Tag Archives: homeowner retention

Austin’s Economic Divide – Is There Hope On The Horizon?

By Bill Oakey – May 9, 2016

The unfortunate dilemma of income inequality is alive and well in Austin. But Austin American-Statesman business writer, Dan Zehr, recently highlighted a new report that shows one positive change. From 2007 to 2012, there was a drop in the concentration of affluent families in affluent neighborhoods. The bad news is that Austin and some other Texas cities remain among the most economically segregated in the United States. Worst of all, the segregation of the lowest income families in Austin increased during the five years cited in the report. You can read the entire report from Stanford and Cornell University here.

City Officials Have Gotten the Message, And Help May Be On the Way

One of the things I learned over the past few years is that “Affordable Housing” (capitalized) means something different in official parlance from “affordable housing.” The capitalized term refers to subsidized housing for low-income households. The HousingWorks organization, under the direction of Mandy De Mayo, is a strong community leader in that area. Here in Austin, we face an affordability crisis across several income strata. The hopeful news on the horizon comes from the City Council and the City’s Neighborhood Housing and Community Development Dept. (NHCD).

Last month on April 7th, the City Council passed Resolution # 20160407-024, which addresses gentrification and the economic divide. This resolution calls for NHCD to develop a set of options for permanent affordable housing. Preliminary findings are due to be presented to the City Council by June 14th, with a final report to be presented by August 2nd.

On Tuesday of this week, I participated in a stakeholders meeting with NHCD to discuss both types of affordable housing options – publicly and privately funded. This was a very interesting and productive gathering. Kudos to Erica Leak, NHCD Housing Policy and Planning Manager, who hosted and led the stakeholder discussion. Those in attendance included community members from financial, real estate, community housing and various other related backgrounds. We divided into groups to try to come to consensus on recommendations for affordable housing options. Some of the options discussed came from the Homeowner Retention Initiative, proposed on this blog.

There are some high mountains to climb in order to make significant progress in the housing side of Austin’s affordability quagmire. Here’s hoping that the City Council and City Staff will go big with innovative strategies that break new ground. Austin should lead, not follow, in the quest to build bridges across the economic divide.

And Now for the Music – Affordability Songs and Tales From the Economic Divide

  1. Blue Water Line – The Brothers Four, 1961
  2. Somebody Bought My Old Hometown – Bobby Bare, 1967, from the album, “A Bird Named Yesterday”
  3. In the Middle of the House – Rusty Draper, 1956
  4. A Dollar Down – The Limeliters, 1961
  5. Busted – Ray Charles, 1963
  6. Poor Boy – Elvis Presley, 1956
  7. Sixteen Tons – Tennessee Ernie Ford, 1956
  8. The Money Tree – Patience & Prudence, 1957
  9. Saginaw, Michigan – Lefty Frizzell, 1963
  10. Down In the Boondocks – Billy Joe Royal, 1965
  11. One Piece At a Time – Johnny Cash, 1976
  12. Patches – Dickey Lee, 1962
  13. Rag Doll – The Four Seasons, 1964
  14. Poor Side of Town – Johnny Rivers, 1966
  15. Above and Beyond – Rodney Crowell, 1989, first recorded by Buck Owens, 1960
  16. Ruby Ann – Marty Robbins, 1962 (Rare stereo version)
  17. Little Boxes – Pete Seeger, 1964
  18. You’re the Reason Our Kids Are Ugly – Conway Twitty & Loretta Lynn, 1978
  19. (We’re Not) The Jet Set – George Jones & Tammy Wynette, 1974
  20. Can’t Buy Me Love – The Beatles, 1964
  21. Uptown Girl – Billy Joel, 1983
  22. Dawn (Go Away) – The Four Seasons, 1964
  23. Crystal Chandeliers – Charley Pride, 1972
  24. King of the Road – Roger Miller, 1965
  25. Queen of the House – Jody Miller, 1965, totally hilarious “answer song,” country Grammy Award winner, #12 national pop hit

Homeowner Retention Initiative – Saving Austinites From Losing Their Homes

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:

  1. “Facilitating Shared Appreciation Mortgages to Prevent Housing Crashes and Affordability Crises” – The Brookings Institution
  2. H.R. 3519 – Preserving American Homeownership Act of 2015 (See Attached Bill Summary)
  3. “Shared Equity and Housing” – Andrew Caplin, Economic Data Engineer, New York University
  4. “Shared-Equity Mortgages, Housing Affordability, and Homeownership” – Andrew Caplin, James Carr, et. all
  5. “Housing Partnerships: A New Approach to a Market at a Crossroads” – Book by Andrew Caplin
  6. “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:

  1. Shared equity with land trusts and various model comparisons – This website has a tremendous catalog of information and should be considered must-read.
  2. Co-ownership of a home – usually involving relatives or friends
  3. 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:

  1. Reduce the annual 8% annual interest rate on the deferred tax amount.
  2. 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. The City of Austin and Travis County should index the over-65 and disabled homestead exemption. They each need to adjust it annually.

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. Seniors should be able to opt out of the City’s upcoming composting fee on our utility bills. The fees that we already have are burdensome enough, without making it worse.

H. 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

Bill Summary

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.