When the Federal Housing Administration (FHA) was created in 1934, its main focus was to change the difficulty that people seeking mortgage loans faced during the Great Depression. By the end of World War II, many returning service men and women took advantage of FHA programs to help finance home purchases. Today, FHA insures 4.8 million single-family home mortgages.
Now in 2010, the still-unfolding foreclosure tsunami that began in 2007 has forced FHA to alter how it can continue operating independent of taxpayer funds. Unlike many federal agencies, FHA’s only operating revenues are derived from fees paid for mortgage insurance. In mid-July FHA announced a number of policy changes that included an increase in mortgage insurance premiums. FHA is also considering other changes such as requiring new mortgage applicants to have higher down payments and/or higher credit scores.
For many policymakers, increasing required down payments and high credit scores are the opposite of what the country needs right now. Instead, these voices are urging FHA to preserve its traditional role of extending affordable access to homeownership. In their view, that access would be a valued complement to the many reforms sets forth and regulations yet to come from the Dodd-Frank Wall Street Reform Act.
Among the organizations choosing to file comments on these changes and their likely effects was the Center for Responsible Lending (CRL), an affiliate of Self-Help. With 30 years of service as a community development financial institution operating a credit union and nonprofit loan fund, Self-Help has provided over $5.65 billion of financing to 64,000 low-wealth families, small businesses and nonprofit organizations in North Carolina and across America.
Like FHA, Self-Help has been a partner in expanding affordable and sustainable homeownership for many families that otherwise would have remained renters. As Self-Help’s research and policy arm, CRL has authored research reports and provided insightful analyses of nagging housing issues.
CRL also recently advised FHA in part, “The foreclosure crisis and the resulting economic crisis were caused by reckless and predatory lending practices and toxic financial products not by any policy goal aimed at increasing homeownership.”
“The predatory lending practices and toxic products characteristic of the past decade,” continued CRL, “occurred for one reason and one reason only: For mortgage brokers, lenders and investors to make money. . .And communities of color were disproportionately targeted by non-bank subprime mortgage lenders who provided them with higher-cost, risk-layered, less sustainable loans than they qualify for.”
Statistics from other independent organizations tracking African-American consumer trends support CRL’s own findings.
The 2010 annual survey published by the National Urban League, The State of Black America, determined that although nearly three quarters of white families own their own homes, less than half of African-American or Latino families are homeowners. Blacks and Latinos are also more than three times as likely to live in poverty as compared to Whites.
Earlier this year, and as reported in this column, the Institute for Assets and Social Policy (IASP) at Brandeis University found that only one in four African-American middle-class families in America are financially secure.
The 15th annual Buying Power of Black America report published by Target Market News determined that the $166.3 billion spent on housing each year is more than double and sometimes triple any other household cost. This fact suggests that housing affordability in the Black community remains a challenge. Moreover, on a range of services and products, Black households were found to spend more than their white counterparts.
These facts and other economic measures contributed to CRL’s call for a number of specific FHA reforms. Among them:
An immediate ban on yield-spread premiums, the broker kickback paid by lenders for pushing high-cost loans onto buyers;
Safeguards against abusive pricing and fees – including rigorous oversight and enforcement; and
Stronger, more aggressive limits on points and fees identified in regulation that will complement those outlined in the Dodd-Frank bill.
Hopefully the regulations yet to be crafted by FHA will begin to close the affordability gap that now exists for many communities of color. Whatever rules go into effect, will become either the opportunity or an obstacle for people hoping to have their own American dream.
This article was originally published in the September 13, 2010 print edition of The Louisiana Weekly newspaper