Leadership from the top

The city has not been totally deaf to the problems threatening its real estate market. Mayor Emanuel’s administration has implemented several programs as part of his five-year housing plan to help curb falling homeownership and homelessness, like the Chicago Homebuyer Assistance Program, which offers grants to low-income buyers to help them afford a mortgage.

“The city of Chicago will only be as strong as our neighborhoods are strong,” the mayor said in announcing CHAP, calling homeownership an “essential building block of vibrant communities.”

Also in Emanuel’s plan are the Low-Income Housing Trust Fund, the Neighborhood Lending Program and a task force to help reduce homelessness, among other programs.

Branch contends there is remains room for improvement.

“There is more the city and state governments can do in terms of providing additional types of funding to help finance homeownership,” he says, but adds that much of the change will need to emanate from the federal level – particularly as it relates to affordability, which NAREB President Cooper called “a concern for all Americans right now.”

Nationwide, 60 percent of adults say housing affordability is a “serious problem,” a MacArthur Foundation report found. In Chicago, where nearly half spend 30 percent of their income on housing, 73 percent of adults agreed.

Not everyone seems to feel that same urgency. According to the Illinois Housing Development Authority, 40 of 68 Chicagoland towns missed a June 2, 2015 deadline to submit affordable housing plans, despite being required to do so by the Illinois Affordable Housing Planning and Appeals Act; the IHDA, though, has little authority to take action against noncompliance.

A new view on credit scoring

In addition to affordable housing, Cooper says the credit score system needs an overhaul.

“If we examine the way the financial industry right now is underwriting loans, the first thing we notice is that the approach to quantifying credit worthiness is antiquated. Buyers are scored on how they pay their credit card, not how they pay their rent, or how regularly they pay their utility bills on time. It’s a system set up to evaluate the spending of discretionary money. It does not make sense.”

People have been clamoring for an alternative to FICO for years, but it was not until recently that Washington took serious steps towards change, which came in the form of the Credit Score Competition Act of 2015 (H.R. 4211) and the The Credit Access and Inclusion Act of 2015 (H.R. 4172), the latter of which has open support from the National Association of Realtors.

“More than 40 million ‘thin file’ Americans have trouble accessing affordable credit,” NAR President Tom Salomone wrote in a letter supporting the Fair Credit Reporting Act, which H.R. 4172 looks to amend. “NAR is pleased that by amending the Federal Fair Reporting Act, low and moderate income individuals would be able to access affordable and responsible financial products and services to build wealth.”

Changes at the federal level would impose alternative routes to credit on banks and GSEs, namely Fannie Mae and Freddie Mac, which have been slow to adopt holistic credit scoring.

“Why haven’t GSEs approved the use of alternative credit scoring on a wide scale?” Cooper asks. “They know the problems, but they refuse to make the change. I think a big part of that is how the federal government acts on housing. It seems to support renting over owning.”

He’s talking about the sale of non-performing loans to Wall Street speculators.

Since 2012, the Department of Housing and Urban Development has auctioned off over $30 billion in NPLs, and nearly all have gone to Wall Street, including Fannie Mae selling a $1 billion-plus portfolio of NPLs to Goldman Sachs this September, confirmed a reported from the Urban Institute’s Housing Finance Policy Center.

Proponents claim private investors can do more for distressed mortgage holders than the government, like help homeowners avoid foreclosure, while opponents, who include Massachusetts Senator Elizabeth Warren, call the scheme a “land grab” and a way for speculators to displace poor families.

“These speculators often turn the properties into rentals – bundling them into securities for investors, like they did with mortgages,” protestors of the process wrote in a release. “The sell-off these mortgages is hiking up rents and contributing to the growing displacement of poor and working families – particularly people of color.”

In 2014, Doug Brien, co-chief executive officer of Starwood Waypoint, which at that point had invested $219.7 million in NPLs, told Bloomberg that as many as 50 percent of the 1,736 NPLs purchased would end up being rentals, saying, “We’re always going to take the outcome that’s most economically beneficial.”