Download Percentage of Net New Households Between 2010 and 2020

Discussion and Policy Principles Related to
FANNIE & FREDDIE
HOUSING FINANCE REFORM DISCUSSION

The GSEs have nearly paid back the full amount they borrowed from Treasury in 2008, $187
billion. As a result of this, and the fact that Fannie and Freddie have been in conservatorship for
nearly 6 years, there has been a significant push to reform the GSEs.

Due to the disproportionate impact of the financial crisis on communities of color, market
creaming, increasing interest rates, rising housing prices, and new regulations, which may
unnecessarily constrict homeownership, efforts must be made to ensure responsible and
qualified buyers in communities of color have fair and equitable access to affordable and
sustainable mortgages. This has always been, and must remain, an important government
policy goal.

This is of particular importance because of the demographic shift occurring in the housing
market. Between 2010 and 2020, 70 percent of all net new households will be headed by
minorities. And this number will only grow in the future.
Percentage of Net New Households
Between 2010 and 2020
Minorities (70
Percent)
Majority Population
(30 percent)
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NUL’S HOUSING FINANCE REFORM POLICY PRINCIPLES

Retain the affordable housing goals, or find a more effective substitute. Contrary to popular
belief, the affordable housing goals did not cause the foreclosure crisis, this was made clear in
the Fiscal Crisis Inquiry Commission’s 2011 report, the Federal Reserve of St. Louis’s extensive
research, and by a host of other respected experts who dispelled the myth. Currently, Fannie &
Freddie are required by statute to allot a certain percentage of their business to loans that
support low- to moderate-income individuals, and underserved markets. Fannie & Freddie
produced $267 billion of affordable loans, in 2012, according to the National Community
Reinvestment Coalition (NCRC). And, over the last 10 years, over 60 million families have
benefitted from the affordable housing goals.

Do not include arbitrary down payment requirements. The National Urban League knows
firsthand that saving the necessary down payment to purchase a home is one of the biggest
obstacles to attaining the American Dream. On average, African Americans and Hispanics have
lower incomes than their White and Asian counterparts, and are less likely to receive an
inheritance or help from their parents to make a sizable down payment. According to the Center
for Responsible Lending, it takes the typical White family 14 years to save for a 5 percent down
payment, plus closing costs, and 21 years and 17 years, respectively, for African American and
Latino families.
Average Number of Years to Save for a
5 Percent Down Payment (plus closing
costs)
25
20
15
10
5
0
Whites (14 Latinos (17 African
yrs)
yrs)
Americans
(21yrs)
Average Number of
Years to Save for a 5
Percent Down
Payment
The National Urban League has long supported a reasonable and affordable “skin in the game”
down payment requirement, along with quality credit standards, strong documentation and
sound underwriting. However, research shows that being able to make a large down payment
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is not an indicator of a borrower’s ability to repay a loan. Rather, high down payment
requirements reduce access to the housing market and force underserved communities to
purchase FHAs loans, which are generally more expensive than conventional ones.

Integrate housing counseling into the mortgage application process, and allow housing
counseling to be used as a compensating factor. Housing counseling can help ensure a
positive home buying experience, and prevent many of the abuses that occurred during the
subprime mortgage boom, where African Americans and Hispanics were 3 times more likely to
be steered into subprime loan products than their White counterparts, even though they
qualified for traditional loans. According to the Secretary of Housing and Urban Development
(HUD), Shaun Donovan, borrowers who receive housing counseling services are 50 percent less
likely to be delinquent on their mortgages, and are more likely to receive a mortgage
modification than non-counseled borrowers. Integrating housing counseling services into the
mortgage application process benefits all parties involved, including borrowers, lenders, and
servicers, by educating homebuyers and preventing future delinquencies and foreclosures. As a
result, housing counseling should be integrated into the mortgage application process and used
as a compensating factor to help give borrowers an opportunity to access the traditional
housing market.
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