Generation Rent Unable to Break the Grip of Unregulated Financing

UK rent signs

New Orleans  A headline in the papers claimed that the level of homeownership inched forward enough to hit the 2014 mark for the highest percentage since the 2008 Great Recession. Funny how a figure like that has so quickly become almost meaningless in this continuing period of housing shortage and soaring home prices in what seems an almost endless credit desert.

In Britain, we worked closely with an organization called Generation Rent. When I first heard the name of the group several years ago, it seemed strange to me, but it didn’t long in organizing all around the United Kingdom for me to get it. The notion of potential homeownership in the United Kingdom was virtually unthinkable for a whole generation of low and moderate income families, so their generation would be renting for sure. The United States seems to be knocking on the same housing door with our own generation rent these days.

A former Ohio-based tenant organizer, Spencer Wells, has come to the same conclusion in a recent column in Non-Profit Quarterly, saying,

There’s an emerging social movement in US cities that’s sometimes characterized as the Renter Nation. This movement brings together young urban renters, childless boomers choosing an urban lifestyle, and former homeowners who have been displaced into single-family rentals by the Great Recession. These “new renters” are adding fuel (and political power) to the struggle of low-income households in inner-city subsidized developments.

Renter Nation, Generation Rent, six of one, half-dozen of another, this speaks to the building housing crisis already holding much of the nation in its grip. The social movement isn’t here yet, as Wells says, but the demand is huge.

Squeezing renters even more is the inability to access conventional mortgage loans to move into homeownership. Admittedly, the housing market in New York City is sui generis, one of a kind, but a recent report by the Association for Neighborhood and Housing Development (ANHD) nails the growing power of non-bank lenders, unregulated by the Community Reinvestment Act:

…non-bank lenders are taking over an increasing portion of lending on 1-4 family homes, particularly to borrowers of color and low- and moderate-income (LMI) borrowers. Lenders in HMDA are categorized as banks, credit unions, and non-bank lenders, which are mortgage companies that do not take deposits from customers or businesses. We define non-bank lenders as non-depository lenders that are not owned by or affiliated with a bank or credit union.

 

  • In 2016, 30% of all home purchase loans were originated by non-bank lenders, up from 23% in 2012. The percentage of non-bank lenders was 50% for refinance loans in 2016, up from 23% in 2012.
  • Non-bank lenders made 30% of home purchase loans to LMI borrowers and 58% of refinance loans to LMI borrowers. They also accounted for 31% of home purchase loans and 61% of refinance loans in LMI neighborhoods.
  • 25% of home purchase loans to White borrowers were made by non-bank lenders versus 59% and 50% of the loans to Black and Hispanic borrows, respectively. Similar disparities appear for refinance loans.

Much of the disparities to LMI borrowers and borrowers of color relates to the higher concentration of Federal Housing Administration (FHA) loans to these populations and the decline in FHA lending by the largest banks. There certainly remain questions about qualified borrowers possibly being steered to FHA loans, which are more expensive than conventional loans. But, the overall concern this trend raises is that non-bank lenders are far less regulated than their bank-chartered peers, nor are they covered by the Community Reinvestment Act (CRA). In the run up to the 2007 economic crisis, the majority of dangerous sub-prime loans were made by non-bank lenders chasing relatively high rates of return for their investors and basing their businesses on relatively costly sources of capital.

Am I worried? Oh yeah, totally!

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Please enjoy

Buffy Sainte-Marie’s You Got to Run

Remington with Amy Jack’s Dallas till I Die

Wild Belle’s Hurricane

Thanks to KABF.

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