By David M. Abromowitz, Janneke Ratcliffe
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WASHINGTON, D.C.—Today the Center for American Progress released a new report, “Homeownership Done Right: What Experience and Research Teaches Us,” that reviews the considerable evidence that lower-income and minority homeowners benefit from well-designed affordable homeownership programs, many of which are weathering the foreclosure crisis reasonably well. The report is authored by CAP Senior Fellow David M. Abromowitz and Fellow Janneke Ratcliffe.
In the wake of the U.S. housing crisis that began in 2007 and still reverberates across the country today, as many as 12 million families may lose their homes to foreclosure. Our national homeownership rate could well drop from a high of over 69 percent in 2004 to below 64 percent by the time we are done, which would be the lowest rate since 1968. All this is happening while nearly 100 million Americans live in households spending more than 30 percent—and many more than 50 percent—of their incomes on shelter. This is hardly a path to encourage what for many is part and parcel of the American Dream.
Nor need it be. Evidence abounds that lower-income and minority homeowners benefit from well-designed affordable homeownership programs, many of which are weathering the foreclosure crisis reasonably well. For example, a 2009 examination of the foreclosure experiences of five city-based affordable homeownership programs in Boston, Chicago, Los Angeles, New York, and San Francisco found that out of nearly 9,000 low-income families who turned to these programs to purchase their homes, the overall default rate was below 1 percent. All of these lending programs boasted default rates below the average for their cities. Similarly, a recent report on New York City’s affordable homeownership program showed only 13 foreclosures out of more than 20,000 homes sold to low-income buyers since 2004.
In short, the salient lessons from the research and programs the authors have reviewed are these:
- The irresponsible surge in subprime lending from 2001 to 2007 cannot be blamed on lower-income borrowers or on federal, state, and local affordable homeownership programs that worked to help increase homeownership among historically underserved borrowers during the prior decade.
- The subsequent foreclosure epidemic also cannot lead us to the specious notion that lower- and moderate-income families should have never been owners to begin with.
- Examples abound of consumer-oriented homeownership programs that, by contrast with predatory loans, work well for low- and moderate-income homebuyers.
- Programs that ease the wealth constraints to homeownership in a way that protects against the risk of default is particularly critical to addressing the racial homeownership gap.
Sensible policymaking requires a clear understanding of the real facts of a situation. This paper provides a short, direct summary of the studies, data, and other available evidence regarding home mortgage products and programs designed to build homeownership among first-time homebuyers in our minority and lower-income communities and then evaluate what works. As will be demonstrated in the pages that follow, many affordable housing programs, including Community Reinvestment Act lending by regulated financial institutions worked as intended. These successes can help point the right way forward out of the U.S. housing crisis.