Turning African-American Renters into Buyers
FARAI CHIDEYA, host:
Not everyone can count own winning a contest to help buy a new home. That's why the Federal Housing Administration has unveiled a new education campaign to help first time minority homebuyers. Here to tell us more about the program is Brian Montgomery. He is assistant secretary for housing at the Department of Housing and Urban Development. Welcome.
Mr. BRIAN MONTOGOMERY (Assistant Secretary for Housing, Department of Housing and Urban Development): Thank you very much for having me.
CHIDEYA: Well, we just heard from the Papillions. They had bad credit, didn't know where to start. But fortunately for them, they did one thing right. They did fall into predatory loan sharking. But many other young and up and coming homeowners do, don't they?
Mr. MONTOGOMERY: Well, I glad to hear in this situation that the homebuyers had a good ending. Unfortunately, we hear about many homebuyers out there who don't have such a happy ending. And that's one of the things we are trying to do with this FHA program. President Bush challenges us to create five and half million new minority homebuyers by the year 2010. I'm pleased to report that we are a little more than half way through to that goal.
However, when I came on as FHA commissioner about nine months ago, we sat down and thought we should be doing a lot more to get us to this goal. So over the last few months, we've been working on a marketing campaign directly aiming toward minority homebuyers.
CHIDEYA: What is the reason why African American families may not be able to buy homes at the same rate as whites, aside from income?
Mr. MONTOGEOMERY: Well, and that's a troubling statistic for us. If you look at the rate of homeownership for Anglos, it's a little less than 75 percent. If you're a Latino, it's little more than 50 percent, and if you're African American, it's actually a little less than that. And I think a lot of that was the fact that FHA, which has been the cornerstone product for many families, gosh now, for 72 years, had kind of fallen by the wayside, which was unfortunate.
But we're hoping with this new effort to reinvigorate FHA and make people aware of the many benefits it has to offer, a lot of homebuyers, low income, moderate income, a safer product at much fairer price.
CHIDEYA: So again when you talk about an FHA product, you're talking about the Federal Housing Administration. You're talking about different types of loans people can get. And like cereal brand or detergent brands, mortgages can be branded. They can be from different providers, with different strengths and different weaknesses. How is the average person supposed to know which ones are more reliable and even which ones are government versus private?
Mr. MONTGOMERY: Well, that's a very good question, Farai. There is a dizzying array of mortgage products out there. Sadly, many of them are very risky. We recently launched an FHA.gov website which will provide information on the types of loan products out there. We are now standing up an FHA call center, which is 1-800-CALL-FHA that will also provide would-be homebuyers information on the array of products out there.
But to get back to your question about the different types of products, it's important to know that FHA is an insurance product. When the FHA was created 72 years ago, it was done so in a way to offer folks with a blemished credit or perhaps lower incomes the government premium, the insurance rather, if you will. But it became aware to us that the one size fits all product no longer fits all.
CHIDEYA: So essentially, what you do is guarantee the loan if the person who is applying for the loan is a bit of a risky prospect?
Mr. MONTGOMERY: That is absolutely correct. Not everybody can have perfect credit. You may have a couple of dings here and there, there may be lower income, but we look at the total borrower portfolio. That's why we've been able to help a lot of homeowners. But again, we think we can help even more with this new reform program.
CHIDEYA: Tell us about how some people are targeted for what's called sub-prime loans. Apparently, African Americans are more than twice as likely to get sub-prime loans as whites who have the same income.
Mr. MONTGOMERY: Well, that's one of the statistics that jump out at is, Farai. Forty percent of African Americans had a loan that was three percent above the treasury rate. But for Anglos it was only about 13 percent. Fannie Mae has estimated that perhaps as many as half of those would have qualified for a safer, much fairer product such as FHA. But regardless whether it's one, 10,000, or a million, we think we'll be able to position FHA better and make low to moderate income homebuyers aware of the many benefits we have to offer.
CHIDEYA: Certain African-American communities around big cities like Chicago and Cleveland are seeing a tripling of foreclosures in the past decade. What is the Department of Housing and Urban Development doing to protect people who may have overextended themselves?
Mr. MONTGOMERY: Many of these sub-prime loans have pre-payment penalties, meaning that if the borrower wants to get out of the loan early on or wants to refinance into a cheaper loan, they could be facing up to six months of interest. Now, don't get me wrong. There are many families whose credit is so poor that they wouldn't be able to qualify for an FHA product, and perhaps that's the only route they can go, but again, we think we can help more with this new reform.
FHA offers one of the best loss mitigation programs out there. Since we are a government program, the last thing we want is to have a family completely lose their home. While out default rate, and that's the percentage of homeowners who are at least three months behind is around 6 percent, our foreclosure rate is much lower. It's only about one-and-a-half, 2 percent. I offer that statistic as a great example of how FHA, through its partnerships with lenders, will work with a homebuyer who may hit a rough patch in their life, maybe for medical reasons or temporary job loss, then we'll rework the loan with the underlying purpose is that it helps communities and it helps that family to keep them in that house.
CHIDEYA: A new report from the Federal Reserve suggests that home ownership is one of the best ways for African-American families to build wealth, but so many African-Americans live in dense cities where housing prices are astronomical. So what is the government doing to help low and middle income Americans who now feel priced out?
Mr. MONTGOMERY: Well, that's one of the things we hope to address with this new FHA legislation, to raise, particularly in the high-cost areas, our loan limits. That's one of the chief concerns I hear every time I go up on the Hill. Either Democrat or Republican, they look me in the eye, especially if they're in California or Oregon or New York or Massachusetts or parts of Illinois, and they say Mr. Commissioner, when are you going to raise the loan limits in my area?
I'll give you a good example. In the Bay Area last year, Marin County, because of the escalating home prices out there, we were only able to do about six FHA loans. But if you go to Webb County, Texas, which I'm sure unless you're from there, most people don't know where that is, we were able to do over 1,500 loans. It's because the home prices certainly there are much more sane, if you will, than other parts of the country.
But we think it's time to raise the FHA conforming loan limit so we can reach more low to moderate income home buyers.
CHIDEYA: Finally, as a last word of advice to, perhaps, a couple like the Papillion's, who is still on the market, still searching, may have had some bad moments on their credit, what's the number one thing that they should do to try to put themselves in a position to own a home?
Mr. MONTGOMERY: Do your research. No one is going to be looking out for you when go in there to sit down with a lender. That's why we always encourage people to do their homework, to empower themselves with the information, so in the rare instance where there is predatory lending, that someone can stand up and say, wait a minute, this doesn't sound right. I would please ask that family, call FHA. We would love to tell them about our story.
CHIDEYA: Brian Montgomery is assistant secretary for housing and federal housing commissioner in the Department of Housing and Urban Development. Thank you for joining us.
Mr. MONTGOMERY: Thank you.