Transcript Slide 1

What Have we Learned about
Homeownership?
Lessons from Current Research
Stephanie Moulton, PhD
John Glenn School of Public Affairs
The Ohio State University
[email protected]
Overview
1. Homeownership Benefits
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•
Types of benefits
Reasons for benefits
2. The State of Homeownership
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Homeownership trends & gaps
The subprime boom & bust
3. Homeownership Sustainability
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Causes of mortgage delinquency and default
The role of homebuyer education, lenders and nonprofits
4. Homeownership Affordability
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CRA and affordable lending programs
The MRB program
Homeownership Benefits
• Economic Well-Being
• Housing security, build wealth, stabilize housing costs
• Neighborhood Stabilization
• Less turnover, fewer vacant or abandoned properties
• Child Outcomes
• Improved reading and math scores, graduation rates
• Social Capital
• Political involvement, community involvement, home maintenance
• Mediators
• Residential stability, parental well-being, neighborhood quality
• Quality of housing and geographical location
• Cost of housing, equity accumulation, house price appreciation
Engelhardt 2009; Haurin et al. 2002; Galster et al. 2007;
McCarthy et al. 2001
The State of Homeownership
Overall Homeownership Rates
70%
69%
68%
67%
66%
65%
64%
63%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
U.S. total
Source: US Census
Minority Homeownership Rates
50%
48%
46%
44%
42%
40%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
Black
Source: US Census
Minority Homeownership Gap
80%
75%
70%
65%
25-30%
60%
White
Black
Hispanic
55%
50%
45%
40%
44%
47%
49%
47%
Source: US Census
From Herbert et al. 2005
Why Gaps in Homeownership?
1.
2.
3.
4.
5.
Income, Wealth & Credit Constraints
Household Formation
Location Preferences
Information Constraints (lack of information about process)
Supply Side Constraints
– Access to lending institutions
– Access to affordable housing
– Discrimination
From Hibler et al. 2008; Haurin et al. 2007; Herbert et al. 2005
From Haurin and Morrow-Jones 2005
Subprime Boom and Bust
Percent High Cost Loans, Ohio
2004-2008
30%
26%
25%
20%
15%
25%
14%
All Borrowers
16%
12%
10%
5%
Low Income
Borrowers
0%
2004
2005
2006
2007
2008
Source: HMDA Data 2004-2008
Subprime Boom and Bust
Subprime Boom and Bust
Delinquency Rates
30
25
22.73
20
15
19.43
16.02
18
10
5
0
3.07
Q2 08
3.35
Q3 08
3.92
Q4 08
4.68
All Loans
Prime Fixed Rate
Prime ARM
Subprime Fixed Rate
Subprime ARM
Q1 09
Source: Mortgage Bankers Association
Lessons from Subprime Lending
• Prevalence among low income and minority borrowers
• 1/3 of the gains to homeownership among minorities from subprime
• 2004 HMDA: high cost first lien 32.4% minority; 8.7% non-minority
• Adversely selecting borrower
• 30-50% could have qualified for prime mortgages
• Less educated consumers (75% subprime search; 90% prime)
• Lender differences/ Institutional determinants
• Brokers and non-CRA institutions (IMC 5xs high cost in Cleveland)
• Crowd out between subprime and affordable lending
Calem, Gillen and Wachter 2004; Carr, James H. & J. Schuetz. 2001; Immergluck 2009;
Lax et al. 2004; Nelson 2009
Homeownership Sustainability
Options Perspective
Triggering Events
• Equity in the home “skin in the
game”
• Interest rates
• Housing values
• Transaction costs
• “Exogenous” shocks
• Change in income or life
circumstance
• Change in payments or
mortgage terms
Moderators
• Credit constraints
• Social support, education
• Community characteristics
• Lender/ institutional characteristics
Avery et al. 1996
Performance of
Low-Income and Minority Mortgages (LIMM)
• LIMM borrowers more likely to default than other borrowers
• More external shocks, less equity, less information
• LIMM borrowers are less likely to refinance (prepay) when it would
be cost-beneficial to do so
• Poor credit quality, high LTV ratios, less mobility, less information
• Predictors
• Credit score: less than 620 5 times more likely to default than
borrowers with credit scores between 680-720.
• High Loan to Value ratio: more likely to default
• Lower income: more likely to default
• High debt to income: may be more likely to default
• Higher costs of loan: more likely to default
Firestone et al. 2007; Alexander et al. 2002; Moulton 2009
Mortgage Outcomes: Institutions Matter!
• Lenders Matter
• Loans originated by Third Party Originators more likely to default
• Loans originated by community lenders less likely to default
• Loan servicers matter
Marketing Practices
Homebuyer Preparation
Homebuyer Counseling/Support
Lender-Borrower Relationships
Lender
Characteristics
Mortgage
Outcomes
Alexander et al. 2002; Moulton 2009
Mortgage Outcomes: Homebuyer Education?
• Freddie Mac’s “Affordable Gold” program (Hirad and Zorn 2002)
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•
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40,000 borrowers
Face to face counseling reduced delinquency 41 percent
Face to face education reduced delinquency 23 percent
No reduction for telephone or book education/counseling
• Other Research?
• Some evidence that counseled borrowers are more likely to refinance
under “optimal” conditions; only face to face counseling or education
• Limitations
• Selection
• Education: the mode or the content?
• Support, advice and relationships
Hirad and Zorn 2002; Quercia and Spader 2008;
Hartarska and Gonzalez-Vega 2005
Affordable Mortgage Programs:
Community Reinvestment Act (CRA) Lending
• What is the CRA?
• Covers insured depository lending institutions, lending within their
assessment areas- where they have bank offices or branches.
• Demonstrate “reinvestment,” 50% of which is a “lending test”; evaluated on
lending to LMI borrowers with incomes below 80% AMI.
• Did CRA loans cause (or contribute to) the mortgage crisis?
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Only 6 percent of high cost loans were eligible for CRA credit.
CRA loans have lower interest rates and more affordable terms.
CRA loans 70% less likely to default than similar subprime loans.
CRA loans less likely to default when made locally, in assessment areas.
CRA loans mostly originated by banks, rather than brokers
Immergluck 2009; Laderman and Reid 2009; Canner and
Bhutta 2008; Ding et al. 2008
Affordable Mortgage Programs:
The Mortgage Revenue Bond (MRB) Program
Proportion of LMI Loans: IN, OH & FL MSAs
2004-2008
30%
28.32%
25%
28.26%
20%
15%
16.58%
14.45%
11.97%
10%
5%
1.44%
2.07%
2004
2005
5.28%
7.62%
8.10%
2007
2008
0%
2006
Source: HMDA Data, First Lien Owner-Occupied Originated Mortgages
High Cost
MRB Loans
Affordable Mortgage Programs:
The Mortgage Revenue Bond (MRB) Program
• Lender Participation
• Larger, local, FHA (+); High cost (-)
• Borrower Need
Moulton 2009
Affordable Mortgage Programs:
The Mortgage Revenue Bond (MRB) Program
• Mortgage Sustainability
• Lower delinquency and foreclosure rates than other similar borrowers
• Significant lender differences in delinquency and foreclosure
• Mortgage Affordability
• Increase in MRB lending in an area, less likely to receive high cost
mortgage 2004-2006
• Next Steps
• Homebuyer education
• Targeting minority borrowers
• Institutional networks and the MRB program
Concluding Thoughts
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Potential Benefits of Homeownership
Homeownership Gaps
Lessons from Subprime Lending
Causes of Mortgage Delinquency
Role of Affordable Mortgage Programs
DISCUSSION
References & Resources
Alexander, William P., Scott D. Grimshaw, Grant R. McQueen and Barrett A. Slade. 2002. Some Loans are More Equal than Others: Third Party
Originators and Defaults in the Subprime Mortgage Industry. Real Estate Economics 30(4): 667-97.
Avery, Robert, Raphael Bostic, Paul Calem and Glenn Canner. 1996. Credit Risk, Credit Scoring and the Performance of Home
Mortgages. Federal Reserve Bulletin July 2006. Available online at:
http://www.federalreserve.gov/pubs/bulletin/1996/796lead.pdf
Canner, G., & Bhutta, N. 2008. Staff analysis of the relationship between the CRA and the subprime crisis. Memo to Sandra
Braunstein, Director, Consumer and Community Affairs Division, Federal Reserve Board of Governors. Available online at
http://www.federalreserve.gov/newsevents/speech/20081203_analysis.pdf
Carr, James H. & J. Schuetz. 2001. Financial services in distressed communities: Framing the issue, finding solutions. Fannie
Mae Foundation, August.
Engelhardt, Gary, Michael Eriksen, William Gale, and Gregory Mills. 2009. What are the social benefits of homeownership?
Experimental evidence for low-income households. Journal of Urban Economics. Forthcoming.
Firestone, Simon, Robert Van Order and Peter Zorn. 2007. The Performance of Low-Income and Minority Mortgages. Real Estate
Economics 35(4): 479-504.
Galster, George, Dave E. Marcotte, Marvin B. Mandell, Hal Wolman, and Nancy Augustine. 2007. “The Impact of Parental
Homeownership on Children’s Outcomes during Early Adulthood,” Housing Policy Debate, Vol. 18, No. 4, pp. 785-827.
Hartarksa, Valentina, Claudio Gonzalez-Vega, and David Dobos. 2002. Credit Counseling and the Incidence of Default on
Housing Loans by Low Income Households. Rural Finance Program, The Ohio State University.
Haurin, Donald R., Toby L. Parcel and R. Jean Haurin (2002). “Does Homeownership Affect Child Outcomes?” Real Estate
Economics, Vol. 30, No. 4, pp. 635-666.
References & Resources
Haurin, Don and Hazel Morrow-Jones. 2006. The Impact of Real Estate Market Knowledge on Tenure Choice: A Comparison of Black and
White Households. Housing Policy Debate. 17(4): 625-654.
Herbert et al. 2005, Homeownership Gaps Among Low Income and Minority Borrowers, Available online at:
http://www.huduser.org/Publications/pdf/HomeownershipGapsAmongLow-IncomeAndMinority.pdf
Hilber, Christian A.L. and Yingchun Liu. 2008. Explaining the black–white homeownership gap: The role of own wealth, parental externalities
and locational preferences. Journal of Housing Economics. 17: 152-174.
Hirad, Abdighani and Peter M. Zorn. 2002. Pre-purchase Homeownership Counseling: A Little Knowledge is a Good Thing. Low Income
Homeownership: Examining the Unexamined Goal. N. P. Retsinas and E. S. Belsky. Washington DC, The Brookings Institute: 146-174.
Laderman, Elizabeth and Carolina Reid. 2009. CRA Lending During the Subprime Melltdown. Revisiting the CRA: Perspectives on the Future of
the Community Reinvestment Act. San Francisco Federal Reserve Bank. Available online at:
http://www.areaa.org/cms/cra_lending_during_subprime_meltdown.pdf.
Lax, Howard, Michael Manti, Paul Raca and Peter Zorn. 2004. Subprime lending: An investigation of economic efficiency. Housing Policy
Debate 15(3): 533-71.
McCarthy, George, Shannon Van Zandt and William Rohe. 2001. The Economic Benefits and Costs of Homeownership.: A Critical Assessment
of the Research. Research Institute for Housing America. Available online at:
http://www.housingamerica.org/Publications/TheEconomicBenefitsandCostsofHomeownership:ACriticalAssessmentoftheResearch.htm
Moulton, Stephanie. 2009. Originating Lender Localness and Mortgage Sustainability: An Evaluation of Delinquency and Foreclosure in
Indiana’s Mortgage Revenue Bond program. Under Review.
Nelson, Lisa. 2009. CRA Lending in the 4th District. A Look Behind the Numbers. Federal Reserve Bank of Cleveland 2(1).
www.clevelandfed.org/communitydevelopment
Quercia, Roberto and Jonathon Spader. 2008. Does Homeownership Counseling Affect the Prepayment and Default Behavior of Affordable
Mortgage Borrowers? Journal of Policy Analysis and Management 27(2): 304-325.