuts.  Instead, Latinos want to see a balanced approach that raises revenue by requiring everyone to pay their fair share of taxes.  Like all Americans who are still recovering from a deep recession, Latinos are most concerned with rebuilding our nation’s economy.  Recent polls show that Latino voters overwhelmingly support strategic investments in education and infrastructure over cutting taxes as the best way to spur economic growth.  The fiscal cliff provides the U.S. with an opportunity to work toward a better future for all by helping our workforce acquire the skills needed in today’s market, and by taking care of the elderly who worked tirelessly to make the U.S. one of the most prosperous nations in the world.  This can all be accomplished while still balancing the budget and avoiding sequestrations.  We need to be smart about the budget challenges that our nation faces.  We cannot afford to put the housing of working families at risk just to keep giving tax breaks to rich individuals and corporations.

With Dream of Homeownership Threatened, Candidates’ Silence on Housing Issues Elicits Frustration

By Janis Bowdler, Director, Wealth-Building Policy Project

How do you convince somebody to fix a problem when they are seemingly blind to the overwhelming evidence that the problem even exists? Today, 11 million Americans owe more on their mortgage than their home is worth. Analysts predict that we will see an estimated two million foreclosure filings this year with millions more at risk of losing their homes. As a result, hundreds of thousands of senior citizens are losing their economic security, children and families are being uprooted, and neighborhoods are blighted with vacant properties.

The nation’s housing market is in a precarious position, and despite millions of homeowners across the nation bearing the brunt of the housing crisis, too few of the decision-makers on Capitol Hill are championing the necessary solutions to protect the American Dream of homeownership. And in the midst of a presidential election, the onus falls on the two candidates to carve out serious proposals to navigate homeowners out of this colossal mess. But when political strategy dictates that its best for both candidates to avoid the issue altogether, it becomes incredibly challenging to push for the type of national conversation we need.

Recently the Home for Good campaign—a collaboration of more than 70 civil rights, community, and public interest groups—reached out to homeowners across the country for help. In the end, nearly 40,000 people signed on to our call, asking the presidential candidates to offer real solutions to:

  • Stop needless foreclosures
  • Expand affordable rental housing
  • Revive a sustainable path to homeownership

Along with signatures of tens of thousands of concerned voters and advocates, we have offered a blueprint for restoring home opportunity called the Compact for Home Opportunity. We have made it especially easy for them. The Presidential candidates have our signatures and a plan, now the ball is in their court.

It’s important for both candidates to remember that while they may choose to skirt the issue until Election Day, there will be no hiding from the housing crisis over the next four years. Housing has traditionally led previous recession rebounds, so it is no wonder that our economic recovery has dragged alongside a weak housing market. We must address the crushing mortgage debt overhang, keep families in their homes, and bring new homeowners into the market.

Important housing policy questions are looming. Will the candidates lean on Fannie Mae and Freddie Mac to stop dual tracking, a practice that moves families through foreclosure before they know if they could qualify for a loan modification? Will they give away resources for housing counseling and low-income renters in the pending “Grand Bargain?” It’s these kinds of details that have been completely absent from both candidates’ platforms.

The financial crisis has decimated neighborhoods, wiped out family wealth, and ruined financial futures, but it has not changed the central role the home plays in our lives. We continue to seek shelter with a few basic amenities—safe streets, good schools, and access to quality jobs. It is time that candidates speak frankly with voters and explain what they plan to do to ensure that families who dream of owning a home can make that dream a reality.