Will Kamala Harris’ home ownership proposal address the persistent issue of the racial homeownership and wealth gap, or will her plan create more problems for the very people she aims to help?
JACQUELINE LUQMAN Hi. I’m Jacqueline Luqman with The Real News Network.
Kamala Harris has introduced a $100 billion expansion of HUD grants to tackle the racial wealth gap as it relates to homeownership as a part of her platform for candidate for the Democratic nomination. Her plan is meant to address decades of redlining that was committed by the United States government and the real estate market that resulted in the denial of opportunity for millions of black Americans to accumulate transferable wealth that white Americans have been allowed to benefit from and passed down to generations in their families. But when we look at the details of Harris’s plan, is it going to address this persistent issue or will Harris’s plan create more problems for the very people she aims to help?
Here to talk about this is David Dayen. David is the Executive Editor of The American Prospect, and he’s also the author of the book Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud, and he’s a winner of the Studs and Ida Terkel Prize. Thank you for joining me today, David.
DAVID DAYEN Okay. Thank you.
Please help us make real news!
JACQUELINE LUQMAN So first, can you give us a quick overview of what Kamala Harris’s racial homeownership and wealth gap policy plan is? Just the top-level details of what it entails.
DAVID DAYEN Right. So as you said, it provides a hundred billion dollars. I believe that’s homebuyer down payment assistance. It’s similar to Senator Warren’s plan, which was released a couple of months earlier. That one specifically targets down payment assistance to individuals who live in areas that were formerly redlined through the Federal Housing Administration going back decades. And I believe Harris’s plan also tries to target that group.
JACQUELINE LUQMAN So now, let’s get into some of the meat of the plan. Some critics of the plan say that it’s wrongheaded because it sets up another situation where people who otherwise wouldn’t qualify for a mortgage, are steered into mortgages they can’t afford, which is one of the issues that people cite for the crash that we recently experienced during the Great Recession. Is that an accurate assessment of what this plan does?
DAVID DAYEN Well, I can tell you that’s exactly what happened in the run up to 2008. Communities of color were targeted very specifically for mortgages that were not suitable for them, mortgages that had spiking interest rates, or various other features that made them incredibly risky. There is evidence of cold door knocking that was done by mortgage professionals in areas like Cleveland and Detroit, in low-income communities of color. So we’ve seen this before. We have actually, you know, seen this movie. You know, what was bad in the 60s and 50s and in that time, was that black and brown people couldn’t get a home mortgage at all. The problem in the 2000s was that they could, and in fact that they were targeted for these subprime mortgages that they ended up not being able to afford. So if that is the effect of a plan like Harris’s, then there is reason to be wary of it. Now, we do have new standards within the Consumer Financial Protection Bureau to attempt to prevent those kinds of mortgages from being originated— things that have a quick interest rate resets, or that are interest only loans, or things like that. However, you know, when you have that much money flying around, the mortgage industry may be able to figure out a way to put it to use in ways that could be harmful to borrowers of color.
JACQUELINE LUQMAN And I think it’s worth noting that Harris’s plan and I believe Warren’s does also and correct me if I’m inaccurate that both of those plans do include information or a plan to ensure that people who receive these grants these, HUD grants for down payment assistance and closing costs, are creditworthy. That they are able to afford the mortgages they are applying for. So that safe guard is rolled into both of these plans, correct?
DAVID DAYEN Right. That’s correct. But of course, what we saw during the crisis is that people’s income statements were fabricated, were forged. People at the mortgage companies used light boards to trace people’s signatures on the different income statements, different tax forms. You had people who were, you know, coordinating dances, mariachi bands at Mexican restaurants who were claiming $100,000 a year in salary. So while it’s good that there’s some creditworthiness test there, the mortgage industry has figured out a way to get around that in the past. And so, the concern would be that they would try also to get around that in the future. In general, it’s a good idea, I think, to assist people who have historically been shut out of the mortgage market, which as we know is a primary way to achieve wealth in the United States and build it. But there are, you know, there is a concern that you would have to, sort of, keep your eye on the ball to make sure that this isn’t being abused by the mortgage industry in some way. Now of course, if you have a Senator Warren or someone like that, and the personnel that they would put in place, you would presume that they would have watchdogs and cops on the beat for that kind of activity, but we’ll have to see.
JACQUELINE LUQMAN Yeah. And it’s good that you mentioned having watchdogs and cops on the beat because enforcement of anti-discrimination laws is always an issue with candidates in these policies that are supposed to address racial inequality in any form. And it’s interesting that Harris’s plan does include not just an expansion of HUD’s fair housing programs, but her plan also includes strengthening of anti-discrimination laws, which is ostensibly these kinds of checks into what the mortgage industry is doing to target people if they are unfairly discriminating against certain homeowners to fabricate information. Ostensibly, the strengthening of anti-discrimination laws could include a watchdog kind of agency to monitor those things, but here’s another question I have for you about this proposal. She includes in her plan the possible expansion of the Fair Credit Reporting Act, which would allow credit scores to also track and include monthly payments such as rent and utility payments, things like that. On the surface, it sounds like that would be helpful. Where someone’s credit score would be increased if more monthly payments are tracked, but could this also actually end up hurting the very people that it aims to help?
DAVID DAYEN It could. I mean, it’s kind of a tricky situation, as you correctly note. Right now, you kind of need to take out credit in order to get credit for having credit. [laughs] You need a credit card, or you need a student loan, or something like that in order to build a credit history. And if you don’t have a credit card or you’re not using it in any way, it’s hard to get a good enough credit score to be eligible for something like a mortgage payment. So the idea of putting utility bills and rent checks into the credit score for borrowers or potential borrowers who want to, you know, who do their monthly payments every month, that’s a good way of having them build a credit history.
However, as you correctly note, what does this mean about people who are late with the rent, who get a sudden shock in their personal financial history, who are late with the utilities? This means that they would be harmed in terms of their credit score even more. And it also increases the potential for error. I mean, what we know with the credit bureaus is that errors are pretty rampant. Millions of errors. It’s in the millions each year and it’s very hard to get those things reversed. And so, when you open up the credit profile to more potential transactions, I am concerned that you would magnify the number of credit events that could then be put in error into your credit report, and that increases hardship on people trying to get those removed, or just discovering them too late that their credit score is worse than they thought it was.
JACQUELINE LUQMAN And what about the issue of housing stock? Recent trends have kept newer houses out of many markets, and many of these markets were formerly redlined markets, which is why there is so few or such a small influx of new houses, which means there’s a small influx of new people into these neighborhoods because they were intentionally kept basically closed to new stock and new people. How does this policy proposal affect these protected and sequestered housing markets that have created housing stock that is literally—Most people are priced out of them. Most middle-income people can’t afford these homes because there’s been no overturn of stock, there’s been no overturn of homeowners. How does this policy proposal address that issue of the housing market?
DAVID DAYEN The supply problem is certainly a concern. And Warren actually addresses it by attempting to encourage localities to change zoning laws and increase the supply of housing because the presumption is that if you increase supply, you will then reduce the price if the demand stays constant. I don’t believe that Harris’s bill has anything, or her proposal I should say, has anything around encouraging more supply. I could be wrong on that, but I’m not aware of anything in there that does that. And so, if you have supply remaining constant, and you have more dollars that are coming in to give assistance to borrowers, you are increasing demand without increasing supply, and that will likely bring prices up. And so, you know, you’re sort of feeding this money through the government into the hands of landlords and developers and owners of homes. You do probably have to do both in tandem.
One thing with supply issues is you have to make sure that zoning is inclusionary, and the new stock that gets built is actually affordable to low-income families, rather than being luxury stock that just increases the supply at the high end. So there’s work to be done, sort of, on both counts there, but certainly what we see in some of the superstar cities around the country is that there is just not enough housing, and it’s not growing at the kind of rate that would bring down or at least keep constant the cost of housing, whether you’re talking about rental housing or housing to buy. And so, that certainly needs to be part of a solution to what really is an affordable housing crisis in these large cities across the country.
JACQUELINE LUQMAN And how does the fact that incomes in general have not risen to match the cost of living anywhere in this country for most people, but certainly it’s at crisis levels for African American and Latino potential homeowners, where a significant percentage of African American people live in poverty, below the poverty line, and a significant percentage of Latino American people also live in those conditions? Does this program, do these proposals, even touch the issues that those people are dealing with? How does this proposal help them?
DAVID DAYEN Well, I mean, wage growth in just, sort of, itself is not contemplated really in this housing proposal. And so, you know, there is a concern that you might give someone down payment assistance, but if there’s not ongoing mortgage assistance, then you might be putting people into a situation that they are ill-equipped to manage or get through if they have a monthly mortgage every month that they have to hit that is potentially at a larger level than what a rent would be especially if their wages are not going up or if they experience a sudden shock to their financial system. So that is something that you have to consider. I mean, essentially what you’re saying is we need a stronger economy, and an economy that works for everyone so that there’s equitable growth at all ranges of the income ladder, and everybody is rising.
And that’s something that we haven’t seen in this country for about 40 years. And that’s really part and parcel with what we’ve seen on housing. We tried to, sort of, get around that through the subprime crisis, which did increase homeownership rates, but at the cost of creating this huge bubble that ended up crashing. And homeownership rates have fallen precipitously since the 2008 crisis. You know, just saying, okay, we’ll shovel some money at people so they can get in the down payments and we can bring that homeownership rate up again, I’m not sure how sustainable that is, absent some real work on increasing not just jobs, but wages for all sectors of the earnings groups.
JACQUELINE LUQMAN So on its face, just taking it at face value and as they exist. It, being Kamala Harris’s policy, planned policy in particular. But even taking Warren’s proposals into consideration and anyone else’s that are already out there to address the racial homeownership and wealth gap, do these policies deliver what they are promising to deliver? Do they address this racialized homeownership and wealth gap, or do they fall short?
DAVID DAYEN Well, I think you have to look at it as a whole. I mean, Kamala Harris has this thing called the Lift Act that would be something close to a basic income for families that make above a certain income level. I believe it’s $3,000 a year. So there are substantial amounts that will go to those families as almost wage insurance or wage supplements, so she has some plans to address that. Senator Warren has some plans around black and brown business ownership, and helping them with small business loans to increase entrepreneurship at that level. So she attacks the racial wealth gap in that way as well as through housing. So you kind of have to look at all the plans, you know, sort of as a whole and sort of ask, are they going to work?
Of course, Warren has a redistributive aspect to hers as well with her wealth tax, which is a tax on wages, or I should say total wealth, above $50 million. And redistributing that into things like canceling student debt, and increasing child care coverage for people, and things of that nature. So, you know, I think what you have to ask is not just looking at housing in a vacuum, but looking at what will the economy look like for low-income people and people of color within a Warren or Harris or anyone’s administration? And will that spur growth at that low level? And then, you know, does that get translated into housing, which as I said is a key element of how people in America build wealth.
JACQUELINE LUQMAN Well it’ll be interesting to see how these proposals change, if they change according to the response to them from the public. And it will be interesting to see how the economy does indeed change in the next few years, and certainly as a result of whatever the outcome of 2020 will be. But it is welcome to see candidates at least talking about the reality of the racial wealth gap, and putting forth policy proposals that potentially might address some aspects of that. So thank you so much today for coming on to talk to me about this, David Dayen.
DAVID DAYEN Absolutely. Thank you.
JACQUELINE LUQMAN And thank you for watching. This is Jacqueline Luqman and this is The Real News Network.