In the spring of 2008, as the country plunged into the deepest economic crisis since the Great Depression, Keith Ellison, a freshman Democrat representing Minnesota’s 5th Congressional district, took to the House floor and warned of the sweeping effect the foreclosure crisis would have not only on low-income and distressed communities, but also nationwide. He warned that in addition to families being foreclosed on, millions more households would face negative equity.
We wish he had been wrong.
In 2012, one in four homeowners are underwater and the housing crisis has erased $7 trillion in household wealth. Fortunately, Rep. Ellison has emerged as a leading voice in Congress working to address the effects of the housing crisis and protect and extend housing opportunities for all. He spoke with Shelterforce in June about legislation in the works and getting things done—or not—in the current Congress.
Shelterforce: Given the data saying principal reduction is the most effective form of modification, what are we to make of FHFA’s continued refusal to allow Fannie and Freddie to do it?
Rep. Ellison: The good news is that FHFA has discussed creating a pilot to reduce principal. The Preserving American Homeownership Act — the bill Congressman Gary Peters (D-Michigan) and I have come together to work on [Ed.: House version of Sen. Menendez’s bill of the same name] — would create a pilot to reduce principal in some loans in exchange for a 50 percent share of the increase in the home’s value when the home is later sold or refinanced. We even think that there could well be some bipartisan support for it. But at this point, we are as baffled by the decision of [FHFA Acting Director Edward] DeMarco as anyone.
The private sector has done some principal reductions — we have seen Ocwen, Citi, and even Bank of America do some.
Some advocates say “Why a pilot? Pilots take a long time to start up, then they’re small. Then they have to be evaluated, and meanwhile people are losing their homes every day.”
I agree. But getting from here to there is a significant political lift, given that DeMarco has basically stood in the way, given that industry has — with a few notable exceptions — not done those principal reductions.
But you’ve got to start somewhere. We’re hoping that if we represent this as a pilot, there could be more buy-in than if we just said, “Look, we’re going to start doing them.” That said, my clear preference is to start doing principal reduction on a massive scale.
How big a demonstration do you think it’ll be?
We’re still working out how big. We just wanted to get this thing rolling so we can prove that it’s effective, and then that’ll put us in a position to perhaps lean much harder on DeMarco.
Can you talk about FHFA’s REO to Rental initiative and its potential effect in your district as well as on a broader scale?
In my district, we have a tremendous shortage of housing. In the Twin Cities region more than 98.5 percent of rentals are rented out. We need to take advantage of existing partnerships [between the] city, land banks, financial institutions, and nonprofits to ensure that the properties are released responsibly to good community members so that we don’t just turn a good neighborhood into a slum — a very real risk if we just let speculators snap them up.
Some people have suggested that they ought to come with an affordability covenant.
I agree. We have a significant number of people in my district and throughout the country paying a huge percentage of their income in housing, and so there’s no doubt that affordability ought to be a component of how we move forward with these REO properties.
Another bill you plan to introduce will amend the Fair Credit Reporting Act to provide affirmative permission for on-time payments to be reported to credit reporting agencies. Tell us about why that bill is important.
I am planning on introducing this bill with Congressman Jim Renacci (R-Ohio), a colleague of mine on the Financial Services Committee. We are both troubled by the difficulties Americans face in establishing and maintaining a credit score in this economy. Credit is hard to come by, even for folks with good credit [scores]. Folks with a score of 750 are being denied loans to buy a home.
For folks with a credit history with some dings in it, it can be hard to repair and increase their score without taking on expensive debt. There are also 50-70 million people who lack a credit score and thus pay more for home and car insurance and have trouble getting loans when they need them.
I have been impressed by the strong empirical evidence provided by PERC in North Carolina that adding on-time utility and telecom payments [to the credit record] can move millions of consumers from unscoreable to a [credit] score, sometimes at prime or near-prime. Currently, nearly all utility and telecom companies report delinquencies and late payments but few report on-time payments due to regulatory uncertainty. Our bill affirms what is already law — on-time payments can be reported. Since 2003, the Equal Credit Opportunity Act, Regulation B, has afforded this profound financial empowerment right for millions of Americans who pay their regular bills, such as cell phone, rent, condominium, coop and HOA [Homeowner Association] dues, utilities and insurance, on time.
With no federal cost and no federal mandate [we] can save tens of millions [of people] hundreds of thousands of dollars.
There are a lot of people talking about bringing alternative forms of homeownership, like community land trusts (CLTs), up to scale. But one of the big challenges to seeing that go to scale is a number of FHA rules that don’t allow FHA insurance on shared-equity homes. Any thoughts on what we can do?
These CLTs have been a really, really good way to do housing, ensuring that the home remains permanently affordable. The model has been critical to building great, really solid, stable neighborhoods in our community.
What would some of the rules changes you mention potentially be?
Some of the provisions of an FHA mortgage don’t allow the CLT to enforce its own provisions. There’s also a fair return rule, which is often higher than a CLT’s resale formula. Another hurdle is the issue of enforceability of the deed restriction post-foreclosure. FHA is willing to work on these issues, but the problem is a rule change can take up to two years. So, strictly from a political point of view, how do we address something like that?
What I think that we do is we look at these fair return rules and other impediments, and we put them in the form of legislation. And we drop a bill in and start a community conversation about how much more we could be doing if we had rules that allow for it. Then, we begin a set of arguments and hope for a favorable bounce in the election, of course. That said, I don’t think you need to have an overwhelming Democratic majority to move forward on something like this, because it is a proven model with very low rates of foreclosure.
I’ve had a number of occasions where I’ve put things into a bill format to sort of jump-start an agency to start moving in a direction. It would signal to agencies what people really want and if you see some legislative action moving — particularly on a bipartisan basis — it might be quite a bit quicker than two years.
The Protecting Tenants at Foreclosure Act is scheduled to sunset in 2014. Can you give us an update?
I sponsored the Protecting Tenants at Foreclosure Act, H.R. 3619, which removes the sunset. Forty percent of the families displaced by foreclosure are renters, and these folks are often shocked when they find their landlord foreclosed upon. They may have paid every penny of rent. I will tell you that it’ll be a battle. I think all my co-sponsors are Democrats, so removing that sunset seems directly correlated to how the election turns out. We are looking for Republican authors. I think it’s just a better way to go.
Why would anyone disagree with the act?
Well, they might think that it’s a “job-killing regulation for the banks” or something like that. This isn’t uncontroversial. It wasn’t uncontroversial when we passed it. There were people who just wanted the tenant gone. But we argued that having the property occupied will probably preserve the value of the property. Some people saw the light. But there’re still people who believe that we should just let the banks work it out with the tenants and they’ll get to the right answer. Well, maybe sometimes they will, but we can’t count on enlightened bankers all the time.
Let’s talk about the Rental Assistance Demonstration (RAD), which you’ve taken a lead on. It’s a scaled down version of the controversial Preservation, Enhancement, and Transformation of Rental Assistance initiative, which sought to leverage private capital for public housing. Where is it now?
I think we need a little more time to see if the Rental Assistance Demonstration is scalable and if housing authorities can service the debt they incur when they leverage the private capital.
Here’s the reality: Public housing needs about $30 billion-something worth of investment. We have moldy facilities; we have elevators that aren’t working; people have been injured and killed. It’s just crazy. So bottom line is, if we can use RAD to get some real money to have good, decent, and nice places to live, we could be better off.
Ever since Nixon, with a few minor bumps in the road, there’s been a real effort to get the government out of housing. Is there a danger that, if public housing starts to compete for private capital, it’s only going to be competing with other nonprofit and for-profit organizations that are also trying to build affordable housing, and in the end it’s just shuffling the deck chairs?
That’s a legitimate fear. There are people who don’t like the idea of public housing. They just are against it, period. And so, whatever you do, you have to be on alert. But there’re a lot of things we can do: We can make sure that there’s a lot of tenant engagement. We can make sure the government has the first right to take possession and control. If we write the RAD bill properly, we will not be losing public assets.
When we had the debate over the Preservation, Enhancement, and Transformation of Rental Assistance [Act, or PETRA], a lot of really sharp people said, “Well, wait a minute, what about this and what about that?” They brought out really important considerations. And I think that made our overall product much better, and now here we are with the Rental Assistance Demonstration program, which is a scaled-down version [of PETRA] limiting what can go wrong.
I mean, we’ve got to try things. Imagine being seven years old, walking upstairs in your public housing unit, and there’s no lights — or no heat. That’s just the reality that people are living in, and it’s a shame. So if the private sector can help, and we can retain ownership of that public asset, I’m willing to at least see if it’s workable.
Sounds like a good public works program.
I agree. That’s why I’ve been a strong proponent of the National Infrastructure Bank, and Rosa DeLauro (D-Conn.), Steve Israel (D-N.Y.), and I have been really working hard on a related bill. It would put a lot of people back to work, but we’ve got to find a way to get that money, and I just can’t see us coming up with a $28 billion appropriation to upgrade public housing in the near-term. Now, would I vote for one? Yes. But given that these guys are all about cut and austerity, I just don’t see it as a real strong option.