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The St Louis Contrarian

Providing Independent and Intelligent Insight on St. Louis Public Policy Issues

Archive for the category “mortgage lending”

Container Houses

The Post recently wrote of a couple in Old North St. Louis who are building a house consisting of storage containers. As long as the housing meets code, why not? The sad part of the story is that lenders are not willing to make mortgage loans on the north side. Isn’t that redlining? Written by Paul Dribin

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A Very Good Article About Housing Policy From Brookings

www.brookings.edu/blog/the-avenue/2018/05/02/nine-rules-for-better-housing-policy/

I particularly like that they talk about income subsidy as well.

Segregation in St. Louis-Dismantling the Divide

A report entitled Segregation in St. Louis-Dismantling the Divide is an outstanding document that carefully, accurately, and fairly analyzes the history of housing segregation in St. Louis. The report was prepared by a group of organizations and scholars led by the Metropolitan St. Louis Equal Housing and Economic Opportunity Council. It should be required reading for everyone and hopefully will be a blueprint for action. The website for the report is forthesakeofall.org. Written by Paul Dribin

The Real Story Behind Racial Disparities in Mortgage Lending

There are numerous articles and discussions about the fact that African American borrowers are rejected at a higher rate that white borrowers. This disparity is present even when adjusting for income. On the face of it, this appears to be overt discrimination.

An important piece of the puzzle is missing from the discussion. That piece is the credit record and history of the borrower. This information is never made available in these studies and provides a more qualitative aspect of mortgage underwriting. Two other equally qualified borrowers will have different underwriting results if one has a negative credit record. Research I have conducted has shown that bad credit is the primary cause of a loan going bad.

Another factor shows this poor credit denies loans. Mortgage loan officers are extremely aggressive and make their fees off of closing loans. They would make a loan to anyone who would qualify. Race plays not factor in these decisions. Written by Paul Dribin

Real Facts Behind Alleged Racial Discrimination in Mortgage Underwriting

Once again articles have appeared alleging racial discrimination in mortgage underwriting. The allegations are very simplistic, they are based on the fact that fewer African Americans than white Americans get approved for mortgage loans even adjusting for income.

There are several key factors that go into underwriting a loan that belie this argument. A huge factor in loan underwriting is the creditworthiness of the borrower. I have conducted research which has shown that a poor credit rating was the biggest predictor of loan default. It makes sense. People could have a lot of money, but if they don’t pay bills, they are a risk. The analyses conducted by fair housing groups don’t take credit history into account. They are not being accurate to state they are comparing like borrowers.

A second reason which supports the argument that we have a credit worthiness problem is the nature of the mortgage business. Mortgage loan officers are hugely competitive and derive their income from closing loans. I can speak from experience they fight aggressively for each deal. They are not going to pass up a commission because they may be prejudiced against people of color.

Underwriting standards need to be constantly reviewed to insure they are fair to all and capture as best they can the experience of racial minorities. We can get better results. But let’s not go in for simplistic analysis. Written by Paul Dribin

Community Reinvestment Act

The Community Reinvestment Act was a piece of legislation passed in the seventies which has had a very positive effect on urban development. This law required all regulated financial institutions to lend in non traditional areas and develop underwriting standards to allow this to happen. It has resulted in millions of minorities and minority communities receiving home loans. The program has also made money for banks and contrary to conservative ideology was not the cause of the housing collapse.

The Trump administration is trying to weaken the law. With everything else going on, this has not received much attention. We should be paying attention to this whole issue. Written by Paul Dribin

Homeownership Tax Deduction

I hate to ever agree with the Trump administration but here goes. They are in favor of limiting the homeownership tax deduction to $500,000 annually. This is a good start. This deduction mostly favors wealthier people. Furthermore research has shown it does not stimulate the purchase of housing but drives up the price. Another largely white upper middle class entitlement. Written by Paul Dribin

Mortgage Interest Deduction

The mortgage interest deduction on federal income tax is by far the biggest housing subsidy available. It far surpasses Section 8, LIHTC, or other forms of subsidy. The major problem with this subsidy is because it primarily benefits higher income households. That is because a tax deduction only benefits households who itemize and those with a more substantial tax burden. Most of the benefit of this deduction goes to households earning over $200,000 a year. This program hurts central cities more than suburbs for the following reasons:

1. As stated before, less expensive houses provide less of a deduction to affluent purchasers. The present system actually provides incentives for middle and upper middle income households to buy more expensive homes which are generally located in suburbs.

2. Renters who are more common in the central city receive not subsidy at all.

The National Low Income Housing Coalition has a United for Homes campaign which attempts to rectify the housing tax deduction issue. The policy they advocated would limit deductions to $500000 of interest, and provide a 15% tax credit to households which would much more adequately address the needs of lower income homeowners. The billions in cost savings would be used to subsidize new affordable housing. Check out the website Unitedforhomes.org

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