National Urban League voice disapproval of Senate Housing Bill as drafted

NEW YORK – In two letters submitted to the Senate Banking Committee this week, the National Urban League, the nation’s largest historic civil rights and urban advocacy organization, warned leaders of serious concerns regarding proposed housing reform legislation and of the organization’s plans to mobilize against it unless it includes provisions ensuring that working and middle- class families have access to affordable homeownership.

In an April 23 letter to Committee Chairman Tim Johnson (D- SD) and Ranking Member Mike Crapo (R-ID), National Urban League President and CEO Marc H. Morial said their legislation would “radically change” the way most Americans buy homes.  He said the Johnson-Crapo bill would lead to cost increases making homeownership unaffordable for many families who already have “borne the brunt” of the housing crisis as their family wealth was wiped out by foreclosures and plunging home values.

“Most alarming is that the Johnson-Crapo draft measure does not do enough to promote affordable housing for ownership,” Morial wrote.  “This is a fundamental issue that cannot be overlooked, underestimated or relegated to negotiation on the Senate floor.  It needs to be included – now – as a core provision in any housing finance or GSE reform.”

The Senate Banking Committee is expected to vote next week on legislation that could accelerate the already significant post-recession decline in homeownership among communities of color and all working and middle-class communities.  It would wind down Fannie Mae and Freddie Mac and replace them with a new agency, the Federal Mortgage Insurance Corporation (FMIC).  The new agency would end the federal affordable housing goals that helped boost the percentage of African American homeownership to a pre-recession all-time high of 50 percent.

But in his letter to the committee leaders, Morial wrote that today’s mortgage market is “disgracefully exclusionary and restrictive.”

Morial noted that the most recent data from the Home Mortgage Disclosure Act (HMDA) clearly demonstrates that families of color have already been cut out of the housing market and the situation will only worsen if the Johnson-Crapo legislation is enacted.  The HMDA data found that in 2012 there were 1.3 million conventional mortgage loans originated in the United States, but Asian Pacific Islanders received only .2 % or 10,611 of the loans, African Americans received 2.3 % or 29,405 loans and Latinos received 5.3% or 69,217 loans.  Morial wrote that the proposed legislation does not adequately address this ongoing inequity nor does it provide an inclusive way forward for working and middle-class communities to participate in the future housing market.

“In this regard, a key area of concern for us is also the degree to which banks are expected to make loans in underserved communities,” his letter stated.  “Markets can be underserved for a number of reasons – each of which may best be addressed with a different approach.  But eliminating affordable housing goals and expecting the market to correct itself, when history has repeatedly shown us otherwise, exacerbates the emerging dual mortgage finance marketplace that Johnson-Crapo should intentionally be designed to counteract.”

He maintained that the Johnson-Crapo legislation does not take proactive steps to make sure lenders are serving qualified borrowers in all markets, likely causing the housing market to continue to suffer in future years.  “Families of color, expected to represent 7 out of every 10 families formed in the next decade, have homeownership rates that are far below the national average,” Morial wrote.  “The homeownership rates among people in their 30s are at their lowest in a generation, and loans are often more expensive in both rural and urban areas.”

Morial recalled that in 2008, he testified before the Senate Banking Committee about what he dubbed the “Financial Weapon of Mass Deception: the ugly, insidious and concerted effort to blame minority and low-to-moderate income borrowers for the nation’s economic woes.”   That myth, he wrote, is “an enormously damaging and far-reaching affront” that wrongly shifts the culpability for the housing crisis from too much Wall Street greed and too little Washington oversight onto middle-class families on Main Street and Martin Luther King Boulevard.

“These are the citizens who were the primary targets of predatory lending and other practices peddled by Wall Street investors, yet who have also been blamed and exploited in efforts to undercut affordable housing goals and most notably the Community Reinvestment Act (CRA),” Morial wrote.  “While Wall Street investors were the major purchasers and investors of subprime loans – not Fannie Mae and Freddie Mac, Fannie and Freddie made convenient public scapegoats for the mortgage collapse of 2008.

While fully supportive of the idea of GSE reform, Morial said, “We are unwavering in the belief that it should be reform – and not retrogression.”  He called the GSEs “the most effective institutions” for providing liquidity to the mortgage market for qualified low-and moderate-income borrowers.

“The National Urban League and its allies cannot support the bill as designated and strongly urges the committee to take full advantage of this opportunity by passing legislation that will help ensure access to affordable mortgage credit for all creditworthy borrowers, while at the same time protecting taxpayers from bearing the cost of a housing downturn,” he wrote. “Maintaining reasonable and measured affordable housing goals for the GSEs will be an important step towards that goal.”

Furthermore, Morial wrote that the National Urban League “intends to mobilize its membership and partners in opposition to this bill – or any subsequent housing finance reform legislation – that does not include affordable housing goals.”

In a follow-up letter submitted to Sens. Johnson and Crapo today, Morial emphasized significant concerns that the Johnson-Crapo bill would essentially replace the housing finance system of today with a costly private sector system that will further exclude many in the working and middle class from homeownership.  “Increased cause for concern,” he wrote, “is that the Johnson-Crapo bill would replace Fannie Mae and Freddie Mac with new entities that are required to have 10% first-loss capital from private concerns and have private sector guarantors or insurance.  This private capital scheme could greatly increase the average mortgage cost by at least $1,400 annually to pay for the private capital.  Working families cannot afford this bill.”

Morial also noted that he was not making a commentary on the new mortgage participant issuers and insurers, acknowledging that they are not “inherently bad entities. They are simply charging what private companies charge for risky investments – investments that the government absorbed for 80 years because it considered the reward of a stable homeowner society worth it.  Unfortunately, Johnson-Crapo says it is not.

Morial urged the Senate to recognize the impact of Johnson-Crapo on the middle class in America and to not make homeownership a luxury reserved for the fortunate few, while all others become renters.

“In these times of wage stagnation, declining numbers of good paying jobs and increasing debt costs for education, shifting the risk and burden of housing finance onto regular working and middle-class families is a bad idea.  We must work toward measures that end – not expand – this trend of increasing costs.  When will we stop asking working and middle-class families to pay for a financial crisis that they did not cause – and instead support their efforts, as we have those of Wall Street, to rebuild?”

The second letter closed with a call for the Senate to consider other options available instead of increasing the annual mortgage cost on working and middle-class families for the benefit of risk and private capital.

“Let’s openly begin to explore those options and have a substantive conversation that leads to responsible action around housing finance and GSE reform – not retrogression,” said Morial.