Homeowners, Investors, and Renters rhino!UP for September 2, 2021
Because home buyers and Wall Street investors are in a bidding war over single family homes, rents continue to rise. Earlier this year, rhino!UP looked at Housing Bubble 2022. In this issue we'll take a look at steps that the Biden administration is taking to inject a little stability into the housing market by:
1. Increasing the supply of homes for sale to individual owners and
2. Creating new financial tools through Fannie Mae and Freddie Mac to reduce the cost of homes.
Why is building homes for purchase important to renters? Successfully reducing the speculation around single family homes should, over time, lower the pressure on rents by reducing the demand for rental housing as current renters become homeowners.
The Biden plan calls for building 100,000 new homes over the next 2-3 years. "The moves will focus on boosting home sales to individuals and non-profit organizations, while limiting sales to large investors, who scooped up one in six homes sold in the second quarter, according to a White House statement." Important to note that the plan utilizes current budget authority and doesn't require the proposed Reconciliation Bill, now being crafted by the House and Senate Democrats.
However, this policy is likely to get tangled up in real life weeds during the 2-3 years that it will take to actually build new homes.
What if there's an increase of single family homes coming on to the market because of slow to arrive Federal assistance? Just as tenants have been put at risk by the end of the CDC moratorium, millions of homeowners are facing foreclosure as Federal assistance is slow to arrive. According to the Washington Post: A tsunami of deferred debt is about to hit homeowners no longer protected by a foreclosure moratorium. "Over 2 million homeowners are delinquent on their mortgage, and billions in federal aid has yet to be distributed." Many may be selling to escape their mortgage delinquencies. More homes on the market may drive down home prices, but increase the number of displaced homeowners seeking rental housing. Net zero?
Biden's plans to dramatically expand Housing Choice Vouchers will increase the buying power of many renter households bringing more competition for the fixed number of rental units, resulting in an increase in market rents for everyone.
Investors aren't waiting for Biden's plan. They are reviving the use of financial tools that led to the 2008 Great Recession. In NEW APPETITE FOR MORTGAGE BONDS THAT SIDESTEP FANNIE, FREDDIE (paywalled), Wall Street Journal’s Ben Eisen writes: “The so-called private-label mortgage market — in which financial firms serve the middleman role of creating giant pools of loans and selling them to investors — had more than $42 billion of issuance in the second quarter. That is the most since the pandemic started and almost the most for any quarter since the last financial crisis....”
While the Federal Reserve Board (FRB) claims that current inflationary pressures are temporary, a new study by 2 FRB economists argues that rent inflation could be baked in by current home prices. This uncertainty continues while the Biden administration, the Squad and FIRED lobby argue over who should lead the FRB.
And just over the horizon, there's another block of housing funding and investment tax reforms in the Reconciliation Bill currently being crafted by the House and Senate.
With all this uncertainty, the American dream of housing stability may be a pipe dream. Homeowners, investors and renters will know a little more after the budget battles in DC. Their decisions after that could make the evacuation of Kabul look like a church picnic. Stay informed!
Footnotes
September 15, 2021. CityLab. What Becomes of California Housing Policy After the Recall Election. "When the Democratic governor took office in 2019, he set out a goal of building 3.5 million homes by 2025. Two years and a pandemic later, the state has more than 150,000 unhoused residents, and has made little progress towards that high production goal. But progress has come in other arenas: After repurposing vacant hotel rooms during the pandemic into housing for the homeless, Newsom recently announced plans to invest $12 billion of California’s budget surplus into expanding that program, while investing in permanent homeless housing, homelessness prevention and rental support programs. Another $10.3 billion will go into building affordable housing statewide."
September 20, 2021. Columbus Dispatch. After apartment buildings are sold, many tenants can't afford new owners' rent jumps. "Joe Maskovyak, COHHIO's affordable and fair housing coordinator, said his group has received a sizable increase in calls about rents being increased from people across the state — not just Columbus — often because of new owners and management. 'That's the tragedy. If you can’t pay, you've got to go,' Maskovyak said. And since the rental market is really tight, it's often difficult to find a new place, he said.
10.21.21. Politico Morning Money. TOOMEY DROPS HOUSING BILL "Sen. Pat Toomey (R.-Pa.) plans to introduce a bill today to bar Fannie and Freddie from purchasing loans secured by investment properties amid rising concern about investors crowding individuals out of homeownership (the subject of Thursday’s Senate Banking Committee hearing). The Biden administration recently lifted Trump-era restrictions on those purchases."
The path to universal housing vouchers -- start from here. September 12, 2021
In an online discussion this past week, nonprofit housing providers and tenant advocates wrestled with the complexities of moving towards universal housing vouchers. Over the 90 year history of US housing policy, the principles of incrementalism and local implementation have created a complex "system" for addressing affordable housing. Those principles can guide us forward at this latest policy turning point.
In the 1930s, FDR adapted British "social" housing into the "public housing" that we know today. In the 1960s, Congress provided low interest mortgages and rental assistance to private sector developers. In the 1980s, Section 8 vouchers (now called Housing Choice Vouchers--HCV) were added to the mix of rent subsidies, and Low Income Housing Tax Credits became the primary tool for creating new rental units. None of the older programs ever went away! They were adapted to new economic environments.
In the 2000s, project based rental assistance was refinanced through Mark to Market, and in the 2010s RAD was used as a refinancing tool for public housing developments. Now, in the 2020s, the Housing Choice Vouchers makeover brings a new challenge: transitioning to an entitlement/empower approach to Federal rental assistance.
Public housing and private owners with project-based assistance are worried that their tenants will all choose a voucher and move, leaving their properties half empty...or worse.
The tried and true strategy of incrementalism and local implementation is embodied in the draft bill from the House Financial Services Committee (HFSC). Fund'm all! The bill that HFSC has drafted as part of the Reconciliation Budget does just that. National Low Income Housing Coalition reports that the HFSC includes "$75 billion for Housing Choice Vouchers and $15 billion for Project-Based Rental Assistance; $80 billion to preserve public housing; and $37 billion for the national Housing Trust Fund." For now, the proposal is not a universal voucher program, just a giant step towards universal eligibility for some form of rental assistance.
Footnote
October 15, 2021. Shelterforce. How to Make Universal Vouchers Actually Work. "If Congress gave the Housing Choice Voucher program enough money to serve every income-eligible applicant, what other reforms would be needed so every voucher recipient could find a decent home in a suitable area?"
Rental housing stories that have been undercovered in the midst of pandemic, immigration and sausage making. rhino!UP for September 26. 2021
Right to Counsel enacted in Toledo Eviction Court.
On September 15th, Toledo City Council provided $250,000 to Legal Aid of Northwest Ohio (LAWO) for provide representation of tenants in Toledo Municipal Court. According to the National Coalition for a Civil Right to Counsel, the ordinance "guarantees counsel for all tenants facing eviction who are at 200% or below of the federal poverty level. The law is to be phased in over 5 years and staffed by Legal Aid of Western Ohio, and will be funded by $250k/year in American Rescue Plan Act funding."
Fannie Mae to include rent payments in mortgage applicants’ credit history review
Establishing a good credit score is a prerequisite for becoming a first time homebuyer. Starting September 18th, mortgage lenders can consider tenants' rent paying history when underwriting a Federally insured mortgage loans. Here's the catch--tenants will need to have document rent payments by bank records. Credit card payments are not enough proof of timely rent paying. Website Bankrate explains: "Fannie Mae says its new system will spot rent payments that appear in the borrower's bank records. Fannie says that applies whether you paid the rent by check or electronically, such as via a company's payment portal or even by Venmo or PayPal."
In an interview with the Washington Post this week, Andrea Puricelli, operations director of Inlanta Mortgage in Milwaukee, gave this advice to renters looking forward to homebuying. "Always make timely rent payments each month. To take advantage of this change, the rent needs to be paid out of the borrower’s bank account and not through a credit card."
Bankrate reports that Fannie Mae sampled mortgage applications from borrowers who had not owned a home in the past three years and found that 17% would have been accepted if this standard had been used.
Speaking of Credit Checks
Given the tight rental markets in Ohio and around the country, more and more landlords are using credit checks to "screen out" prospective tenants. By providing a "bright line" cut off, landlords can reduce the number of rental applications that they need to review.
Homeseeking assistance is one of the services that have been cut back during the pandemic. Advocates may want to think about resuming this kind of training and counseling as the pandemic eases. The use of emergency rental assistance could easily result in lots of bad credit reports for many renters. Helping them manage credit reports is another tool that homeseekers will need to take into consideration.
What about Rental Application Fees?
On this week's Housing Justice Network listserv, there was a long exchange of information about the use of application fees that can be another barrier to low and moderate income homeseekers. These fees are up front, non-refundable charges for the right to be screened by the landlord. RentPrep gives a thorough overview of rental application fees. Are application fees another barrier to homeseekers in your community? Share your stories with RHINO.