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Chapter 8 Homeownership: America’s Dream? Raphael W. Bostic and Kwan Ok Lee L iving in a single-family, owner-occupied dwelling unit is central to the American conception of a secure and successful life—the quintessential “American dream.” Study after study has justified the interest in homeownership among Americans by claiming that it confers benefits both to individuals and to the society as a whole. First and foremost, homeownership fosters asset-building and helps to insulate households from generally rising housing costs (Di, Yang, and Liu 2003). Homeownership is also thought to contribute to life satisfaction, psychological and physical health, positive child outcomes, and greater civic engagement (DiPasaquale and Glaeser 1999; Fannie Mae 1999; Galster 1987; Harkness and Newman 2002; Haurin, Parcel, and Haurin 2002; Kind et al. 1998; Lewis et al. 1998; Rohe and Stegman 1994a, 1994b; Rossi and Weber 1996; Saunders 1990; Tremblay, Dillman, and Van Liere 1980). On a broader scale, because homeownership limits household mobility, homeowners better maintain their properties and neighborhoods , which results in higher property values, greater neighborhood prosperity and sustainability, and reductions in crime (Boehm 1981; Galster 1983; Rohe and Stewart 1996; Rosenthal 2004). Finally, owner-occupied housing is also thought to have a beneficial effect on the local economy by increasing consumer spending, providing tax revenues and fees, and growing businesses and jobs (Collins 1998).1 Over the last decade, political and social efforts to promote homeownership among lower-income households have intensified, with the goal of promulgating these benefits. Questions remain, however, as to the efficacy and advisability of such efforts. For example, in spite of the potential benefits, are there risks and responsibilities associated with homeownership that lower-income families might be particularly vulnerable to and ill suited for? Mortgage payment stress and the risk of foreclosure could have significant negative impacts on lower-income homeowners and their families. Similarly, are lower-income households more likely to be subjected to geographically concentrated mortgage foreclosures, and what role does this play in the quality of the neighborhoods in which they live? More generally, what is the right framework for understanding the trade-offs between benefits and costs among different groups of low-income homeowners ? 218 / These questions and concerns have become more relevant with recent developments in mortgage markets. Delinquency and foreclosure rates have increased dramatically since 2006, with mortgage failures accelerating through 2008. As of the second quarter of 2008, a Mortgage Bankers Association (2008) survey reported delinquency and foreclosure rates never before seen in the history of the survey. These trends have been most acute among holders of adjustable-rate mortgages (ARMs), a mortgage product more commonly found among lower-income populations . In the second quarter of 2008, subprime ARMs accounted for 36 percent of foreclosure starts despite historically accounting for less than 10 percent of all mortgages outstanding (Mortgage Bankers Association 2007). As discussed later, these products differ from the standard thirty-year fixed-rate mortgage, and successfully managing the variable payment streams they feature requires considerable sophistication . The recent delinquency and foreclosure developments highlight this difficulty and point to the increasing importance of instrument risk as a serious threat to lower-income households seeking to improve their financial and personal situations through homeownership. This chapter considers these broad questions and issues, with the goals of: • Documenting the rapid expansion of credit in the last two decades and the rise in homeownership rates among low-income and minority households • Summarizing trends and emerging issues in mortgage markets • Quantifying the benefits of successful low-income homeownership and assessing the likely distribution of these benefits • Evaluating the costs of failed low-income homeownership, including consideration of who is most likely to bear these costs • Discussing policy options for retaining the benefits of homeownership and ameliorating the potential costs of foreclosures and their negative impacts The main contribution of the analysis is its explicit consideration of both the benefits and costs of homeownership, particularly important in this context because low-income families are likely to be more exposed than others to the costs. The analysis details how newer tools for financing mortgages, such as the 2/28 mortgage , provide relatively limited benefits while introducing instrument risks that low-income homeowners had not previously encountered. In addition, a new, previously unused data set allows us to determine the spatial and neighborhood distribution of foreclosures. The data confirm that low-income communities have been more susceptible to negative ownership outcomes in the new mortgage-lending environment. This focus on low-income populations...

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Additional Information

ISBN
9781610445887
Related ISBN
9780871540782
MARC Record
OCLC
794701240
Pages
336
Launched on MUSE
2012-01-01
Language
English
Open Access
No
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