Homeownership is, of course, still American’s greatest source of wealth and asset appreciation, and a key component of CFED’s work. In order to make it a realistic possibility for more American families, policymakers and practitioners need to focus on tools and strategies to advance homeownership safely and responsibly.
Congress is unlikely to address housing finance reform in the near future. It’s unclear if reform would even enhance lending options for families. One thing is clear, though: the market is not serving all potentially qualified borrowers. For example, typical FICO scores for Fannie- and Freddie-backed loans are still well above historical norms, and the U.S. homeownership rate continues to slip.
Yet, in the midst of all these concerns, strategies do exist that can help reshape the homeownership debate for Americans of all income levels.
Homeownership, while not right for every household at any particular moment, still provides much needed security and wealth-building potential for low- and moderate-income families across the country. Many advocates believe that the United States is not actually becoming a nation of renters overnight, despite the continuing market pressure from investors and barriers in the credit markets.
For decades, it has been assumed that homeownership equals success. The Great Recession shook this belief, and with good reason. It is clear that many loans were made to unqualified borrowers. It is also clear that many lenders failed to work to prevent foreclosure and the subsequent wealth stripping of families that followed. Dodd-Frank created a new framework on underwriting and risk-taking that should, once fully implemented, lessen the likelihood of another mortgage-led cliff dive.
What this all means, I believe, is that we need to better prepare ourselves to become homeowners and to provide potential borrowers with better tools. There is, for example, good evidence that housing counseling works to prepare homeowners and can reduce the likelihood of delinquency and foreclosure. The very mainstream Bipartisan Policy Center’s recognizes this, noting that one of the benefits to counseling is access to better and fairer loan products. This certainly makes sense; if a borrower understands the terms of various loan types, she is more likely to borrow in a way that matches her ability to repay.
Regardless of how many classes you take or how well you understand loan products, if your credit is not up to standards, or if you simply don’t have much of a credit history at all, you will likely be locked out of the credit box. In recent years, a variety of organizations and academics have looked at how credit scores can better reflect how families really pay their bills. Civil rights and religious leaders have even stepped into the fray arguing that utility and rental payments should help families build credit.
CFED is now working with the Credit Builders Alliance, which has led this effort, and the Political and Economic Research Council, on ways to expand how credit histories are measured. Including families’ good payment records on their greatest expenses—primarily rent—shouldn’t be controversial, and it has the potential to help families build assets through homeownership, entrepreneurship and higher education.
Many of these ideas and challenges will be discussed at CFED's biannual Assets Learning Conference in Washington, coming up this September. The conference sessions have been designed to address significant asset-building strategies from across the United States. Leaders in these areas will discuss what has worked in their communities and, equally important, what has not. There are specific housing-related sessions and others that crosscut a number of fields of interest to policymakers and practitioners.
The changing dynamics of how families live and the recent failures of various pieces of the housing market make now a critical time for American housing policy. Opportunities abound to learn from the past and take advantage of what we know.
(Photo CC BY-NC-ND Humayan Rashid.)