Closing the Gap: Minority Low and Moderate Income

First Time Homebuyers and Neighborhoods

Stephanie Moulton, PhDRoy Heidelberg

John Glenn School of Public AffairsThe Ohio State University

Blaine Brockman, JDOhio Housing Finance Agency

Overview1. The State of Homeownership

• Homeownership trends & gaps• Strategies to close the gaps

• Subprime boom and bust• Affordable mortgage programs

2. Affordable Homeownership & Minority Borrowers

• Appropriately targeted?• Movement to opportunity?

3. Concluding Thoughts & Next Steps• Importance of institutions supporting affordable mortgage

products• Limits of homeownership

The State of Homeownership

Source: US Census

Source: US Census

25-30%

The State of Homeownership

Why Gaps in Homeownership?

1. Income, Wealth & Credit Constraints

2. Household Formation

3. Location Preferences

4. Information Constraints (lack of information about process)

5. Supply Side Constraints– Access to lending institutions– Access to affordable housing – Discrimination

From Hibler et al. 2008; Haurin et al. 2007; Herbert et al. 2005

From Haurin and Morrow-Jones 2005

Subprime Boom and Bust

Source: HMDA Data 2004-2008

Lessons from Subprime Lending• Prevalence among low income and minority borrowers

• 1/3 of the gains to homeownership among minorities from subprime

• 2004 HMDA: high cost first lien 32.4% minority; 8.7% non-minority

• Adversely selecting borrower• 30-50% could have qualified for prime mortgages• Less educated consumers (75% subprime search; 90% prime)

• Lender differences/ Institutional determinants• Brokers and non-CRA institutions (IMC 5xs high cost in Cleveland)• Crowd out between subprime and affordable lending

Calem, Gillen and Wachter 2004; Carr, James H. & J. Schuetz. 2001; Immergluck 2009; Lax et al. 2004; Nelson 2009

Affordable Mortgage Programs: The Mortgage Revenue Bond (MRB) Program

• OHFA’s First Time Homebuyer Program• Affordable interest rate mortgage (at or below prime)• First time homebuyer, less than 115% Area Median Income• Downpayment assistance grants and loans

• Mortgage Sustainability• Lower delinquency and foreclosure rates than other similar

borrowers• Significant lender differences in delinquency and foreclosure

• Mortgage Affordability• Increase in MRB lending in an area, less likely to receive high

cost mortgage 2004-2006

Key Questions Are affordable mortgage programs adequately

targeted to minority homebuyers and neighborhoods?

What types of neighborhoods do minority homebuyers move to when they purchase their first home, and how does this compare to their previous (renter) neighborhoods? Neighborhood conditions are correlated with better

outcomes (including financial and emotional well-being, and positive childhood academic and health outcomes).

Homeownership is often presumed to be related to positive neighborhood conditions.

All OHFA Purchases (MRB)

Minority OHFA Purchases (MRB)

Total purchases by low-income, minority households

(neighborhoods)

Columbus 2008:

All OHFA Purchases (MRB)

Minority OHFA Purchases (MRB)

Total purchases by low-income, minority households

(neighborhoods)

Cleveland 2008 :

All OHFA Purchases (MRB)

Minority OHFA Purchases (MRB)

Cincinnati 2008:

Total purchases by low-income, minority households

(neighborhoods)

  Borrowers MSA County Zip Code TractTotal 19,784 92% 81% 38% 17%Non-

Minority 17,575 92% 80% 39% 17%Minority 2,209 97% 92% 30% 13%

Spatial Mobility: do home-purchasers buy where they rent?

Non-minority

17,575 16,169 14,0606,854 2,988

Minority 2,209 2,143 2,032663

287

70%

Data Source: 2006-2008 home purchases through the Ohio Housing Finance Agency First Time Homebuyer Program

 

Number of Borrowers

% Urba

n

% Minori

ty

% High

School

Median

Income

% chang

e

Median

Value

% chang

e

% Area

Income

Non-Minority

Previous 17,575 70% 8% 84%$44,76

8 $111,7

79 104%

New 17,575 71% 8% 83%$43,62

6 -

2.55%$103,4

26

-7.47

% 100%Minority

Previous 2,209 94% 38% 79%$36,68

9 $92,61

0 83%

New 2,209 95% 32% 81%$39,03

5 6.39%$89,82

9

-3.00

% 87%Note: Differences in tract characteristics between previous and new addresses are statistically significant at p<.05.

% Urbanproportion of the households living in urban areas

% Minorityproportion of residents who are black or Hispanic

% High Schoolproportion of residents over 18 who have completed high school

Median Incomemedian income of the census tract

Median Valuemedian sales price of homes in the census tract

% Area Incomemedian income as percent of the MSA or county (non-MSA tracts only) income

Neighborhood Quality: comparing tract-level characteristics

minority

non-minority

1 1

-6

2-1

6

-2.5 -3

-7.5

Neighborhood change: renter to homeowner

8%

6

4

2

Same as OHFA

-2

-4

-6%

 Borrowers

% Area Income % Urban % Minority

% High School

Median Income Median Value

OHFA First Time HomebuyersNon-

Minority 4,807 106% 75% 8% 84% $44,162 $104,899

Minority 657 90% 95% 30% 82% $40,733 $94,331

All Borrowers, Less than 80% AMINon-

Minority 30,883 103% 68% 7% 84% $45,037 $107,283

Minority 3,689 88% 93% 36% 81% $39,013 $91,189

All Borrowers, Less than 115% AMINon-

Minority 50,624 107% 67% 7% 85% $46,888 $112,875

Minority 5,301 92% 92% 32% 82% $41,198 $97,396

Affordable Instruments: comparing OHFA loans with all LMI homepurchases

% More than OHFA purchases

% Less than OHFA purchases

Differences in tract characteristics of purchases by low-income, minority borrowers

All Borrowers, Less than 80% AMIAll Borrowers, Less than 115% AMI

Concluding Thoughts & Questions Strategies to increase access to affordable

homeownership for minority households Importance of information

Understanding mortgages, processes, finances Importance of institutions

Access to banks, housing counselors, loan products

Homeownership: Opportunity or Burden? Importance of affordability

Rent versus Buy? Importance of neighborhood conditions

Education quality, housing values, social support, stability Rent versus Buy?

References & Resources

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Canner, G., & Bhutta, N. 2008. Staff analysis of the relationship between the CRA and the subprime crisis. Memo to Sandra Braunstein, Director, Consumer and Community Affairs Division, Federal Reserve Board of Governors. Available online at http://www.federalreserve.gov/newsevents/speech/20081203_analysis.pdf

Carr, James H. & J. Schuetz. 2001. Financial services in distressed communities: Framing the issue, finding solutions. Fannie Mae Foundation, August.

Engelhardt, Gary, Michael Eriksen, William Gale, and Gregory Mills. 2009. What are the social benefits of homeownership? Experimental evidence for low-income households. Journal of Urban Economics. Forthcoming.

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