FHCE 3300 1st EditionExam #4 Study Guide Lectures: 22-26Lecture 22 (April 13)Federal Housing Policy and HomeownershipForeclosure crisis – Why did it happen? What was the impact? How did the federal gov’t respond to the crisis?*Also look at ELC readingsForeclosure crisis – Why did it happen? What was the impact?- $75 billion in equity capital lost on Wall Street- Nearly 25% of workforce unemployed. Higher in some cities- More than 11,000 banks closed. Banking system in state of collapse- Many homeowners could no longer make payments- Resulted in foreclosures on massive scale 1933 – More than half of all mortgages in default More than 1,000 mortgages foreclosed every day- Many homeowners forced to sell homes when mortgages came due- Banks began to demand mortgages be paid in full rather than extend terms- Homes declined in value, people owned more than homes were worth - Affected homeowners often the middle class who were facing poverty for 1st timeHow did the federal gov’t respond to the crisis?- 4 steps:(1) Home Loan Bank System- 12 regional banks, increased access to capital- Extended terms of mortgage- Increased loan-to-value ratio- Made mortgages less costly- Did not fix foreclosure problem- Was designed to increase construction and employment; help people facing foreclosure; support widespread homeownership (2) Home Owner’s Loan Association- Home Owers’ Loan Act of June 13, 1933- Roosevelt administration’s plan to rescue millions of families from mortgage foreclosure- Purchase and refinance mortgage loans in default- Introduced 15-year amortizing loan, allowing homeowners to pay off loans with monthly payments over many years- Reduced monthly payments- Provided funds to pay taxes, make home repairs- Spent $3 billion. Refinanced more than 1 million mortgages. 10% of all eligible homeowners sought assistance (3) Federal Housing Administration- Est’d by National Housing Act of 1934- To reduce unemployment by stimulating housing construction- Federal gov’t insured mortgages issued by qualified lenders, eliminated risk for leaders- Reduced interest rates- Increased availability of funds for home building and home purchases HUD largest insurer of residential mortgages in world (4) Federal National Mortgage Association- Created in 1938, later renamed to Fannie Mae and Freddie Mac, to purchase FHA-insured mortgages- New source of funding for mortgage market- Started as public agency, changed in 1968 to “gov’t sponsored enterprise” (GSE). Able to purchase other mortgages other than FHA - Became secondary mortgage marketLecture 22(April 13) Federal Housing Policy and HomeownershipWhat happened during the housing crisis during the Great Depression? How did it shape our current mortgage system?*See Federal Reserve readingSee question above. Pretty similar.Lecture 22 (April 13)Federal Housing Policy and HomeownershipHow does the federal gov’t support homeownership? How has this influenced the development of our cities and suburbs? *Making of Ferguson readingHow does the federal gov’t support homeownership?- Mortgage interest deduction  Originated by Union in Civil War Emergency income tax that excluded interest and payments from definition of income Federal gov’t used this definition when permanent income tax was est’d in 1913 Had minimal effect on nation’s tax expenditures for many decades Became substantial tax expenditure as homeownership rates climbed in 1940s and 1950s Largest tax break is deductibility of mortgage interest payments from taxable income - Tax expenditures Spending programs implemented through tax code Give people and businesses special tax credits, deductions and preferential rates in support of various gov’t policies Compared to direct spending/budget outlay, gov’t takes tax dollars and gives them to others (individuals, programs) for specific purpose- Loans and loan guarantees- Secondary mortgage market (Fannie Mae and Freddie Mac)How has this influenced the development of our cities and suburbs?- Policy initiatives by U.S. federal gov’t greatly expanded homeownership in U.S.- Gov’t intervention made homeownership more affordable than renting- Federal housing policies have had substantial impact on how and where Americans live- Early FHA appraisal process highly discriminatory, supported suburban income and racialdiscrimination- Older city neighborhoods ineligible for loan guarantees, moved mortgage funds out of the cities, fostered suburban development Lecture 24 (April 17)Rental Assistance and Public HousingBe familiar with different forms of rental assistance and implications.I. Rental Assistance- Vast majority of program funding comes from U.S. Department of Housing and Urban Development (HUD)- Programs keep rental housing affordable for low-and moderate-income households- Households pay rent based on income- 2 types: Project-based, tenant-basedII. Funding Amount by Program Type- Additional homeownership-related spending: FHA, Fannie Mae, Freddie MacIII. Public Housing- Major rental assistance program in U.S.- 14,000 public housing developments worldwide- 1 in 5 developments are in rural communities- Owned and operated by local public housing authorities - Serves 2.3 million people- 73% have incomes at or below 30% AMI- Demand far exceeds the supply, long waiting lists IV. Housing Choice Vouchers- Largest federal rental assistance program- Assists more than 2 million households- Reflects policy shift towards market-based subsidies- Flexibility in program allows voucher holders to keep rents at affordable levels if income increases or decreasesA. How They Work- Families use vouchers to rent housing in private market- Amount a voucher covers is based on 3 things1. Payment standard – Rent cap set by housing authority that must be within 90% -110% of Fair Market Rent2. Actual rent and utility costs of unit3. Adjusted household incomeV. Rental Assistance Impact- Reduces housing cost burden for low and extremely low-income households- Housing assistance associated with longer duration stays in rental units- Subsidized housing reduces residential mobility- Factor in predicting if those who exited homelessness would become homeless again VI. Rental Assistance Problems- May not help families escape high poverty neighborhoods- Maintenance and management problems (lack of funding, poor property management) can lead to unsuitable living environmentsVII. Rental Assistance Gap- Only about