According to the U.S. Census Bureau, homeownership in the United States has decreased from a peak of 69 percent in 2004 to 63.5 percent through the first quarter of 2016. While 73 percent of Americans reported believing that homeownership is a “good investment” in ULI’s America In 2015 survey, a U.S. Department of Housing and Urban Development report predicts that homeownership could continue to decline due to a combination of stagnating wages, mounting student debt, and an increase in multigenerational households. Panelists at the recent ULI Housing Opportunity Conference discussed the impediments to low- to moderate-income wage earners achieving homeownership.
“At the local level, I think that most low- to moderate-income families that we surveyed are interested in homeownership, but are a little bit overwhelmed by the process,” said Marietta Rodriguez, vice president of national homeownership programs for NeighborWorks America, a nonprofit organization that supports community development. “The process is very fractured, as there are a lot of different professionals associated with the purchase and sales of homes.”
Since the crash, most large lenders and many regional and smaller lenders have lost their ability to originate layered mortgages, she said, because of the increased complexity of the new regulatory environment. “So if you’re in a high-cost market and you need downpayment assistance, there may be a program to help you, but it’s very clumsy for a loan officer to originate that kind of layered mortgage,” Rodriguez said. “They need to reach out to CDFIs [community development financial institutions] or whoever may be originating that downpayment assistance, and those connects can be very [difficult], particularly with the new disclosure laws and the new integrated three-day requirement.”
Another issue facing potential homebuyers is that “the proliferation of available information has almost been to the detriment of the consumers,” according to Joseph Weisbord, director of credit and housing access for Fannie Mae. Weisbrod says Fannie Mae has done a “ton of research” on how consumers navigate the homebuying and mortgage process and discovered that many people simply do not understand it. The agency conducted a large-scale survey across all demographics and found that 40 percent of respondents did not know what the minimum downpayment for a mortgage was; only 25 percent knew about the availability of 3 percent to 5 percent downpayment programs; 60 percent did not know what debt-to-income ratio was; and over half reported credit scores that were outside the acceptable range or didn’t even know what a credit score was. “So for all the information that’s available online, people still have a very limited understanding,” Weisbord said.
It is also important to note where the potential homebuyers are getting their information. The Fannie Mae report found that the most influential source of information for borrowers was the lenders themselves. “The fact that that’s who people are looking to for information, and that in many cases the loan officer [whom] someone is talking to doesn’t really [present] the full set of products that are available—is a real impediment.”
After the lenders, the next most influential sources were real estate brokers, followed by family and friends. “We have these professional, independent, nonprofit counseling agencies and it’s one of the best-kept secrets,” Weisbord said. Only about 15 percent of survey respondents said that a nonprofit was among the three most influential sources of information, but on a more encouraging note, that number rose to 27 percent among African Americans and 22 percent for Latinos.
The increased regulatory environment is also having an adverse effect on the ability of low- to moderate-income consumers to buy a home. A study conducted by the Urban Institute concluded that there are over a million borrowers “missing” from the market each year, ones who would have qualified under the “reasonable” fully documented, manual underwriting criteria of 2001. There also is less assistance available to guide low- to moderate-income consumers, according to Gabe del Rio, president of Springboard CDFI, a 501(c)(3) nonprofit personal financial education and counseling organization.
“[Since the financial crisis] we’ve seen a precipitous drop in the number of mortgage brokers around the country, and that means that the underserved [low- to moderate-income] communities are actually further underserved,” said del Rio, who explained that many of the more complex loans [ones requiring downpayment assistance, for instance] that were typically handled by mortgage brokers are now serviced by loan officers.
“[Loan officers] are getting a percentage of the loan, and by and large, our people are buying affordable homes. They’re first-time homebuyers, and are essentially buying the least expensive home in any given market. And when you add on the complication of layered finance, then not only are you the smallest loan in the marketplace, but now you want [the loan officer] to do more work on that same loan, paying [them] less. And that is a systematic problem.”
The solution, del Rio said, is that nonprofit organizations, CDFIs, and credit unions need to fill the space vacated by the mortgage brokers. “We’re the only folks left who have a model to serve that borrower, because we’re more focused on the impact of that loan.”