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Are We Doing Everything We Can to Fulfill the Promise of the American Dream?

Dear Friend,

This year marks the 50th anniversary of the enactment of the Fair Housing Act. This legislation was passed, shortly after Dr. Martin Luther King’s assassination, as part of the larger Civil Rights Act of 1968; however, to this day the Act’s full potential has yet to be realized. As study after study regrettably but repeatedly confirms, the number of minority homeowners in the United States continues to be far too low and the wealth gap far too large.

I’m proud to sit on a committee of housing leaders called the Fair Housing Act 50th Anniversary Advisory Council. While former United States Vice President Walter Mondale, who co-authored the Fair Housing Act, is the Honorary Chair of the Advisory Council, the day-to-day work of the Council is driven by Lisa Rice, currently the Executive Vice President at the National Fair Housing Alliance. Lisa will assume the role of President and CEO of this influential group soon. Congrats, Lisa!

Lisa is our “Five Questions With…” guest this month and she addresses some key issues and ways in which we can work together to break down the barriers to access responsible credit. 

Along the same lines, we’ve also included in this issue of The Score a number of reports from the Urban Institute that shed light on the current housing finance situation. Our friend and colleague Alanna McCargo, Co-Director of the Housing Finance Policy Center at the Urban Institute, has shared a series of research papers that discuss the decline in African-American homeownership and how we can help restore it.

One article paints a clear path to how we can rectify this situation by using the correct strategies and the right people. Such steps may include helping in the responsible expansion of the credit box so that more renters may become sustainable home owners, reforming government policy on tax foreclosures and land contracts, and reinvesting in predominantly African-American neighborhoods.

On a more positive note, Hispanic-Americans are the only sector of the population to have increased their rate of homeownership in each of the last three years, as reported in the recently released “State of Hispanic Homeownership Report,” which we also have included with our newsletter this month. The Report, spearheaded by both the Hispanic Wealth Project and the National Association of Hispanic Real Estate Professionals, presents a positive outlook for Hispanic-American homeownership. The Report reveals that more than a quarter (28.6 percent) of the new household formations made in the U.S. in 2017 involved consumers of Hispanic-American descent. Although this increase is sizeable, the Report also suggests other ways to open more doors to Hispanic homeownership, such as the construction of more affordable housing.

Finally, this month’s newsletter includes an article advising consumers how to avoid simple credit card mistakes as well as an update to our DefaultRiskIndex.com, a tool that represents the most accurate way to use credit scores to evaluate and compare loan pools.

It has been said that “it takes a village,” and I couldn’t agree more when it comes to increasing minority homeownership. Without the support of the entire mortgage finance industry, end to end, we cannot advance minority homeownership in America. It is a pivotal time right now, but it is also in moments like these that we should be opening more lines of communication, so we may also open the doors of opportunity for others. Now more than ever, each of us should do our part to secure fair housing opportunities for all.

 

Regards,

Barrett Burns

A Close Look at African-American Homeownership

For more than fifty years, researchers at the Urban Institute have been on the frontline analyzing data related to household formation and demographic trends. The Urban Institute’s research reveals that the rate of African-American homeownership has remained at roughly the same level as it was in 1968, when the Fair Housing Act was enacted. How and why is that possible?

Alanna McCargo, Co-director of the Housing Finance Policy Center at the Urban Institute, recently compiled and publicized a list of heavily-researched resources to educate those in the industry regarding the importance of expanding equal housing opportunities as well as to advocate and advance new strategies that will help overcome barriers to entry.

Below are several of the latest works published by the Urban Institute and How Housing Matters:

Are Gains in Black Homeownership History? – Researchers Laurie Goodman (Co-VP of HFPC), Jun Zhu (HFPC), and Rolf Pendall (Metro) highlight data, trends, and severity of these issues pointing out how all gains made over the past 50 years were lost after the 2008 housing crisis.

Homeownership and the American Dream – Laurie Goodman and Christopher Mayer (Columbia University) take a deep dive into the U.S. homeownership market from international, demographic, and financial benefits perspectives, only to find that homeownership is a valuable institution and concluding that now many have too little faith in homeownership as part of the American Dream. From their work:

o “Homeownership rates for black households have fallen every decade for the last 30 years, both unconditionally and after controlling for income and demographics. Even in 2015, black households with a college education are less likely to own a home than white households whose head did not graduate from high school.”

Black Homeownership and the American Dream: An Expert Dialogue – in this dialogue, Alanna McCargo (Co-VP of HFPC), Rolf Pendall (Institute Fellow in Metro), along with Richard Rothstein, author of the book The Color of Law and other wealth building and homeownership experts, discuss the racial disparities and trends in homeownership, the impacts of segregation, homeownership as a tool for wealth building, and possible policy solutions.

A Closer Look at the 15-Year Drop in Black Homeownership – in this blog post, Laurie Goodman, Alanna McCargo, and Jun Zhu focus on the decline of black homeownership rates and look at specific cohorts of the black population, by age and by family structure. Notable findings: 

o A striking drop in homeownership for middle-aged black household heads (ages 45-64)

o A sharp decline in homeownership for married black couples, a group that is traditionally the most likely to own homes

Mapping the Black Homeownership Gap – Alanna McCargo and Sarah Strochak (HFPC) highlight the geographical spread of the black homeownership gap compared to other groups across the country, concluding that understanding the geographic dynamics of wealth and homeownership are important to determine how to best bridge these gaps.

Three Goals for Restoring Black Homeownership – Rolf Pendall and Carl Hedman (Metro) discuss the causes of the black homeownership decline and present three approaches to revive black homeownership: make it easier for renters to become homeowners, sustain established homeowners, and invest in predominantly black neighborhoods.

The State of Hispanic Homeownership Report

In partnership with the Hispanic Wealth Project, the National Association of Hispanic Real Estate Professionals (NAHREP) released the 2017 State of Hispanic Homeownership Report at the Housing Policy and Hispanic Lending Conference on February 27th.

The eighth edition of this Report details the forces and trends behind the continued increase in Hispanic homeownership while the country’s overall homeownership rate continues to decline.

The Report focuses on household formation rates and the resulting growth of homeownership among Hispanics as well as their related educational achievements, entrepreneurial undertakings, labor force profile, and consumer purchasing power in the country.

This year’s Report sets forth a comparative analysis of data from the past year and that from previous years, dating back to the beginning of the 21st Century. The Report evaluates a variety of demographic and economic trends that shape the homebuyer market, including cultural nuances, and the role of Hispanics as drivers of homeownership growth in the United States.

The research also showed:

• Hispanics made up 28.6 percent of total U.S. household formations in 2017;

• Hispanics have been responsible for 46.5 percent of net U.S. homeownership gains since 2000;

• Hispanics are projected to lead U.S. household growth, adding 6 million additional Hispanic households by 2024; and 

• Currently, at 58.6 million, U.S. Hispanics account for more of the U.S. population growth than any other demographic

The 2017 State of Hispanic Homeownership Report can be downloaded without charge at: http://hispanicwealthproject.org/shhr/2017-state-of-hispanic-homeownership-report.pdf

Q3 2017 Default Risk Index – Update

The third quarter update to the Default Risk Index (DRI) demonstrates a sustained trend across asset classes in which origination volumes generally increased while the risk profile of those originations became more conservative. In the third quarter, for example, student lenders originated the highest quarterly volume of loans since the DRI initiated, while the average default risk of those new originations was only 72 percent of the risk taken during the same quarter in 2013.

The VantageScore DRI tracks the amount of default risk assumed by lenders in four U.S. consumer-loan categories: mortgage, bankcard, auto loans, and student loans. The latest update is located in interactive infographics at DefaultRiskIndex.com and in a spreadsheet containing the full data series, which is available for download at the site.

Changes to specific index values are summarized below:

CATEGORY

TOTAL ORIGINATIONS TOTAL
ORIGINATIONS VS.
LAST QUARTER
TOTAL
ORIGINATIONS VS.
SAME QUARTER
LAST YEAR
PROBABILITY
OF DEFAULT
(WEIGHTED)
DEFAULT RISK INDEX DRI VS.
LAST QUARTER
DRI VS.
SAME QUARTER
LAST YEAR

Auto

160,979,112,224 1.2% - 1.5% 3.87 87.8 - 3.7% -3.6%

Bankcard

88,117,522,011 3.2% - 9.20% 2.74 97.6 - 3.5% -2.9%

Mortgage

424,323,804,842 3.4% - 6% 1.08 93.5 2.3% 1.3%

Student

49,334,949,179 108.4% 2% 14.92 72.1 - 19% -2.1%

 

INDEX

Since Q3 2013, the risk profile of each asset class has generally tightened. Student lending was the tightest category in 2017 with a record-low DRI of 72.1.*

SNAPSHOT

The risk profile of new auto loans and bankcards tightened very slightly as compared to last quarter. Student loans tightened from 90 to 72.1 while volumes more than doubled, continuing a seasonal theme that plays out each year in the third quarter. Only mortgage loans showed both a slight increase in risk and a slight increase in originations.

ORIGINATIONS

Student loan origination volumes increased dramatically in the third quarter, more than doubling from the previous quarter to $49 million. Although an increase in student lending is typical in the third quarter of every year, this particular third quarter represented the highest quarterly volume since the DRI initiated. All other major loan categories (auto, bankcard, mortgage), saw a slight increase in loan originations from the last quarter.

*Each risk profile is indexed to the beginning of the series, where the third quarter of 2013 equals 100. DRI profiles that are close to 100 show an equivalent risk activity to the 2013 benchmark, whereas DRI profiles that fall further from 100 distinguish risk activity that is either higher or lower than the benchmark (depending on the results).

About the Default Risk Index

The VantageScore Default Risk Index (DRI) and its website, DefaultRiskIndex.com, permit users to monitor the shifting quarterly risk profiles of loan originations in the mortgage, credit card, auto, and student loan categories. The DRI is derived using credit file data from TransUnion and VantageScore odds charts—tables furnished to VantageScore users that match values on the 300-850 VantageScore scale range with their corresponding probability of default (PD) values.

The Default Risk Index is a measure of relative changes in risk level, benchmarked against the third quarter of 2013, the first period for which data were compiled. Interactive tools at DefaultRiskIndex.com allow users to view trends for each loan category and freely download the data behind the charts.

The VantageScore Default Risk Index is provided as a free resource to institutional and individual investors, professionals in the securitization field, academics, and all others interested in systemic lending risk. It will be updated quarterly, with data reflecting loans issued in the preceding quarter.

VantageScore Solutions and TransUnion developed the DRI to highlight limitations in the traditional ways credit scores are used to evaluate risk for categories or pools of loans. Today’s common practices—using “weighted average” or “distribution by score band” to summarize risk—are mathematically flawed. Reliance on those metrics can result in a miscalculation regarding the true credit quality of a loan pool as well as obscuring meaningful trends and lead a well-intentioned analyst to the wrong conclusions

Did You Know … Three Ways to Avoid Common Credit Card Mistakes

By John Ulzheimer

Credit cards are, by far, my favorite form of credit. Portable capacity, iron-clad fraud protections, superior buying power, and free money if you pay your bill in full each month. But for some reason, they are roundly vilified in the court of public opinion, likely because of the horror stories that can come from excessive and irresponsible use. But if you’re careful, a credit card has more benefits than any other form of credit.

Pay It in Full Every Month, Without Exception

The average interest rate on a general use credit card (e.g., Visa, MasterCard, Discover, and American Express) is about 17 percent. The average interest rate on a retail store credit card is well over 20 percent. That means credit card debt is likely the most expensive debt you’ll ever service. But, unlike almost every other form of credit, interest on credit card accounts is optional and completely avoidable.

Interest is only applied if you carry a portion of the balance from one month to the next. This is called “revolving.” The amount you revolve from one month to the next is subject to interest, which is added to the amount you currently owe. If you’re not careful and pay no more than the minimum amount each month, your credit card debt can spin out of control. The simple way to avoid paying any interest, ever, is to pay your balance in full each and every month. If you’re able to do this, then the interest rates become meaningless because you’re not paying any interest.

Don’t Max Out the Credit Limit

Every credit card has what’s called a credit limit. The limit is the uppermost boundary of your buying power. So, if your card has a credit limit of $10,000 then you won’t be able to spend more than $10,000 without the approval of your credit card issuer. The amount of the limit you use is very influential to your credit scores.

There is a metric in credit scoring systems called “revolving utilization” or the balance-to-limit ratio. This ratio represents whatever percentage of the limit you’ve already used. So, if you have a $5,000 balance and a $10,000 limit, then your balance-to-limit ratio is 50 percent. Generally speaking, the higher that ratio, the lower your credit scores are going to be. Shoot for keeping that percentage as low as you possibly can.

Never Miss A Payment…Ever

Every credit card statement has a due date. That’s the date by which the card issuer expects to receive at least the minimum payment due in order for your account to remain in good standing. If you are even one day late, then your account is considered “past due” or “delinquent.” At the very least, delinquent accounts will be assessed a late fee which is generally around $39. If the account goes too delinquent, then the card issuer will be allowed to report a record of the late payment to the credit bureaus, which will remain on your credit reports for up to seven years and can lower your credit scores. Even if you can only afford to make the absolute minimum payment due, make it before the due date without exception.

 

Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.

5 Questions with Lisa Rice

“Feb2018”Soon to be President and CEO of the National Fair Housing Alliance (NFHA) and currently the Executive Vice President of the organization, Ms. Rice oversees the resource development, public policy, communication and enforcement divisions of the agency. NFHA works with over 200-member organizations across the country to eliminate barriers in the housing markets and expand equal housing and lending opportunities. NFHA provides a range of programs to affirmatively further fair housing including community development, neighborhood stabilization, training, education, outreach, advocacy, consulting and enforcement initiatives. Ms. Rice also leads NFHA’s effort to spear-head the Commemoration of the 50th Anniversary of the Fair Housing Act.

Ms. Rice’s fair housing and fair lending work began at the local level. Prior to joining NFHA, she was the President and CEO of the Fair Housing Center of Toledo, Ohio and the Northwest Ohio Development Agency.  Under her tenure, the Fair Housing Center brought precedent-setting fair housing and fair lending cases that resulted in the expansion of insurance, lending and affordable housing opportunities for millions of consumers. Ms. Rice also helped to create the state of Ohio’s only anti-predatory lending remediation program.

Ms. Rice has served on the state of Ohio’s Housing Trust Fund Advisory Board, State Farm Bank Consumer Advisory Council, and Federal Reserve Board’s Consumer Advisory Council. She is a current member of the JPMorgan Chase Consumer Advisory Council, Mortgage Bankers Association’s Consumer Advisory Council, Freddie Mac Affordable Housing Advisory Council, Urban Institute’s Mortgage Servicing Collaborative, and America’s Homeowner Alliance Advisory Board.

1) This coming April marks the anniversary of the Fair Housing Act, an accord reached to help end discrimination in housing. The NFHA has a year-long plan to educate people on the importance of this Act via your #FHAct50 Campaign. Can you tell us about the campaign and what you have planned this year?

The Fair Housing Act was passed 50 years ago, seven days after the assassination of Dr. Martin Luther King Jr., to both eliminate housing discrimination and to promote integrated, healthy, inclusive communities. NFHA launched the #FHAct50 Campaign to both commemorate this historic milestone and to host events and activities throughout the year to help expand equal housing opportunities in the United States. We are hosting an Access to Credit Forum; convening a national conference on civil rights, housing, lending, insurance, and public service stakeholders; co-sponsoring a series of Regional Housing Forums; and kicking off an initiative called 50 Stories—a short film competition judged by award-winning producer Norman Lear—to highlight the stories of 50 people whose lives were changed by the Fair Housing Act. 

At the top of the year, we released an incredibly important book—The Fight for Fair Housing: Causes, Consequences, and Future Implications of the 1968 Federal Fair Housing Act—which features some of the nation’s leading voices on housing issues, including former Vice President Walter Mondale, Raphael Bostic, Greg Squires, Thomas Sugrue, and Wade Henderson. We kicked off the FHAct50 Campaign at an inaugural event featuring Senator Tim Kaine, Janet Murguía, Vanita Gupta, Frank Wu, Marc Morial, Gregory Squires, and others. During the launch event, we also released an updated short documentary, Seven Days. Produced for us by Nationwide, Seven Days recounts the historic events that unfolded in the seven days between the assassination of Dr. King and passage of the Fair Housing Act on April 11, 1968. You can learn more about the activities NFHA and its member organizations are hosting throughout the country here.

2) The Fair Housing Act has been a landmark piece of legislation that has been in the mainstream for 50 years. Despite the unambiguous clarity of that legislation with the associated consequences of violating the law, redlining (the practice of denying or limiting financial services to certain neighborhoods based on racial or ethnic composition without regard to the residents’ qualifications or creditworthiness) in the housing sector continues. What are your thoughts on this?

The United States has a dual credit market that, throughout our nation’s history and present, creates systemic barriers that make it difficult for people of color to access credit in the financial mainstream. Contributing factors are that consumers of color disproportionately access credit from non-traditional credit providers and, as a result of centuries-long discriminatory practices perpetuated by the federal government and private market entities, have less wealth than their white counterparts. But it is not prohibitive structures and systemic barriers alone that contribute to the disparities we see in lending markets. There is ample evidence that consumers of color face intentional discrimination in the marketplace. 

The National Fair Housing Alliance just released an important report analyzing eight matched-pair pre-approval auto lending tests that we recently conducted. During these tests, individuals submitted their applications for pre-approval for auto loans and consented to have their credit checked by the auto dealer/indirect lender. The report reveals very troubling differential treatment between white and non-white testers and suggests that discriminatory treatment is alive and well in our lending markets. This is one of the reasons we are collaborating with the Urban Institute, Citi Community Development, and other organizations to host an Access to Credit Forum, designed to develop and implement workable solutions to address barriers to credit access.

3) What are some key insights from NFHA’s annual “Fair Housing Trends Report”?

Every year, NFHA collects fair housing complaint data from private fair housing organizations, HUD, and DOJ. Collectively, this serves as a snapshot of fair housing complaints that are reported in the U.S. Last year, our Fair Housing Trends Report described over 28,000 documented complaints of housing discrimination—but we know that because housing discrimination often goes undetected and is severely underreported, the annual number of instances of housing discrimination actually reaches well into the millions. The report reveals an increase in overall complaints nearly every year, which is problematic. Last year, over half of the complaints were based on disability, and 20 percent were based on race.

Last year’s report also highlighted a particularly alarming fair housing issue—the increase in housing-related hate activity. Since the fall of 2016, there has been an uptick in hate crimes involving people who were harassed in their neighborhoods or at their apartments, university dormitories, or homes. This type of harassment and hate activity in residential areas is a violation of the Fair Housing Act.

4) What are the major obstacles that we still need to overcome in order to break down segregation barriers in housing?

The first thing we should remember is that segregation has never been a natural occurrence. The residential segregation we see today is the result of over 150 years of federal housing policy and illegal housing market practices that created and perpetuated racially isolated communities and then denied those communities the services, amenities, and opportunities that support and contribute to a quality life and the chance to own a home. Because the causes of segregation are systemic, structural, and behavioral, the solutions must be as well. We must promote and support policies that result in the development of affordable and inclusive housing opportunities; educate consumers and stakeholders about fair housing issues; enforce fair housing laws; create investment in under-served areas, and dismantle systems that prevent us from ensuring that every neighborhood is a place of opportunity.

5) Whether it was at the Toledo Fair Housing Center or National Fair Housing Alliance, you have been fighting for equal housing opportunities for over 30 years. What is it about fair housing policy that compels you to work toward this specific goal?

The more I began to understand the importance of “place,” the more committed I became to ensuring that everyone has access to equal housing opportunities. Inequities in housing choice are the foundation of almost all other inequities in American society. Where we live matters. It affects every aspect of our lives and determines whether or not our families have access to nutritious and affordable food, high-performing schools, quality healthcare, a living wage job, banks and credit unions, reliable public transportation, and clean, healthy environments. Where we live impacts our ability to own a home, our chances of being incarcerated, how much wealth we will attain, a child’s likelihood of attending college, our income, and even how long we will live. Fair housing is all about expanding opportunities for people and ensuring that everyone has a fair shot. It is an important antidote for much of what ails us as a nation. Fair housing strengthens families, communities, businesses, and the economy. That is powerful! It is why I have devoted my life to making sure that everyone has the right to live in neighborhoods that promote their ability to thrive and be successful.

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