Blog #1a – Towards a Comprehensive Housing Policy


Towards a Comprehensive Housing Policy – Outline Draft

I.

Certain variables need to be taken into account in designing immediate steps to deal with the consequences of mortgage foreclosures. Some depend on a careful evaluation of the specific conditions of each case; others are essentially policy decisions depending on the criteria considered in determining objectives of the program.

As to specific situational variables, some or all of the following factors might need to be considered:

1.     The strength of the private market;

2.     The physical characteristics of the housing: single or multiple family, lot   size, need for renovation

3.     The nature of ownership, stage in foreclosure of units

4.     Neighborhood density of problems

5.     Organization of participants

6.     Prevalence of fraud and predatory lending

As to criteria chosen as desired, a formulation such as the following might be appropriate:

The following provisions should only apply to mortgages on homes under a specified ceiling value, perhaps $250-,000S 300,000, varying by area depending on area housing costs, and for occupants under a specified income  and wealth level, established in relation to prevailing housing costs in the area as routinely established by HUD.

1.               Prevent Evictions

On an emergency basis, there should simply be a national moratorium on evictions, for a specified time, with the permanent provision, common among civilized nations, that no household may be evicted if there is a showing that there is no other accommodation available to them meeting adequate standards of occupancy.

2.               Force  Renegotiation of Excessive Mortgage

Where a home occupant is able to pay a reasonable mortgage on reasonable terms, but has entered into an unreasonable mortgage, give a bankruptcy court the power to rewrite the terms of the mortgage, short-term balloon payments, adjustable mortgages geared to unrealistic expectations, etc. Do not subsidize mortgagors to permit them to continue payments on mortgages. Such subsidies run to the benefit of the bank or mortgage holder, whose inadequate professional appraisal and processing of the loan permitted to the difficulty to occur, and should bear the consequences of that failure.

3.               Increase regulation of mortgage-backed securities

Some argue that securitization of mortgages is itself a cause of the present foreclosure crisis. That is true to only a limited extent: by obscuring the valuation of the underlying security, d, behind a cloud of interim investors the numerous other mortgages of different origins and also unreviewed valuation, the ultimate investor has inadequate information on which to act, and ends up investing simply on the generalized belief that mortgages must be sound investments because they are in real estate which will always go up in the long run.

But given adequate oversight over the valuation of the underlying mortgages, something already done by Fannie Mae and Freddie Mac,, and in the implementation of CRA requirements,[1] it is desirable to have a secondary market in mortgages, and the broader a capital market is brought into the picture, the better.  The underlying problem is that housing is being treated as a commodity, and hence financed in reliance on its exchange value, rather than its necessity, Thus, whether a mortgage is securitized or not, if the exchange value goes down and the occupant has a large mortgage on it,, the occupant will be in trouble. That is true whether a bank r other lender owns it or an investor in China.

Securitization, as far as housing is concerned, is simply a smokescreen that accentuates and conceals the real problem of the commodification of housing.

4.               Permit foreclosures while protecting occupants.

Subject to the prohibition of evictions as above, if a mortgage is at a figure substantially over the value of a house, i.e. where the occupant is “under water,” permit a managed foreclosure and sale, without reimbursing the lender for any loss that may have resulted from its excessive loan but explicitly permitting the occupant to remain in occupancy under one of the alternate tenure forms discussed in Para. 5.

5.               Provide for alternate forms of tenure for foreclosed properties.

Provide for government purchase of foreclosed property or property at risk of foreclosure (up to a specified dollar limit and with consideration of special circumstances) for transfer to non-profit ownership or public housing, with provision for continued occupancy by the previous owner

Establish guidelines for the creation of alternate forms of tenure, including non-speculative home ownership,  limited equity coops, community land trusts, and tenant-managed public housing, and provide funding for research, legal work, and administrative costs to non-profit entities willing to develop and/or implement such alternatives. Within the various governmental programs of subsidy and support, give priority to grants directed to the support of such endeavors. Provide general financial support and enabling legislation as needed for the formation and operation of land trusts, coops, condominium associations, , mutual housing association–provided that the following conditions are met:

a. no profit on sale or from rental,

b. a right to pass on to family when occupant vacates, but otherwise a collective selection of successor occupant with guidelines for continuing availability and affordability for those in need, within specified income categories

Where appropriate andf no effective private land trust exists, stablish municipal land trusts, with general operating administrative expenses covered by local government, to take the initiative in implementing the above programs

6.               Empower public housing authorities to play an active role.

Public Housing Authorities have long experience in the management of housing, and their abilities should be enlisted in the management, and sometimes in the ownership, of foreclosed homes. They need to be provided with adequate funds for that purpose; it may be that the existing funding formula for public housing need only be tweaked to make this possible.[2]

7.               Community-based planning

Planning for the treatment of properties in or threatened with foreclosure should be in local hands, subject to Federal guidelines. Where local bodies exist, e.g. Community Boards in New York City, those bodies should be given primary authority and responsibility for the implementation of Federal policy, and the discretion to tailor such policies to local circumstances and desires, democratically developed.

8.               Public funding.

Provide guaranteed continuing subsidies to all those paying more than 25% of their Expand substantially funding for the Neighborhood Stabilization Program.

Expand substantially the amount of money available to purchase foreclosed homes, and provide for their continued non-speculative ownership for the benefit of their present occupants  and future households in need of housing.

9.               Provide for local democratic participatory bodies to participate in the management of all Stimulus funds.

Planning for the treatment of properties in or threatened with foreclosure should be in local hands, subject to Federal guidelines. Where local bodies exist, e.g. Community Boards in New York City, those bodies should be given primary authority and responsibility for the implementation of Federal policy, and the discretion to tailor such policies to local circumstances and desires, democratically developed.

10.            Anti-warehousing and condo conversion legislation.

Legislation against warehousing of residential units, modeled after but stronger than New York City Council legislation (instigated by Picture the Homeless) that would provide for requisitioning of empty units for the homeless.

11.            Expiring subsidies

A right of purchase for present residents of housing built with now-expiring subsidies in Federal and state programs, at a price permitting a limited return on equity to commercial owners, and a continuing subsidy as needed after purchase.

12.            National Housing Trust Fund

Support for the National Housing Trust Fund, with earmarked source of funds to subsidize affordable housing construction, emphasizing low-income housing.

13.            Rent regulation

Strengthen rent regulation where it exists, and new regulations where it doesn’t.

14.            Gentrification

Anti–gentrification legislation designed to preserve what affordable housing there is., through a combination of zoning, building regulations regulatilng modernization, rent regulation, and subsidies.

15.            Taxes

Some combination of anti-speculation taxes (taxes with high rates on profits made after property is held for one year or less, reducing slowly over x years), flip taxes, and windfall profits taxes, with proceeds earmarked for housing purposes State action on this objective will be key.


[1] Other experience with regulation may be found in: Title VIII of the Civil Rights Act of 1968, The Equal Credit Opportunity Act of 1974, the Home Mortgage Disclosure Act of 1975, as well as the broader community Reinvestment Act of 1977. But in the end, deregulation did not cause the problem; it merely allowed it to metastasize. The existence of what needs to be regulated is the problem.

[2]

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Blog #1b – The Myth of Wealth Accumulation through Homeownership

Homeownership for most is only wealth accumulation the same way regular savings in a savings account is, and perhpas riskier.


The Myth of Wealth Accumulation through Home Ownership

Home “ownership” consists of a bundle of rights :in most people’s minds, they include the right to occupy, the right to exclude others, or privacy, the right make physical changes to the unit, the right to remain in occupancy, or security of tenure, the right to pass on to one’s heirs – and the right to sell at a profit.  Of course all these rights are limited: by zoning rules which regulate what kind of business can be done there,, set-back requirements and building codes that regulate what can be done physically with the property, perhaps parking requirements, environmental rules, laws against creating a nuisance (noise, other forms of conduct, fire codes – and in most cases obligations to opay a mortgage, which, as people are increasingly finding, limit security of occupancy quite painfully.

And yet many people believe that home ownership is particularly valuable because it is a form of wealth accumulation, wealth that will be become a stepping stone to perhaps starting a business[1] or paying for retirement or even just a new car, by virtue of the fact that its likely to go up in value and thus be a good investment, and  even if it doesn’t, as one pays off the mortgage one can take out an home equity loan and have funds for other desired purposes.  But those are two quite different hopes: benefiting from increases in property values, and being able to take out a home equity loan whether there’s an increase or not.

On home ownership as an investment that will increase in value, accumulating wealth reliably over time: the facts make that hope a shaky one, particularly today, with over four million foreclosures and an estimated 14 million homes “under water,” with mortgages exceeding their declining values. Studies over the long term suggest that’s not just now, but homes have always been “Shaky Palaces,” as one careful study noted,[2] which pointed out that even where losses could be avoided, gains did not compare favorably with investments in other areas, even with conventional savings account.  And that should be the real test: will wealth accumulate more rapidly from investment in a home, or in alternatives? The evidence does not support ever-increasing prices of homes, and certainly raises questions as to the desirability of such an investment  as an investment over other forms of investment.

But taking out a home equity loan, or holding on to a home over the years as a form of security for one’s old age, do not rely only on speculative value appreciation. As a mortgage is paid off, equity accumulates., and indeed for many that provides a safety net for old age and possible illness. But what is really happening here? Payment on mortgage principal are simply a form of regular savings; as Michael Stone has pointed out,[3] one could easily envisage an arrangement where interest payments on a mortgage remained steadily payable and instead of paying off interest the equivalent amounts were consistently saved, and invested with returns that might well be greater than the slowly declining interest on the mortgage.

The frequently heard statement that “the wealth of most Americans is in the homes they own” is a very deceptive formulation. A home is not usable wealth, not a disposable resource thatcan be usedfor whatever its occupant wants, the way a bank account or a stock certificate or, indeed, a marketable title to someone else’s property is. A home, at least for most people, is what they rely on for shelter, safety, comfort, a place to rest, to eat, to entertain, to enjoy.  They have it for its use value, not for its exchange value – or at least need it first and foremost for its use, not for what they could get if they exchanged it for something else, cash or a car or a boat. When you take $400 out of your savings account to buy a refrigerator to use, your usable “wealth”  isn’t increased by $400, it’s down by $400; if a rich diabetic pays $5,000 for a dialysis machine on which he has to depend, he isn’t $5,000 richer; if anything, he’s $5,000 poorer, less possible resale value after his death. If someone buys a house for $100,000 with a $90,000 mortgage and a $10,000 down payment from savings, he’s plus $10,000 in equity and down $10,000 in savings, and as he pays off the mortgage principal his equity goes up as his alternative savings go  And he can’t use that equity the way he could use the equivalent savings, as an investment in some profit-making enterprise. You don’t” accumulate wealth” by buying a house to live in, except to the extent you’re paying off the principal on the mortgage instead of saving and investing the equivalent amount elsewhere.  If there’s any advantage to buying/owning a house rather than a savings account, it’s in the favorable tax treatment payments and profits on sale (if any) get, an unwarranted distortion of a progressive income tax system.[4]

So treat housing as something that is to be used to meet critical human needs, not something to be bought and sold speculatively for the profit its limited supply might produce  on a sale, or for the forced savings it requires at the cost of alternative investments. Limited equity ownership, mutual housing associations, etc., are a way of providing such non-speculative housing.

Peter Marcuse

July 9, 2010


[1] The unfortunately widely purveyed view of Hernando de Soto in a developing world context. Se, among other discussions,  Marcuse, Peter. 2004. “Comment on Donald A. Krueckeberg’s ‘The lessons of John Locke or Hernando de Soto: What if Your Dreams come True?” Housing Policy Debate, vol. 15, No. 1, pp. 39-49. Available at: http://www.fanniemaefoundation.org/programs/hpd/v15i1-index.shtml.

[2] See Elliott Sclar and Matthew Edel, Shaky Palaces, a multi-year study of home prices in the Boston area.

[3] In Stone, Michael. “Alternatives to the Mortgage Trap: Household Savings and the Mutual Housing Association.” In Progressive Planning No.182, Winter 2010, pp. 22-25.

[4] See Peter Dreier and John Atlas’ several writings on the millionare’s tax deduction.”