By Bill Oakey – April 12, 2016
I have presented this proposal to the Austin City Council and two City Council committees:
Homeowner Retention Initiative
Overview: One of Austin’s biggest affordability challenges is the displacement of existing residents due to the rapid acceleration of property values, resulting in unaffordable property taxes. The housing cost spiral has helped fuel Austin’s status as the most economically segregated major city in America. One way to approach this problem is to explore creative solutions such as shared equity mortgages and shared appreciation mortgages. Local government officials should create a strong public outreach initiative so that citizens who feel at risk of losing their homes will know where to turn to seek assistance. Below I have listed both new and existing strategies that should be considered. All non-native long-term residents were newcomers when they first arrived. They are just as vital to the community, its culture and its economy as today’s newcomers.
Options to Review for Consideration
A. Shared Equity Mortgages and Shared Appreciation Mortgages
These are financing arrangements that allow a third-party investor to invest in a percentage of the equity in a home, thereby lowering the payments for the homeowner. When the house is sold, proceeds are split based on the equity ownership percentage. This mechanism should be explored both for renters seeking first time home ownership, as well as a refinancing option for long-term homeowners squeezed by high property taxes. And it could be applied to landlords needing lower mortgage payments or taxes, to facilitate lower rental rates.
Online Resources For Shared Equity and Shared Appreciation Mortgages:
- “Facilitating Shared Appreciation Mortgages to Prevent Housing Crashes and Affordability Crises” – The Brookings Institution
- H.R. 3519 – Preserving American Homeownership Act of 2015 (See Attached Bill Summary)
- “Shared Equity and Housing” – Andrew Caplin, Economic Data Engineer, New York University
- “Shared-Equity Mortgages, Housing Affordability, and Homeownership” – Andrew Caplin, James Carr, et. all
- “Housing Partnerships: A New Approach to a Market at a Crossroads” – Book by Andrew Caplin
- “The Mortgage Mess, the Press, and the Politics of Inattention” – Andrew Caplin
Note: Determine if the concept of shared equity home ownership can be extended to older homeowners whose mortgages are paid off, but they still face an unaffordable burden of high property taxes. Can shared equity arrangements be worked out with investors willing to share the cost of property taxes?
B. Other, More Traditional Home Financing Arrangements:
- Shared equity with land trusts and various model comparisons – This website has a tremendous catalog of information and should be considered must-read.
- Co-ownership of a home – usually involving relatives or friends
- Reverse mortgages – should be approached with caution through consumer-based organizations
C. Continue phasing in the full 20% City of Austin general homestead exemption.
D. Consider supporting improvements to State law allowing over-65 homeowners to defer their property taxes:
- Reduce the annual 8% annual interest rate on the deferred tax amount.
- The over-65 property tax deferral option is subject to approval by each homeowner’s mortgage lender. We need to find out what criteria the lenders use, and to what extent the current climate for Austin homeowners favors or disfavors approval of tax deferrals by most lenders.
E. Make sure that the City of Austin continues to index the over-65 and disabled homestead exemption.
F. Make sure that the current City review of a tax swap arrangement with AISD includes an offsetting adjustment to lower the tax rate for over-65 homeowners. Their school taxes are frozen when they turn 65. So a tax swap with the City without an offsetting adjustment would violate the intent of that law.
G. Research and review the housing affordability and homeowner retention strategies of other cities. See this news article from Portland.
The Decline of Homeownership – Is a Single-Family Home The New Luxury Item?
Please read this disturbing article from CNBC. With homeownership at risk more so than at any time in recent history, isn’t it a good idea for Austin to step up to the plate and seek some innovative solutions?
U.S. H.R. 3519 – Preserving American Homeownership Act of 2015
(Referred to the House Committee on Financial Services. No further action to date).
Sponsored By Rep. Keith Ellison (D), Minnesota
Co-Sponsored By Rep. Louise Slaughter (D) New York
Co-Sponsored By Norma Torres (D) California
Note: A similar version of this bill was introduced in the Senate in 2014 as S. 2854 by Sen. Robert “Bob” Menendez (D), New Jersey
Requires the Director of the Federal Housing Finance Agency and the Federal Housing Commissioner each to establish a pilot program to encourage, through assistance provided under the Home Affordable Modification Program under the Secretary of the Treasury’s Making Home Affordable initiative, the use of shared appreciation mortgage modifications that: (1) are designed to return greater cash flow to investors than other loss-mitigation activities, including foreclosure; and (2) result in positive net present value for the investor.
Requires a shared appreciation mortgage modification to: (1) reduce by specified action the loan-to-value ratio of a covered mortgage to 115% immediately upon modification and to 95% within 3 years; (2) reduce the interest rate if such a principal reduction would not result in an affordable reduced monthly payment; (3) reduce to a specified amount any periodic payment the homeowner is required to make; (4) require the homeowner to pay the investor, after refinancing or selling the real property securing a covered mortgage, up to 50% of the amount of any increase in the value of the real property during a specified period; and (5) result in a positive net present value for the investor after taking into account the principal reduction and, if necessary, any interest rate reduction.
Requires the Director to: (1) provide that an enterprise may negotiate regarding a shared appreciation mortgage modification of a covered mortgage with any mortgage insurance provider for a mortgage on the subject property, and (2) allow advanced claim agreements with respect to such mortgage insurance policies.