Low Income Homeownership
Examining the Unexamined Goal
Publication Year: 2002
A generation ago little attention was focused on low-income homeownership. Today homeownership rates among under-served groups, including low-income households and minorities, have risen to record levels. These groups are no longer at the margin of the housing market; they have benefited from more flexible underwriting standards and greater access to credit. However, there is still a racial/ethnic gap and the homeownership rates of minority and low-income households are still well below the national average. This volume gathers the observations of housing experts on low-income homeownership and its effects on households and communities. The book is divided into five chapters which focus on the following subjects: homeownership trends in the 1990s; overcoming borrower constraints; financial returns to low-income homeowners; low-income loan performance; and the socioeconomic impact of homeownership.
Published by: Brookings Institution Press
Series: James A. Johnson Metro Series
"The United States is essentially a nation of homeowners and people who aspire to be homeowners. Belief in the benefits of homeownership cuts across racial, ethnic, class, and geographic lines. Homeownership builds wealth. Homeownership is a stable investment. Homeownership encourages neighborhood involvement by residents. Homeownership builds up communities. Homeownership creates positive environments for children and families. ..."
"This book is the culmination of a daylong symposium devoted to critically evaluating low-income homeownership as a business, public policy, and household wealth-building strategy. The Ford Foundation, Freddie Mac, and the Research Institute for Housing America (RIHA) provided the principal funding for the symposium and this volume. The editors are indebted to these organizations for seeing the value in an objective and rigorous examination of..."
Chapter 1. Examining the Unexamined Goal
"Anthropologists point out that the notion of ownership is a cultural construct. In some societies, land and buildings constitute community wealth; those societies would find the notion that an individual might 'own' a house—and even the notion of 'ownership' itself—bizarre.1 This construct, though, is embedded in American culture; it is..."
PART 1: Homeownership in the 1990s
Chapter 2. Anatomy of the Low-Income Homeownership Boom in the 1990s
"Despite an unprecedented boom in homeownership that added 7 million net owners between 1994 and 1999 and drove the homeownership rate nearly 3 percentage points higher, to 66.8 percent, relatively little is known about where people have been buying homes and the types of homes they have been buying. Analysis of the 1990s boom has focused principally on describing who is buying—by income, racial, ethnic, and family characteristics—not on..."
Chapter 3. The Industrial Structure of Affordable Mortgage Lending
"Ensuring the widespread availability of mortgage credit for lower-income families and borrowers who reside in lower-income neighborhoods has long been a public policy concern. Legislative efforts aimed at financial institutions intensified during the 1970s with the passage of the Home Mortgage Disclosure Act (HMDA) in 1975 and the Community Reinvestment Act(CRA) in 1977 and the Federal Reserve Board’s promulgation of Regulation..."
PART 2: Overcoming Borrowing Constraints
"Owing to the longest economic expansion in U.S. history, the lowest mortgage interest rates in a generation, and changes in the demographic makeup of the nation’s population, homeownership rates rose for six years in arow to a record level of 67.7 percent as of the third quarter of..."
Chapter 4. Eliminating Credit Barriers: How Far Can We Go?
"Few symbols of personal economic success loom larger in the minds of Americans than owning one’s own home. Norms favoring homeownership have been further buttressed by the belief that because homeownership is a site-specific investment homeowners take better care of their neighborhoods and therefore make good..."
Chapter 5. Prepurchase Homeownership Counseling: A Little Knowledge Is a Good Thing
"For the past three decades homeownership counseling has been an integral part of affordable lending in the United States. Myriad benefits have been attributed to these programs. Its advocates believe, for example, that counseling better prepares borrowers to recognize and accept the responsibilities of owning a home. By helping to get households into homes they can afford, and afford to keep, homeownership counseling has been credited with stabilizing families and..."
Chapter 6. Supply-Side Constraints on Low-Income Homeownerhsip
"Homeownership is increasingly being utilized as a social policy believed to promote neighborhood health and stability, while also offering opportunities for low-income families to build financial assets through home equity. Between 1993 and 1997, mortgage lending overall grew by 20 percent; but in low-income census tracts in metropolitan areas it grew by over 30 percent (Can, Bogdon, and Tong, 1999). The surge in home buying among low-income..."
PART 3: Returns to Homeownership
"Equity in a home represents the single largest asset held by most Americans. Among owners with household incomes below $20,000, home equity accounts for approximately 72 percent of net household wealth; for those within comes between $20,000 and $49,999, the accumulated equity in their homes..."
Chapter 7. Asset Appreciation, Timing of Purchases and Sales, and Returns to Low-Income Homeownership
"Because home equity is low-income households’ dominant form of wealth, an understanding of the price dynamics of the housing stock held by these owners and the timing of their purchases and sales is important for understanding the risk-return tradeoffs associated with their decision to buy homes. In an ideal world, such an understanding would precede and inform efforts to lift the homeownership rates of low-income people. In reality, however, our..."
Chapter 8. Home Price Appreciation in Low- and Moderate-Income Markets
"At the turn of the millennium, fully two-thirds of American households were owner-occupants. In addition, through the middle of the year 2000, real home prices were rising in all but a handful of major metropolitan areas in the United States. In such a climate, the benefits of homeownership seem obvious. Owners whose property appreciates accumulate wealth, and most are protected from rising out-of-pocket housing costs by fixed or slowly adjusting..."
Chapter 9. Policy Implications of Portfolio Choice in Underserved Mortgage Markets
"Homeownership in low-income neighborhoods has positive personal andsocial benefits. It provides residents with an incentive to maintain both their own property and the local neighborhood. Recent research also suggests that homeownership is associated with 'life satisfaction' (Scanlon, 1999). Still, these externalities and 'internalities' are not costless. A house is not only a dwelling; it is an investment asset. As such it has risk and return characteristics..."
PART 4: Low-Income Loan Performance
"This section contributes to our understanding of the asset-building potential of homeownership for low-income households by taking a careful look at the repayment performance of low-income and minority borrowers from a lender’s perspective. The results of the three studies have direct bearing on the evaluation of lending risks of low-income and minority borrowers and the..."
Chapter 10. Prepayment Risk and Lower-Income Mortgage Borrowers
"Over the 1990s the U.S. housing finance system increased its attention to issues of affordable housing. The government-sponsored enterprises (GSEs), notably Freddie Mac and Fannie Mae, introduced multiple special lending programs targeted to first-time home buyers and to households within come below 80 percent of area median. At the same time, regulators for the related issue of 'redlining' have carefully scrutinized banks and other depository..."
Chapter 11. Performance of Low-Income and Minority Mortgages
"This chapter analyzes the performance of low-income and minority mortgage loans relative to other mortgages for a large sample of fixed-rate mortgages originated in the 1990s and followed through 1999. Evaluating performance differences is complicated. For instance, it is not just a matter of credit risk. For fixed-rate mortgages it is clearly the case that prepayment risk, the risk that comes from borrowers exercising their option to refinance when mortgage..."
Chapter 12. Performance of Community Reinvestment Loans: Implications for Secondary Market Purchases
"The government-sponsored enterprises (GSEs) have been very successful in extending credit to nontraditional borrowers using technology, homeownership education, and outreach. For instance, between 1993 and 1999 the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) increased their combined total purchases of home loans by 22 percent. Their purchases of home loans originated to very..."
PART 5. Socioeconomic Impacts of Homeownership
"Owning a home and a piece of land to call your own is central to the American dream. Dictated by a unique American cultural imperative and relentlessly promoted by a complex web of public and private institutions built around housing and housing finance, homeownership enjoys a pivotal role..."
Chapter 13. Social Benefits and Costs of Homeownership
"Homeownership is often thought to be an essential ingredient of the American Dream. Living in a single-family, owner-occupied dwelling unit is central to the American conception of a secure and successful life. Study after study has found that a large proportion of Americans would rather own than rent a home. In a recent national survey, for example, 86 percent of all respondents felt that people are better off owning than renting a home, and 74..."
Chapter 14. Housing and Wealth Accumulation: Intergenerational Impacts
"As is well known, for over sixty years the federal government has promoted homeownership as a critical component of achieving the American Dream. Housing policy has formed a significant cornerstone of the nation’s 'poverty agenda' as well as represented a separate policy initiative. Two specific examples from the past decade illustrate this point. In 1991 The President’s National Urban Policy Report issued by the U.S. Department of Housing and..."
Chapter 15. Impact of Homeownership on Child Outcomes
"There are many claims that homeownership yields significant benefits for the owners, the owners’ local community, and the nation, but there are relatively few studies of this assertion that fully address the complex modeling, data, and estimation issues that the claim implies. Recently, there has been substantial interest in measuring the impact of homeowning on the children of homeowners. We add to this literature by focusing on measuring the impact of..."
Chapter 16. Building Homes, Reviving Neighborhoods: Spillovers from Subsidized Construction of Owner-Occupied Housing in New York City
"Promoting homeownership has always been a central aim of housing policy in the United States. The federal tax code delivers generous tax benefits to homeowners, the Federal Housing Administration (FHA) provides insurance on high loan-to-value mortgages, a variety of other FHA and state programs have offered below-market interest rates, and the Community Reinvestment Act of 1977 provides incentives for financial institutions to make mortgage loans in..."