author, ‘The End of Loser Liberalism: Making Markets Progressive’
Posted: 04/18/2012 9:04 pm
It’s often said that the difference between the powerful and the powerless is that the powerful get to walk away from their mistakes while the powerless suffer the consequences. The first-time homebuyers’ tax credit provides an excellent example of the privilege of the powerful.
The first-time homebuyers tax credit was added to President Obama’s original 2009 stimulus package. It was introduced by Senator Johnny Isakson, a Republican from Georgia, but the proposal quickly gained support from both parties. The bill gave a tax credit equal to 10 percent of a home’s purchase price, up to $8,000, to first time buyers or people who had not owned a home for more than three years. To qualify for the credit, buyers had to close on their purchase by the end of November, 2009, however the credit was extended to buyers who signed a contract by the end of April, 2010.
The ostensible intention of the bill was to stabilize the housing market. At least initially it had this effect. There was a spike in home purchases that showed up clearly in the data by June of 2009. House prices, which had been falling at a rate of close to 2.0 percent a month stabilized and actually began to rise by the late summer of 2009, as buyers tried to close on a house before the deadline for the initial credit. There was a further rise in prices around the end of the extended credit in the spring of 2010.
However once the credit ended, prices resumed their fall. By the end of 2011 they were 8.4 percent below the tax credit induced peak in the spring of 2010. Adjusting for inflation, the decline was more than 12.0 percent.
The problem was that the credit did not lead more people to buy homes, it just caused people who would have bought homes in the second half of 2010 or 2011 to buy their homes earlier. This meant that the price decline that was in process in 2007-2009 was just delayed for a bit more than a year by the tax credit.
This delay allowed homeowners to sell their homes for higher prices than would otherwise have been the case. It also allowed lenders to get back more money on loans that might have otherwise ended with short sales or even defaults. The losers were the people who paid too much for homes, persuaded to get into the market by the tax credit.
This was the same story as the in the original bubble, but then the pushers were the subprime peddlers. In this case the pusher was Congress with its first-time buyer credit.
According to my calculations, the temporary reversal of the price decline transferred between $200 and $350 billion (in 2009 dollars) from buyers to sellers and lenders. Another $15-25 billion went from homebuyers to builders selling new homes for higher prices than would otherwise have been possible.
While this might look like bad policy on its face, it gets worse. The tax credit had the biggest impact on the bottom end of the market, both because this is where first-time buyers are most likely to be buying homes and also an $8,000 credit will have much more impact in the market for $100,000 homes than the market for $500,000 homes.
The price of houses in the bottom third of the market rose substantially in response to the credit, only to plunge later. To take some of the most extreme cases, in Chicago prices of bottom tier homes fell by close to 30 percent from June 2010 to December of 2011, leading to a lose of $50,000 for a buyer at the cutoff of the bottom tier of the market. The drop in Minneapolis was more than 20 percent or more than $30,000. First-time buyers in Atlanta got the biggest hit. House prices for homes in the bottom tier have fallen by close to 50 percent since June of 2010. That is a loss of $70,000 for a house at the cutoff of the bottom tier.
Many of the 11 million underwater homeowners in the country can blame the incentives created by the first-time homebuyers credit for their plight. This was really bad policy, which should have been apparent at the time. Unfortunately, it is only the victims who are suffering, not the promulgators of the policy. Welcome to Washington.
Negative equity is disproportionately concentrated in the Chicago region’s communities of color, Woodstock Institute report shows
Homeowners with mortgages in African American communities more than twice as likely to be underwater as homeowners in white communities
CHICAGO–Negative equity is disproportionately concentrated in the Chicago region’s African American, Latino, and majority minority neighborhoods, a new report from Woodstock Institute found. The report also found that borrowers in communities of color have much less equity on average than do borrowers in predominantly white communities.
View the full report here: http://bit.ly/strugglingtostayafloat
Join us for a telephone briefing Tuesday March 27 at 10am CT: http://stayingafloat.eventbrite.com/
The report, “Struggling to Stay Afloat: Negative Equity in Communities of Color in the Chicago Six County Region,” used data from a major provider of mortgage and home value data to examine patterns of underwater homes in communities of various racial and ethnic compositions in the Chicago six county region in 2011. It found that:
- Nearly one in four residential properties in the Chicago six county region is underwater, with just under $25 billion of negative equity. The average underwater property has 31.8 percent more outstanding mortgage debt than the property is worth.
- Borrowers in communities of color are much more likely to be underwater than are borrowers in white communities.
- Borrowers in communities of color are more than twice as likely as are borrowers in white communities to have little to no equity in their homes. In highly African American communities in the Chicago six county region, 40.5 percent of borrowers are underwater, while another 5.4 percent are nearly underwater. Similarly, 40.3 percent of properties are underwater in predominantly Latino communities and 5.3 percent are nearly underwater. In contrast, only 16.7 percent of properties in predominantly white communities are underwater, with another 4.4 percent nearly underwater.
- Almost three times as many properties in communities of color are severely underwater compared to properties in white communities. In predominantly African American communities, 30.1 percent of properties have loan-to-value (LTV) ratios—a comparison of outstanding mortgage debt to home value—exceeding 110 percent, while that figure is 30 percent in predominantly Latino communities. In contrast, just 10.1 percent of the properties in predominantly white communities have LTVs exceeding 110 percent.
- Borrowers in communities of color have much less equity in their homes than do borrowers in white communities, resulting in a significant wealth gap.
- Only about one-third of homeowners in communities of color have significant equity in their homes. In predominantly African American communities, 34.5 percent of borrowers have more than 25 percent equity in their homes, while 33.1 percent of borrowers in Latino communities have more than 25 percent equity in their homes. Fifty-five percent of borrowers in predominantly white communities have more than 25 percent equity.
- Borrowers in communities of color have much higher average loan-to-value ratios than do borrowers in predominantly white communities. The average LTV ratio is 92.1 in predominantly African American communities and 87.4 in Latino communities, compared with an average LTV ratio of 67.7 in predominantly white communities.
Negative equity contributes to community decline by potentially leading to increased foreclosure activity, threatening the success of foreclosure prevention programs, and draining neighborhood wealth. In addition, the destruction of assets caused by negative home equity may disproportionately threaten the economic security of people of color because home equity is a larger proportion of their net worth than it is for white people.
View the full report here: http://bit.ly/strugglingtostayafloat
The report concluded with a number of policy recommendations to reduce the negative impacts of concentrated negative equity, including:
- Servicers should use principal reduction as a foreclosure prevention tool more broadly.
- The Federal Housing Finance Authority should permit loans backed by Fannie Mae and Freddie Mac to be eligible for principal reductions.
- Servicers should streamline processes for short sales.
Tom Feltner | Vice President
29 E Madison Suite 1710 | Chicago, Illinois 60602
T 312/368-0310 x2028 | F 312/368-0316 | M 312/927-0391
- A good credit score did not protect Latino and black borrowers (scoppcanton.wordpress.com)
- Negative Equity Increasing Around US; but Not Oro Valley (finehomesdigest.wordpress.com)
- Housing Still Drowning in Underwater Mortgages (blogs.wsj.com)
Reposted from: Imagining America: Artist and Scholars in Public Life
Posted on March 5, 2012 by Jeremy Lane
By Micah Salkind, Doctoral Student in American Studies, Brown University, Catherine Michna, PhD, Instructor, University of Massachusetts, Boston, and Ruth Janisch Lake, Assistant Director, Civic Engagement Center, Macalester College
IA’s Art, Culture, and Community Development Collaboratory spent Martin Luther King, Jr. Day weekend in New Orleans working on the first phase of our participatory action research. We documented and interviewed participants from several IA member institutions’ civic engagement programs and cultural partnerships in that city. We began at Xavier University, where longtime professor (and IA board member) Ron Bechet explained how the Xavier Art Department’s longstanding cultural partnerships with artists and community organizers shape his institution, affect his collaborators, and contribute to cultural life in the city.
Bechet introduced us to Big Chief Darryl Montana of the Yellow Pocahontas Mardi Gras Indians, who has been working with the Community Arts Program at Xavier since 1997, developing Mardi Gras Indian Arts (MGIA) education and youth programming for middle-school children. According to Montana, the longstanding partnership between Mardi Gras Indian practitioners and Visual Arts Professors Bechet and MaPó Kinnord-Payton has helped to facilitate a growing recognition of Mardi Gras Indian art and performance as the “heartbeat” of New Orleans’ cultural landscape.
In 2007, the three created an intensive hands-on cultural immersion and training program for middle school age children from Xavier’s Gert Town neighborhood and greater New Orleans. Each summer since 1997, youth have learned how Mardi Gras Indian traditions developed while acquiring costume-making skills. Beginning this year, the program will take place year-round since Xavier has expanded its support for MGIA into a continuous component of its community arts curriculum.
For Montana and the Yellow Pocahontas tribe, MGIA is a platform to develop organizing and pedagogical strategies around intellectual property issues that affect their artist communities and city. Cultivating long-term engagement through MGIA is part of Xavier’s complementary commitment to educating its own students and Gert Town youth, about ways that elites, throughout the city’s history, have profited in unethical ways from black working class culture. The MGIA program is itself an ethical practice that models ways of acknowledging and supporting black cultural production by supporting the communities that cultivate and share it.
Reflecting on the role of the MGIA and similar programs at Xavier, Bechet noted the importance of university/community cultural partnerships to New Orleans’s recovery from Hurricane Katrina: “You can see it one individual at a time.” For example, when Xavier contributed financially so Darryl Montana could come home and rebuild his house, “he had an ability to help the next generation … individuals [like him] have taken on the responsibility of passing on the values of this place and what’s important about it to them.” We saw an example of such locally-grounded, collective-minded values first hand when we visited Xavier’s newest partner, Jenga Mwendo, founder of the Backyard Gardener’s Network (BGN). BGN’s “Guerrilla Gardeners” project in the Lower Ninth Ward not only directly works to address the problem of “food deserts” in African American neighborhoods, but also facilitates discussions between community members, city leaders, and student volunteers about the role that gardening plays in community building and neighborhood revitalization in the post-Katrina city.
On Saturday, led by University of Wisconsin-Milwaukee Associate Professor and Interim Associate Vice Chancellor Cheryl Ajirotutu, we participated in UMW’s annual reception for their New Orleanian community partners at the U.S. Mint Museum. We met UWM students and administrators and had the chance to interview a wide range of UWM’s local partners, who have been collaborating on the University’s winter term course in New Orleans since 2005. We also enjoyed zydeco piano playing by UWM partner, Bruce “Sunpie” Barnes.
Later in the weekend, we joined Barnes and UWM, Xavier, and Macalester groups at the Vietnamese Initiatives in Economic Training (VIET) Center in New Orleans East where we participated in VIET’s annual Martin Luther King Day of Service. There we met Cyndi Nguyen, VIET’s Executive Director, and saw and heard about VIET’s thriving community health and cultural/economic development programs for youth and elders. Both the Macalester College students enrolled in the New Orleans and the Performance of Urban Renewal course and the UMW students working towards degrees in social work, as well as those who are taking Professor Ajirotutu’s cultural history course in New Orleans, prepared for their service at VIET by viewing and discussing the film “A Village Called Versailles,” a documentary on the inter-generational, faith-based community organizing of New Olreans’ Vietnamese community, which was not only affected by Hurricane Katrina in 2005, but also by a new government-imposed toxic landfill.
The group from Macalester College included 12 first year Bonner Community Scholars enrolled in a course titled, “New Orleans and the Performance of Urban Renewal,” which was co-taught by Ruth Janisch Lake (collaboratory member) and Molly Olsen. This intensive J-term (January interim) course assumed a human-centered, arts-based urban studies perspective on the continued efforts of New Orleans to restructure and redefine itself in the 21st century amidst various ecological, economic and political challenges. The course provided students with the essential critical, historical, and cultural framework through which to interpret various site visits and civic engagement projects with local artists, activists, and scholars in New Orleans. This was the seventh Macalester group that Civic Engagement Center staff member Ruth Janisch Lake has brought to New Orleans since January 2006.
Our team members interviewed several Macalester Bonner Community Scholars about their program’s practices of community-based learning and civic engagement. During their seven days in the city, the Macalester group connected with a Community Arts class with Ron Bechet and also learned more about New Orleans historical and ethnic geography with Tulane University Professor Richard Campanella. They visited Backstreet Cultural Museum in Tremé and this year participated in a second line parade with the Undefeated Divas in Central City. They also meet with a range of non-profit organizations and community leaders as they discussed issues of race and class in the city’s uneven recovery from Hurricane Katrina. As one Bonner student noted:
The course definitely expanded my awareness and deepened my knowledge about the communities performing urban renewal in New Orleans. I loved the way the week was laid out and thought it was conducive to experiential, meaningful learning. We started the week off with a fascinating tour with Tulane Professor Rich Campanella and really appreciated the information he shared with us about NOLA’s ethnic and physical geography. Participating in the second-line parade gave me a powerful sense of the importance of having cultural traditions to return to when tragedies strike. Visiting Robert Green in the Ninth Ward was another influential experience, hearing about the ways in which he has advocated for and helped to rebuild his community post-Katrina. I also appreciated getting to visit the Vietnamese community in New Orleans East, and seeing how incredibly organized and resilient this largely youth-led community was in working towards positive change. Finally, I valued interacting with families whose homes we installed CFL light bulbs in through Project Green.
To round out our weekend of research and conversation, IA team members visited the Ashé Cultural Arts Center in Central City to participate in a night of singing celebration of Martin Luther King, Jr.’s birthday and to meet with students and faculty at Ashé’s new alternative college program—Ashé College Unbound (ACU). College Unbound began in Providence, RI, where IA Page Program Director Adam Bush worked with Big Picture Learning, a non-profit focused on developing internship-based curricula, and Roger Williams University’s School of Continuing Studies to create a student-centered bachelors degree program. In its first year, ACU has enrolled eleven students, primarily adult learners and longstanding community leaders, with a wide range of work experience and cultural development skills under their belts. The ACU student body works collaboratively with the organization’s advisory board and academic and community arts mentors towards a degree while matriculating in, and helping to create, semester-long workshops on housing, economics, culture, and education policy.
This spring, our collaboratory will produce a short video that will explore how these and other university projects have, in fact, become part of New Orleans’ cultural history by not only addressing historical inequity, but also by helping to create a new paradigm of the struggle for justice in the city. We also plan to create a white paper outlining some of the promising practices we see enacted in university/community cultural partnerships. Foregrounding how students have become more engaged, civic actors, as a result of their participation in these projects, we will also listen for different and surprising effects of their participation. We hope that the archival materials we create will be useful as scholars around the globe try to make sense of post-Katrina New Orleans.
New Orleans is an amazing first case study, which we hope to complement with work in other cities and with other institutions affiliated with our working group. Current members hail from Holyoke, Baltimore, Minneapolis/St. Paul, Providence, Syracuse, and Milwaukee. This is just the beginning!
Photo credits: 1) University of Wisconsin-Milwaukee, Xavier University, and Macalester University students and the AC&CD collaboratory team at VIET’s Martin Luther King Jr. Day of Service, by Ruth Janisch Lake; 2) Jenga Mwengo, Backyard Gardener’s Network; 3) Ron Bechet, Micah Salkind, and Catherine Michna at the University of Wisconsin Madison’s Thank You reception for their local partners, by Ruth Janisch Lake; 4) Macalester College Bonner Community Scholars learning more about the environmental and human geography of NOLA at the Irish Channel stop on the city tour with Professor Rich Campanella; and 5) Dr. Cheryl Ajirotutu with AC&CD videographers, Hubie Vigreux and Alejandra Tovar, by Ruth Janisch Lake
December, 2011 unemployment: 9.9% (6th highest)
Home price change (2006Q3-2011Q3): -49% (3rd largest decline)
Processing period: 135 days
2. New Jersey—
2011 foreclosure rate: 6.4%
December, 2011 unemployment: 9% (13th highest)
Home price change (2006Q3-2011Q3): -22.6% (14th largest decline)
Processing period: 270 days
2011 foreclosure rate: 5.4%
December, 2011 unemployment: 9.8% (7th highest)
Home price change (2006Q3-2011Q3): -29% (7th largest decline)
Processing period: 300 days
2011 foreclosure rate: 5.3%
December, 2011 unemployment: 12.6% (the highest)
Home price change (2006Q3-2011Q3): -59.3% (the largest decline)
Processing period: 116 days
5. New York—
2011 foreclosure rate: 4.6%
December, 2011 unemployment: 8% (23rd highest)
Home price change (2006Q3-2011Q3): -13.6% (23rd largest decline)
Processing period: 445 days
- Foreclosure activity edges higher in January (usatoday.com)
- Foreclosures and a Small Sign of Housing Recovery (247wallst.com)
- Foreclosures climbed in January (money.cnn.com)
- Chicago Foreclosure Activity in 2011 Indicates Hot Foreclosure Market in 2012 (prweb.com)
When Congress was on the brink of pushing through legislation that Internet advocates opposed, over four million online signatures were gathered quickly. Congress relented.
Today, millions of American households are poised to benefit directly from the opportunity to reduce mortgage payments, avoid foreclosure, build up some savings, or have a few thousand dollars to spend a little more freely. Yet while even conservative economists believe that easier refinancings will boost the economy and help millions more families — a major part of Congress is ready to say a big, “No, let’s not even try.”
Not a day elapsed after President Obama outlined a more ambitious set of proposals to let average families take advantage of the same low interest rates that have benefited upper income households and large corporations before Speaker Boehner among others declared the idea dead on arrival.
“All [the refinancing plan] does is delay the clearing of the market,” Speaker Boehner told reporters. “As soon as the market clears and we understand where the prices really are — [that] will be the most important thing we can do in order to improve home values around the country.”
Saying millions of families should wait until the “market clears” is the modern equivalent of “let them eat cake.” Clearing the market is an economist’s term for letting the tidal wave of foreclosures continue. But unchecked foreclosures drag down everyone’s home values, let vacant homes pile up in neighborhoods, and force families to choose between struggling to make needlessly high mortgage payments or become another default statistic with ruined credit.
It is time to ask lenders and investors to shoulder some of the burden, and Congress should be taking the lead on this, not finding objections. As my colleagues at the Center for American Progress and I explain in detail, the principles of accountability to avoid more foreclosures — especially for families who haven’t missed payments — is at the core of the administration’s expanded proposal for making refinancing easier.
Families with mortgages, however, are not an easily organized constituency. Unlike the protesters most engaged in social media who were the bulwark of those moved to criticize SOPA and PIPA, borrowers are not necessarily the internet generation nor an easily reached interest group.
But given the politics of “embrace the opposite of what Obama proposes,” homeowners struggling to keep making payments could use a Wiki dark day of their own. And so could the tens of millions of others who live next door, as no neighborhood really wants another foreclosure.
- From Bad To Worse: Nevada Foreclosures Only Half Way Done (scoppcanton.wordpress.com)
- Should the Government Help Homeowners With Underwater Mortgages? (usnews.com)
CFED Newsletter: February 2012
There is growing interest across the country from innovative affordable housing providers in integrating asset building and other financial services into their affordable housing programs. As a pioneer and leader in asset building, CFED is being tapped to help structure financial programs and services in affordable housing programs that encourage low-income families to increase their level of financial literacy, improve their access to financial services and build assets.
CFED has long been engaged in one particular niche in the affordable housing marketplace – helping owners of manufactured housing take advantage of factory-built housing’s affordability, while also accessing the opportunity to build wealth in a way that more closely resembles the experience of owners of site-built housing. CFED began broadening its engagement in the housing field in 2011 through outreach and discussion with a number of housing organizations, including several innovative public housing authorities, a HUD Choice Neighborhoods Implementation Grant Awardee and the largest community development intermediary in the U.S.:
- The Cambridge Housing Authority in Massachusetts and the Tacoma Housing Authority in Washington State are both Moving to Work (MTW) participants and national leaders in affordable housing innovation. MTW gives unprecedented flexibility to public housing authorities to innovate. In 2012, CFED will be assisting both organizations with their efforts to integrate financial security programs within their housing programs. Exciting new ideas include efforts to get public housing residents banked, as well as the creation of a student Individual Development Account (IDA) – a special savings account that allows young residents to earn deposits by achieving personal and/or academic goals.
- The Boston-based organization – Preservation of Affordable Housing (POAH) – recently was granted a HUD Choice Neighborhoods Implementation grant for their work in the Woodlawn public housing development in Chicago. CFED is currently exploring numerous ways to assist POAH as they seek to fulfill the promise of the Choice Neighborhoods Initiative. Building on HOPE VI, Choice Neighborhoods seeks to provide support for the preservation and rehabilitation of public and HUD-assisted housing within the context of a broader approach to concentrated poverty that addresses basic services, schools, public assets, transportation and access to jobs.
- CFED continues our engagement with Enterprise Community Partners and is exploring new areas of partnership. Through a recent contract with HUD, Enterprise is working with a wide range of housing authorities on troubled projects, institutions and initiatives. CFED looks forward to working with Enterprise on embedding asset building as part of proposed turnaround strategies.
CFED believes that using housing as a platform for delivering financial security programs and systems has the power to change the trajectory of the lives of low-income families and children. We’re excited about working with such innovative partners in 2012 and are encouraged by the growing acceptance of a more holistic and integrated approach that has implications for a variety of platforms beyond housing.
To learn more about CFED’s affordable housing initiatives, click here.
- Assets and the Poor: Twenty Years Later (scoppcanton.wordpress.com)