For more on this topic, read the July 2014 issue of

Sheila Crowley, Executive Director, National Low Income Housing Coalition What caused the home foreclosure crisis that came to a head in the fall of 2008 and precipitated the “Great Recession” is hotly debated. Explanations fall along predictably partisan lines. One side cites too much government interference in the marketplace, while the other side sees an unfettered marketplace allowed to run amok.

For more on this topic, read the July 2014 issue of

In 2008 the U.S. economy fell off a cliff. Depending on your perspective it either slipped or was pushed from that precipice by the housing markets. But after six years where are we? How were rural Americans impacted, and are there lingering effects from the crisis? Rural Voices assembled four of the most knowledgeable experts in the affordable housing world to help answer these complex questions and provide insights on how to improve rural housing conditions in the wake of the housing crisis.

Sheila Crowley, Executive Director, National Low Income Housing Coalition What caused the home foreclosure crisis that came to a head in the fall of 2008 and precipitated the “Great Recession” is hotly debated. Explanations fall along predictably partisan lines. One side cites too much government interference in the marketplace, while the other side sees an unfettered marketplace allowed to run amok.

The undisputed result was that too many people took out home mortgages that they could not afford and too many lenders made loans that they knew the borrowers could not afford. It did not matter to lenders, because they could sell off the loans to the secondary market, take the cash, and move on to the next borrower who confused home buying with a get-rich-quick scheme.

In the name of “wealth-building,” the home buying push that led to the Great Recession will be remembered as a massive transfer of wealth out of low and moderate income African-American and Hispanic communities into the hands of major financial institutions and their investors. Not only has no one in a position of responsibility at these institutions been punished for the devastation of individual lives and whole neighborhoods, but the federal taxpayers bailed out most of these institutions, while providing too little, too late to the people who lost their homes and their assets.

Today, there is much consternation about the “softness” of the home-buying market and constraints on access to credit for potential home-buyers. We should ask ourselves why a low income renter whose neighborhood was blighted, who has not had a raise in years, who has friends and relatives who are still out of work or are underemployed, would believe that buying a house is a good thing to do. Low income people have every reason not to trust anyone who tells them buying a house is good investment. What happened to their homes is fueling mistrust that will stay with foreclosed families for at least a generation.

The conflation of “house” with “asset” in the policy and political narrative of the 1990s and 2000s led us lose sight of the meaning of “home.” Home came be idealized as a single family residential structure that the occupants “owned” by virtue of having borrowed money from a bank that is to paid off with interest in 30 years. Home as sanctuary and the center for family life became a secondary meaning and renting was relegated to a second class form of tenure. The federal government subsidizes home-owners through its support of the mortgage market, through the tax code, and through direct expenditures by HUD and USDA in amounts that dwarf support for renters.

Meanwhile, through the housing boom and bust and tepid recovery, the rental housing crisis only has gotten worse. The Joint Center on Housing Studies at Harvard University issues its “State of the Nation’s Housing” report each year. The 2000 report cited 5.4 million very low income¹ renter households who received no housing assistance paying over half of their income for housing and/or living in substandard housing.² The 2014 report shows that two-thirds of renter households with incomes less than $15,000 a year spend more than half of their income for housing, as do 34% of renters with household income between $15,000 and $29,999.³

Analysis of 2012 American Housing Survey data by the National Low Income Housing Coalition (NLIHC) shows there are 10.16 million extremely low income

The rental housing shortage has been exacerbated by the foreclosure crisis, as former homeowners moved into the rental market and potential homebuyers stayed in the rental market. An already inadequate affordable rental housing market has had to absorb the growing renter demand. In 2013, rental vacancy rates declined again to their lowest level since 2000 and rent increases continued to rise well above inflation.⁷

A major contributor to the rental housing crisis for very low and extremely low income households is the reduction of federal government support with cuts to HUD and USDA programs. A fiercely divided Congress and a worrisome federal deficit have resulted in severe cuts to all direct spending on low income housing. Both parties refuse to raise revenue to reduce the deficit, much less invest in affordable housing, schools, transportation, infrastructure, or a host of other neglected core social needs.

In the name of “wealth-building,” the home buying push that led to the Great Recession will be remembered as a massive transfer of wealth out of low and moderate income African-American and Hispanic communities into the hands of major financial institutions and their investors.

Why is rental housing a good investment? First, over one third of all American households are renters and virtually everyone is a renter at some point in his or her life. Second, renting makes the most sense for people who expect to live somewhere for less than a few years, because the transaction costs of buying and selling will likely exceed any equity they might accrue. Renting also makes more sense than buying for people whose employment has any uncertainty to it, like variable hours or the potential of lay-offs. Responding to reduced economic circumstances is much easier with a lease than a mortgage. Third, people at different stages of the life cycle may be better off renting than owning, especially if they are not in a position to maintain a house. People whose jobs require a lot of travel or older people may be happy without the bother of yard work or roof repairs. Certainly many people prefer the freedom and flexibility that renting offers.

Most importantly, extremely low income and many very low income families would be better served by strong rental housing market that offer them choices of where to live than they are by an array of inadequate, under-resourced, and outdated programs or being prematurely thrust into the mortgage market.

The most fundamental goal of housing policy should be housing security, which is what the 1949 U.S. Housing Act prescribed: a decent home and a suitable living environment for every American family. Housing security means paying what you can afford to live in a home that is adequate for your needs and from which you move only by your own choice. Housing security means not living in fear of eviction or exploitation or violence or hazards to your health. Housing security means also being able to afford healthy food, appropriate medical care, transportation to get where you need to go, and other necessities, with enough left over to be able to save for emergencies, education, retirement, and maybe even a down payment on a house. Housing security as a renter is a necessary precursor to borrowing to buy a house.

Recovery from the foreclosure crisis will take a long time; people need to heal from the trauma and reestablish trust with the institutions that failed them. Public policy should focus on getting back to basics. Does every community have enough housing that all the people who live there can afford? Or enough housing so that no child in its schools is homeless or churning from one home to another and one school to another? Or enough housing to assure that its elders live out their years with dignity? Or enough housing that its citizens with disabilities can lead productive lives?

The problem is not a lack of resources. The federal government will subsidize home-ownership through the tax code to the tune of $241 billion in 2015. These tax “expenditures” are the mortgage interest deduction, the property tax deduction, the capital gains exclusion, and the net imputed rent exclusion.⁸ NLIHC has proposed modest changes to the mortgage interest deduction⁹ that would not only raise enough revenue to solve the rental housing shortage, but will give a tax break to many more low income homeowners than claim the mortgage interest deduction now. NLIHC’s proposal will not cost the federal government any more than it already spends on housing and it will make the tax code fairer and simpler.

The solution to the rental housing crisis is in plain view. Modest adjustments to the mortgage interest deduction will raise enough revenue to fund rental housing programs for ELI households. All it takes is bipartisan political will, which unfortunately is in short supply.

For more on this topic, read the July 2014 issue of

Gail Burks, President & CEO, The Nevada Fair Housing Center, Inc.

Do you believe that the housing crisis is over?

As I contemplated this question, my mind wandered to a quote given to Supreme Court Justice Potter Stewart by his law clerk in an effort to define obscenity – “you’ll know it when you see it”. In rural America, no other quote could so aptly describe the housing scene. From an evidence based perspective, three continuing themes support the premise that we have not seen a recovery. First, to date, proposed solutions have not been tied to real time field data from rural areas of the country. Rent a vehicle and drive in any direction and you will know rural America when you see it, along with the attendant housing problems…

For more on this topic, read the July 2014 issue of .

In 2008 the U.S. economy fell off a cliff. Depending on your perspective it either slipped or was pushed from that precipice by the housing markets. But after six years where are we? How were rural Americans impacted, and are there lingering effects from the crisis? Rural Voices assembled four of the most knowledgeable experts in the affordable housing world to help answer these complex questions and provide insights on how to improve rural housing conditions in the wake of the housing crisis.

Gail Burks, President & CEO, The Nevada Fair Housing Center, Inc.

Do you believe that the housing crisis is over?

As I contemplated this question, my mind wandered to a quote given to Supreme Court Justice Potter Stewart by his law clerk in an effort to define obscenity – “you’ll know it when you see it”. In rural America, no other quote could so aptly describe the housing scene. From an evidence based perspective, three continuing themes support the premise that we have not seen a recovery. First, to date, proposed solutions have not been tied to real time field data from rural areas of the country. Rent a vehicle and drive in any direction and you will know rural America when you see it, along with the attendant housing problems. Second, the design of programs such as the Neighborhood Stabilization Program (NSP) did not contemplate rural development issues such as the additional due diligence required on wells, open range, etc. Third, the foreclosure numbers are a consistent moving target. Depending on the state, defaults are not necessarily finalized within a set timeframe. The rule of law within the local community may extend, sometimes for years, the actual trustees’ sale. When obtaining data on foreclosure, it’s important to define the parameters. Until we can clearly identify the problem based on reality, solutions will continue to be illusive at best.

What factors defined the “housing crisis?”

Depending on which day and commentator you listen to it is the fault of the homeowner, bank or society in general. They all got it wrong. Nothing in society rises or falls based on one thing. In our sworn testimony for the Congressional body known as the Federal Financial Crisis Inquiry Commission, we highlighted how various factors converged simultaneously to create the current market in our state or on a broader scale.

It is also important to note that the housing crisis must be viewed within the context of the greater economy in both the U.S and abroad.

Nevada consumers initially complained about predatory lending practices in 1999. By 2001, the Nevada Fair Housing Center, Inc. began to see an average of over four hundred clients per month with predatory lending issues. Clients presented cases that included such loan practices as appraisal fraud, flipping, high interest rate loan products, excessive prepayment penalties and violations of Federal law in the servicing of these loans.

No one can debate the need for legitimate non-prime (subprime) lending products. The subprime market served individuals with little or no credit, along with those recovering from a financial setback.

Until we can clearly identify the problem based on reality, solutions will continue to be illusive at best.

Traditional equity enhancements allowed a non-prime borrower to obtain credit. These often included verification of non-traditional credit (i.e. rental payments, utility bills, etc.), proof of one month’s reserve, establishment of an impound account and private mortgage insurance (PMI.) While the non-prime borrower might pay more for the cost of credit, that cost was directly related to lender risk.

However from approximately 2004 – 2007, the purpose and role of non-prime became lost in the zest to create profit driven securitized products. Non-prime mortgages mutated into fantasy financing. Out of this mutation grew a new breed of mortgage product, fueled by:

• No underwriting
• Lender failure to determine the ability to repay the loan
• Failure to fully amortize the payment
• Failure to establish impounds for insurance and property taxes

Many consumers received loan products that were not suitable based on their credit and income. When payments on “option” adjustable rate mortgages (ARMs) and pick-a-payment mortgages began to adjust, many consumers experienced payment shock.

No document loans also fueled the crisis. Traditionally, this standard product was only offered to self employed individuals with twenty percent down. However, brokers began offering the product to consumers on fixed incomes such as seniors and working families.

This crisis was further fueled by the joining of strange bed fellows. Providers of services- brokers, correspondent lenders, title companies, appraisers, real estate agents- formed alliances to make money. Sadly, some consumers sought to grab the brass ring and become ‘investors’ and share in the new get rich craze.

How, was the housing crisis different for rural areas than the nation as a whole?

Rural America experienced a crisis. In part, the financial meltdown contributed to a decrease in the ability to develop and leverage housing. Not only did consumers in rural America experience foreclosures but the development side was also impacted.

What are the long term ramifications for affordable housing?

No. As previously stated, the design of programs such as NSP did not contemplate the additional due diligence required for rural properties. In addition, foreclosure numbers are a consistent moving target. Until we can clearly identify the problem based on reality, solutions will continue to be illusive at best.

The guidelines for HARP failed to take into account the local real estate markets (all real estate is local) and the refinance rules that were in place with Fannie and Freddie due to receivership. In other words, if some markets were so upside down from an equity standpoint, refinancing was obviously not an option. Public trust is very important. Press announcements about programs that were not practical for the market caused many consumers to lose hope.

The goal of the HAMP program was admirable. However, execution was inconsistent. Consumers received various degrees of assistance. The common denominator with all the programs, lender participation, was voluntary. The consistent loss of paperwork by lenders, inability to reach lender staff, lack of coordination between lender departments, made the program difficult. Lenders do not do “one offs”; therefore, their goal was to incorporate the program into the lender’s automated systems. This took years. Moreover, from a legal standpoint, many lenders could not make the final decision absent investor sign off. Marketing indicated that all lenders utilized the same process. In reality, this was not the case. Later in the program, an effort at centralization to send consumers through one computer system hurt past efforts. Due to various lender pools, investors, and legal pooling service agreements for mortgage backed securities, the marketing of assistance did not match the reality. Despite the good field work again, consumers lost faith in the system.

As consumers lost faith in various announced programs, the rise in strategic defaults increased. The attitude of “why pay for something that is worth less” seemed to overshadow the idea of contract obligations.

In Nevada, the passage of legislation to create a mediation program actually encouraged lenders to work with consumers more than all the federal programs. Similarly, litigation in some areas provided relief.

What are the long term ramifications for affordable housing?

Sometimes old methods work best. As a product of rural America, many programs have disadvantaged communities in providing a false sense of security. The long term ramifications are a stunted growth in outlying areas

Download a pdf version of Rural Voices

The July 2014 issue of Rural Voices takes another look at the housing crisis and asks some important questions. Knowledgeable experts in the affordable housing field share their expertise, insights, and strategies to improve housing conditions in light of the Great Recession.

VIEW FROM WASHINGTON

Discussing Community Reinvestment in Rural America
by Thomas J. Curry, Comptroller of the Currency

How banks and federal savings associations can more effectively serve the credit needs of rural communities

SPECIAL FEATURE

Is the Housing Crisis Over? And how did it impact rural America?
An interview with:

Eric Belsky, Director, Joint Center for Housing Studies at Harvard University
Sheila Crowley, Executive Director, National Low Income Housing Coalition
Gail Burks, President & CEO, Nevada Fair Housing, Center, Inc.
Chuck Wehrwein, Acting President & CEO, NeighborWorks America

Four national leaders discuss the housing crisis and its impact on rural America

FEATURES

Repurposing Foreclosed Properties in Rural America
by Noel Poyo, Executive Director, and Christopher W. Sanchez, Program Director, National Association for Latino Community Asset Builders (NALCAB)

A consortium of nonprofits works at the local level to reverse the devastating effects of the foreclosure crisis

Housing Counseling Services Offer More Than Just Counseling
by Keith L. Morris, President, Elder Law of Michigan

While housing counselors are instrumental in helping people avoid foreclosure, they also provide invaluable resources to help families improve their lives

Making a Difference in Rural America
by Tony Hernandez, Administrator, USDA Rural Housing Service

Newly appointed Rural Housing Service administrator shares his thoughts and priorities for USDA’s housing initiatives

MAPS

The housing crisis and its wake in rural America– (Interactive Prezi)

Add your Response

Rural Voices would like to hear what you have to say about one, or all, of these issues. Please feel free to comment on this story by sending a tweet to #RuralVoicesMag, discuss on the Rural Affordable Housing Group on LinkedIn, or on our Facebook page.