Tag Archives: gender

Minority Homeownership During the Great Recession

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Print by Andy Kane

Carlos Garriga et al. have posted The Homeownership Experience of Minorities During the Great Recession to SSRN. The paper concludes,

The Great Recession wiped out much of the homeownership gains attained during the housing boom. However, the homeownership experience was very different across racial and ethnic groups. Black and Hispanic borrowers experienced substantial repayment difficulties that ultimately led to a greater share of homes in foreclosure.

Given that home equity often represents a substantial share of household wealth, these foreclosure events severely damaged the balance sheets of minority families. The dynamics of delinquency and foreclosure functioned differently across the income distribution within racial and ethnic groups.

For the majority, higher income was associated with lower delinquency rates and fewer foreclosures as a group. However, for Hispanic families this relationship was surprisingly reversed. Hispanics with the highest incomes fared worse than those with the lowest incomes. This counterintuitive finding suggests how college-educated Hispanic families may have had worse wealth outcomes than their non-college-educated peers: Hispanic families with high income (potentially the result of high educational attainment) had a greater share of home equity lost in foreclosure than lower-income Hispanic families.

Logit regressions suggest that underwriting standards and loan structure explain a significant amount of the greater likelihood of foreclosure among Black and Hispanic borrowers. However, underwriting standards explained more of the gap for Black borrowers, while loan structure was a stronger factor among Hispanic borrowers. Regional concentration and variation in housing markets explained more of the Hispanic-White foreclosure gap than any other group. This is understandable given that Hispanic borrowers in our sample were heavily concentrated in housing markets that experienced some of the largest volatility. Despite accounting for these important factors, sizable gaps remain in foreclosures among Blacks and Hispanics relative to Whites. Incorporating measures of labor market outcomes into the analysis may offer further insights.

In sum, the homeownership experience during the Great Recession proved to be inimical for many families, but far more so for Black and Hispanic families. For these families, financially destructive foreclosure events delayed and potentially derailed the dream of homeownership. (164-65)

I am not sure what this all means for housing finance policy other than the obvious: consumer protection in the mortgage market is a good thing as it ensures that underwriting standards evaluate ability-to-repay and loan structures exclude abusive terms like teaser rates (thanks to the ATR and QM rules and the Consumer Financial Protection Bureau). There are probably other policies that we should consider to reduce the depths of our busts, but they do not seem likely to gain traction in the current political environment.

Domestic Violence and Housing Discrimination

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HUD

REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category.  Please vote here if you like what you read.

DomesticShelters.org quoted me in Abuse Survivors Not Welcome. It opens,

There are lots of barriers survivors of domestic violence face when searching for housing. Sandra Park, an ACLU attorney at the Women’s Rights Project who focuses on the rights of domestic violence survivors, shares one example.

Park worked with a woman called Hope who seemed to be on track to rent an apartment. Hope placed a deposit and the property management company gave her an application that asked for the social security numbers of her children. Due to her history as a domestic violence survivor, Hope had changed her own social security number and her identity. She had full custody of her children and their father had no visitation rights.

The property management company said they would run a check on the children’s social security numbers—a move that Hope feared could alert her abuser to her location. She refused to give the numbers and was turned down for the apartment. She turned to the ACLU, which filed a Fair Housing Act complaint on her behalf. Ultimately, the management company compensated Hope and changed its policy.

Discrimination Is Real

Research confirms that survivors of domestic violence are sometimes discriminated against when they look for housing. A study done by the Washington, D.C.-based Equal Rights Center found that advocates searching for housing on behalf of a domestic violence victim were either denied housing or offered less advantageous terms, compared to comparable people with no connection to domestic violence.

For example, the domestic violence advocates might be told that they had to meet a landlord in person, or that their move-in date was too soon, or that they would receive a call back with more information while another caller was given the information right away. In some cases the call back never came.

Another study, by the Anti-Discrimination Center of Metro New York and conducted in a similar fashion, found that 27.5% were flatly refused housing or failed to receive follow up.

Potential Problems

There are various reasons landlords might hesitate to rent to a domestic violence survivor:

● The landlord may be uncomfortable dealing with a survivor

● The landlord may believe the abuser will cause issues

● The survivor may have bad credit because the abuser ruined their credit history

● The survivor may have a history of eviction that’s linked to the domestic violence

● The survivor may have a criminal conviction for conduct stemming from self-defense

What Can Survivors Do?

It may help to be honest with your potential future landlord. “If you have negative criminal, credit or tenancy records because of domestic violence and you know the landlord is going to run that kind of check, it can go a long way to be up front and explain why you have that history,” Park says. “In some cases it makes sense to try to provide that information to the landlord, so when the check comes back they don’t throw away your application.”

She says if you believe you’re facing discrimination, you might want to seek legal assistance. Nationally, the Fair Housing Act and the Violence Against Women Act both offer some protection.

The Fair Housing Act doesn’t prohibit discrimination based on domestic violence status. But it does prohibit discrimination based on gender. Since the majority of domestic violence victims are women, in some cases you can make the argument that discriminating against a female domestic violence survivor is discrimination based on gender.

The Violence Against Women Act does offer protection for domestic violence survivors. But it only applies to federally funded and Section 8 housing. If you are applying to a property and you’re covered under the Violence Against Women Act, you may want to notify your landlord about your protection. “Some landlords will not know about the Violence Against Women Act at all, so it can be helpful for them to be educated about that,” Park says.

Some state and local laws also prohibit housing discrimination based on domestic violence status. The National Housing Law Project lists state laws that offer this protection.

David Reiss, professor of law at Brooklyn Law School, recommends keeping careful records as you search for housing, in case you need evidence to prove discrimination.

“Save your texts, emails and voicemails. If you have evidence you want to protect don’t destroy it, save a copy. Once you start making noise that you think you’re being discriminated against people will be more cautious,” he warns.

Women Are Better Than Men,

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Greeks vs Amazons, Mausoleum of Halicarnassus, British Museum

at least at paying their mortgages. This is according to an Urban Institute research report that found that

It’s a fact: women on average pay more for mortgages. We are not the first people to have noticed this; a small number of other studies have also pointed it out (e.g., Cheng, Lin, and Liu 2011). One possible explanation is that women, particularly minority women, experience higher rates of subprime lending than their male peers (Fishbein and Woodall 2006; Phillips 2012; Wyly and Ponder 2011). Another explanation is that women tend to have weaker credit profiles (Van Rensselaer et al. 2013). We find that both these explanations are true and largely account for the higher rates.

Looking at loan performance for the first time by gender, however, we find that these weaker credit profiles do not translate neatly into weaker performance. In fact, when credit characteristics are held constant, women actually perform better than men. Nonetheless, since pricing is tied to credit characteristics not performance, women actually pay more relative to their actual risk than do men. Ironically, despite their better performance, women are more likely to be denied a mortgage than men. Given that more than one-third of female only borrowers are minorities and almost half of them live in low-income communities, we need to develop more robust and accurate measures of risk to ensure that we aren’t denying mortgages to women who are fully able to make good on their payments. (1)

This second paragraph undercuts the catchy title of the report, Women Are Better than Men at Paying Their Mortgage, because it is only true when comparing single women to single men and when credit characteristics are held constant.

The report confines its analysis to sole female and sole male borrowers, excluding two-borrower households. This limitation is compounded by the fact that the credit characteristics of men and women are not the same (as men have better credit characteristics as a group).  As a result of these limitations, I think the title of the report goes too far. The authors also acknowledge that the stakes are not that high because the “inequality does not translate into a significant amount that single women overpay for their mortgages: less than $150 per female-only borrower per loan.” (15)

That point aside, the report does raise an important issue about whether credit characteristics metrics are biased against women: “the dimensions we rely on to assess credit risk today do not adequately capture all the differences. This omission has real consequences.” (15) This is certainly true, but lenders will have to carefully navigate fair lending laws as they seek to capture all of those differences.

No Mortgages for New Moms

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Realtor.com quoted me in Mom on Maternity Leave Denied a Mortgage: Could It Happen to You? It opens,

Hopeful home buyers can be denied loans for all kinds of reasons, from a poor credit score to low income. It sucks, but it makes sense: Lenders prefer giving cash to people who can pay them back. (Can you blame them?) Yet, sometimes people are turned away for dumb reasons. Take, for instance, the recent case of a Philadelphia mom who was denied a mortgage because she was on maternity leave. It was even paid maternity leave, with a firm date to return to her job. What’s up with that?

According to the Washington Post, the mom in question (who remains anonymous) had applied for financing with her husband to fund renovations on a house in Philadelphia. But due to her maternity leave, her pay stubs showed she was on “short-term disability,” which prompted the loan’s underwriter to surmise she might not resume working full time—even though her employer was happy to submit a letter indicating the day she’d return to the office.

And this mom is hardly alone: Over the past six years, the Department of Housing and Urban Development has documented over 200 cases alleging maternity-related discrimination against women seeking mortgages. In one case, a lender in Arkansas allegedly told the applicant that she’d have to be back at work before her loan could close!

And this is a shame, because housing discrimination—based on gender, familial status, disability, race, and other factors—has been illegal since the Fair Housing Act of 1968. Yet apparently it still exists even at prominent mortgage companies, as evidenced by the cases against Wells Fargo, Bank of America, PNC Mortgage, and others.

As for why this happens, experts surmise it’s because some lenders have outdated notions of women in the workplace, presuming most will bail or scale back on their jobs once kids enter the picture, permanently reducing the family’s income and eligibility for a loan. But it’s hardly the norm: Census data suggest that more than half of first-time mothers return to work within three months. Another study by the Department of Health and Human Services’ Maternal and Child Health Bureau found that the average maternity leave lasted a mere 10 weeks.

Bottom line: These days, many moms return to the office—yet some mortgage companies have missed that memo. But luckily, some moms are fighting back—like the Philadelphia woman above, who has recently reached a “conciliation agreement” with the lender, Citizens Bank of Pennsylvania. Although the company denied discriminating against her, it also agreed to conduct fair lending training sessions with staff.

And more should follow, Shanna Smith, president and chief executive of the National Fair Housing Alliance, told the Post: “There needs to be much better training for [lenders] about how to deal with interrupted income for loan closings when a woman is pregnant and [on] paid maternity leave.

All of which may have women everywhere wondering: If they hope to buy a home, might maternity leave get in their way? And if so, what should they do? Probably the first step is just knowing that it’s wrong: Maternity leave—paid or unpaid—is not a legitimate reason to refuse a loan.

“It always helps when you know your rights,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “If your lender appears to be violating fair lending laws, you may want to raise the issue directly with your banker and ask to speak to the supervisor to ask the bank to clarify its policy. If your lender continues to enforce a discriminatory policy, you can reach out to the relevant regulators, including HUD and the Consumer Financial Protection Bureau.”

The Prime Crisis

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Ben Franklin, Founder of the University of Pennsylvania

Fernando Ferreira and Joseph Gyourko, both at Penn’s Wharton School, have posted A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012 to SSRN. Unfortunately it is behind a National Bureau of Economic Research paywall. The paper makes the case for “a reinterpretation of the U.S. foreclosure crisis as more of a prime, rather than a subprime, borrower issue.” (1) The authors conclude,

The housing bust and its consequences are among the defining economic events of the past quarter century. Constructing and analyzing new and very large micro data spanning the cycle and all sectors of the mortgage market leads us to reinterpret the ensuing foreclosure crisis as something much more than a subprime sector issue. Many more homes were lost by prime mortgage borrowers, and their loss rates not only increased relatively early in the crisis, but stayed high through 2012. This new characterization of the crisis motivates a very different empirical strategy from previous research on this topic. Rather than focus solely on the subprime sector and subprime traits, we turn to the traditional home mortgage default literature that explains outcomes in terms of common factors such as negative equity and borrower illiquidity.

The key empirical finding is that negative equity conditions can explain virtually all of the difference in foreclosure and short sale outcomes of Prime borrowers compared to all Cash owners. This is true on average, over time (including the spike in their foreclosure rate beginning in 2009), and across metropolitan areas. Given the predominance of this group in terms of foreclosures and short sales, this is tantamount to explaining the crisis itself. We can explain much, but not all, of the variation in Subprime borrower outcomes in terms of negative equity or borrower illiquidity conditions, so something potentially ‘special’ about the subprime sector still is unaccounted for. That said, it also could be that a less noisy measure of borrower illiquidity would be able to account for this residual variation. That remains for future research.

None of the other ‘usual suspects’ raised by previous research or public commentators change this conclusion. Housing quality traits, household demographics (race or gender), buyer income, and speculator status do not have a material influence on outcomes across borrower types. Certain loan-related attributes such as initial LTV, whether a refinancing occurred or a second mortgage was taken on, and loan cohort origination quarter do have some independent influence, but they are much weaker than that of current LTV. (27)

I will have to leave it to other empiricists to evaluate whether this sure-to-be-controversial study is methodologically sound, but I sure did find their policy conclusion to be interesting:

We are not able to provide a definitive recommendation one way or another, but we can rule out one noteworthy reason offered for not aiding homeowners—namely, that the crisis was mostly about irresponsible subprime sector actors (both lenders and borrowers) who were undeserving of transfers. Of course, this is not to say that there was no such behavior. The evidence from other research and serious journalists is that there was. However, it is clear from the passage of time (and the accumulation and analysis of new data that provides) that the problem was much more widespread and systemic.  (28)

Hopefully, this is a lesson that we can take with us into the next (inevitable) housing crisis so we lay the foundation for policy solutions based on facts and not rely on moral judgments about borrowers that are built on shaky ground.