Populist President Should Promote Homeownership Policies That Work for All
President Trump’s first official action after being sworn into office was unexpected. He did not start out by trying to secure our borders, repeal Obamacare, eliminate free trade provisions or pursue any of his other major campaign promises. Instead, he acted to make mortgages more expensive for Americans. He suspended a mortgage insurance rate cut for loans backed by the Federal Housing Administration, boosting the cost of a mortgage by several hundred dollars a year.
Since then, the Trump administration has continued down this road of misplaced priorities. The “Skinny Budget” released last month would slash funding at HUD by $6.2 billion and eliminate several important programs that help make homeownership safer and more affordable, especially for low- and moderate income Black and Latino households.
The administration needs to reverse course immediately and work with Congress to advance inclusive homeownership. That means taking action in four key areas laid out in our new report, A Downpayment on the Divide: Steps to Ease Racial Inequality in Homeownership. These include reform of homeownership tax subsidies; increased access to affordable mortgage credit; fair housing enforcement and strong consumer protections.
Even in the aftermath of the Great Recession, homeownership remains the American dream and the greatest source of wealth for the vast majority of Americans. A stark homeownership and wealth divide exists between Whites and Blacks and Latinos, but low- and moderate-income households can pursue the dream with the right supports, education and fair mortgage products.
The racial divide is no accident. It was intentionally created through decades of discrimination, neighborhood racial covenants and redlining — the exclusion of communities of color from the government-guaranteed mortgages that fueled the homeownership boom in the second half of the 20th Century. And the legacy of this housing discrimination continues today. The 2008 housing crisis was fueled by predatory lending targeting Black and Latino households that left them with a foreclosure rate 50 percent higher than for Whites.
The federal government helped drive this racial wealth divide and it must play a role in closing it. Interestingly, the Trump administration can do so while pursuing some of its existing policy priorities.
For example, one of the biggest items on President Trump’s and House Speaker Paul Ryan’s agenda is comprehensive tax reform. They want to simplify the tax code and lower rates for higher-income earners. In their proposals, they’ve also taken aim at the mortgage interest deduction, which is a good first step.
Currently, instead of helping more Americans become successful homeowners, the deduction focuses on subsidizing bigger mortgages, up to $1 million, and even allows taxpayers to deduct mortgage interest on second homes and yachts. It cost nearly $82 billion in tax revenue in 2016 with higher-income earners reaping the majority of the benefits. The deduction should be limited and some of the savings used to create a first-time homebuyer’s credit for low- and middle-income families, similar to the highly successful and popular provision that was included in the stimulus bill.
Fannie Mae and Freddie Mac play a crucial role in making mortgage credit available and affordable for Americans, but they have remained in conservatorship since the financial crisis. Congressional action is required soon and a variety of proposals have been floated by members of Congress and the administration. In addressing the uncertain futures of Fannie and Freddie, some form of government guarantee and commitment to affordable housing goals is necessary for inclusive homeownership. We also should embrace new forms of innovative alternative credit scoring, which can better assess the creditworthiness of lower-income borrowers.
Lastly, the Trump administration should continue the Obama administration’s commitment to protecting consumers from predatory lending and discrimination. No one should be denied a mortgage or have to pay more simply because of the color of their skin. The Departments of Housing and Urban Development and Justice made progress over the last four years in combating this problem through enforcement of the Fair Housing Act. And although criticized by Trump and Republican lawmakers, the Consumer Financial Protection Bureau has taken substantial steps to make the mortgage market safer through rulemaking and enforcement actions. Overall, the bureau has returned approximately $12 billion directly to Americans through its enforcement work.
Taken together, these actions would represent a substantial step forward in closing the racial homeownership gap as well as the growing racial wealth divide facing our country. We can’t wait another four-to-eight years to address this, nor should we turn away from the progress that’s been made since the Great Recession. Wealth, homeownership and equal opportunity are at the core of our American values — and key to President Trump’s campaign promises to help struggling working class and lower-income families.
David Newville is director of federal policy at CFED. Anju Chopra is senior policy manager at CFED.