Habitat for Humanity released its 2013 Shelter Report earlier this week and as part of its release it joined NAR and the REALTOR® University Center for Real Estate Studies to host a discussion on how moderate-income households are faring in the housing market now that the recession is behind us. The answer is, they’re not faring well because of tight lending standards, uncertainty in the market, and a shortage of homes for sale, among other things.
That’s unfortunate for them and it’s a problem for the market, especially since responsible moderate-income households, if they’re given the right loan product, have proven to be excellent credit risks, said Janneke Ratcliffe, executive director of the UNC Center for Community Capital. Ratcliffe shared statistics from an affordable home ownership program in North Carolina called the Community Advantage Program which showed that, despite the economic turmoil of the last few years, the 50,000 borrowers in the program have performed well. “This portfolio has been incredibly resilient,” she said.
The borrowers performed well despite having a median income of less than $35,000 and most of them putting down 5 percent or less, Ratcliffe said.
David Berenbaum, chief program officer of the National Community Reinvestment Coalition, reinforced the idea that down payment amount is the wrong measurement to focus on if your goal is to help households become stable, long-term home owners. What’s key to stable mortgage borrowing is the quality of the loan product and the underwriting. “It’s the products, folks, not the amount of the downpayment,” he said.
On the importance of underwriting over downpayment, the real estate industry is in complete agreement, he said, which makes it all the more frustrating for housing advocates that federal regulators are talking about mandating a minimum downpayment for qualified residential mortgages. These QRM loans, once regulators release rules on them, will require lenders to maintain a 5 percent stake in loans they originate for inclusion in mortgage-backed securities unless they meet the QRM requirements. The rules have yet to be released in final form, but there’s been talk of a 20-percent or other minimum downpayment requirement as part of the definition of a qualifying loan, and that would be destabilizing to the market, Berenbaum said. “There are decades [of research] on that point,” he said, referring to research showing underwriting is what’s important in borrowrer performance, not downpayment amount.
Other presenters at the policy duscussion, called “Affordable Housing After the Great Recession,” were Peter Burley of the REALTOR® University Center for Real Estate Studies, Paul Bishop of NAR’s research department, and Liz Blake of Habitat for Humanity.
The 3-minute video above summarizes some of the main points made at the event, held Feb. 6 in NAR’s Washington, D.C., offices. Habitat for Humanity will have a video of the entire policy discussion on its website shortly.