©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE A CHALLENGING AND TURBULENT TIME NeighborWorks Homeownership Symposium Eric Belsky February

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE A CHALLENGING TIME 2

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Enormous Amounts of Home Equity Have Been Destroyed 3 Note: Dollar values are adjusted for inflation by the CPI-U for All Items. Sources: Federal Reserve Board, Flow of Funds, Balance sheet tables. Trillions of 2011 dollars Recent home equity decline takes us back to 1984 levels

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE More than 11 Million Mortgaged Homeowners Are Underwater Source: CoreLogic

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Unemployment Rate Remains Elevated 5 Unemployment rate (Percent) Note: Unemployment rates are seasonally-adjusted and for the month of December. Source: Bureau of Labor Statistics.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Disparities in Unemployment By Age and Race Are Large 6 Source: Moody’s Economy.com and Bureau of Labor Statistics, Current Population Survey. Unemployment Rate, 2011:4

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Employment Has Started to Recover But Is Still in a Deep Hole Note: Quarterly values are three-month averages of seasonally adjusted annual rates. Official End of Recession quarters were 1975:1, 1982:4, 1991:1, and 2009:2. Sources: NBER; BLS, Establishment Survey

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Low-Tier Homes Have Been Hit Hardest by Price Declines 8 Percent decline in home prices, peak to November 2011 Source: JCHS tabulations of S&P/Case-Shiller Tiered HPI data.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE High-Cost Lending Was Highest Among Low- Income and Minority Homeowners 9 High-cost loans as a share of all loans originated in 2005 (Percent) Notes: Includes originations of conventional 1-4 unit owner-occupied home purchase loans. Low/middle/high income neighborhoods are census tracts with median family income in 2000 that is less than 80%/80-120%/greater than 120% of the 2000 area median family income. White/mixed/minority neighborhoods are tracts with a minority population share less than 10%/10-50%/greater than 50% of population in Source: JCHS enhanced HMDA database

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Foreclosures Have Been Concentrated In Low-Income Markets and Communities of Color Notes: Minority census tracts were more than 50% minority in 2000; mixed census tracts were 10–50% minority; white census tracts were less than 10% minority. Low-/moderate-/high-income census tracts had median family incomes is less than 80%/80–120%/more than 120% of the metropolitan area median. Estimates are based on a HUD model of the share of loans foreclosed from January 2007 to June Sources: JCHS tabulations of HUD 2008 Neighborhood Stabilization Program data and US Census Bureau, 2000 Decennial Census. Median Estimated 18-Month Foreclosure Rate, 2008 (Percent)

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Even With the Will, The Way Towards Homeownership is Tougher Notes: High (low) risk loans are to borrowers with credits scores under 690 (above 750) and have loan-to-value ratios above 85% (below 75%). FHA data exclude records with no credit score information. Sources: Barclays Capital, GSEs: Back to the Future, US Interest Rates Strategy, 2009; US Department of Housing and Urban Development. Credit Score

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE A TURBULENT TIME 12

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Timing of Purchases Matters 13 Median sales price (Thousands of dollars); Price index Notes: All values are seasonally adjusted and in nominal dollars. Sources: National Association of Realtors, Median Sales Price Existing Single-Family Homes; S&P/Case-Shiller Single-Family Home Price Index; and FHFA Purchase-Only Home Price Index.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Price-to-Income Ratios Have Fallen Dramatically in Hardest-Hit States 14 Price-to-Income Index (1990:1 = 100) Notes: Price-to-income ratios were calculated as the housing price index over median household income. House price values are from the fourth-quarter, except in 2011, which takes the latest-available third quarter values. Sources: FHFA Purchase-Only Home Price Index (NSA); US Census Bureau, Current Population Survey; Moody’s Analytics Income Forecast

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Over Long-Run Prices Tend to Rise With Average Household Incomes 15 Multiples of 1975 Value Note: All values are in nominal dollars. Sources: NAR Median Sales Price, Existing Single Family Homes; Moody’s Economy.com tabulations of US Census Bureau CPS data

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Homeownership Is At Its Most Affordable Levels Since At Least NAR Affordability Index Source: NAR Composite Affordability Index.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Yet the Share of Renters Intending to Buy Has Fallen Share of Renters Likely to Buy in Next Three Years (Percent) Source: Fannie Mae National Housing Survey.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Still Homeownership Is Still VERY Favorably Viewed Share Stating Owning Makes More Sense Than Renting (Percent) Source: Fannie Mae National Housing Survey.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE And People Perceive that Now IS a Good Time to Buy Share Stating Now is a Good to Buy (Percent) Source: Fannie Mae National Housing Survey, Q

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Credit Remains Tight 20

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Financing Constraints Weigh Heavily, Especially on Potential First-Time Buyers 21 Percent of Respondents Source: Fannie Mae National Housing Survey, 2011:Q3.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE... And Those with the Lowest Incomes Most Keenly Feel the Challenges in Getting Mortgages 22 Source: Fannie Mae National Housing Survey, 2011:Q3.

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Delinquencies Have Ebbed But Foreclosure Pipeline Near Record Levels Source: Mortgage Bankers Association of America

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE THE PATH FORWARD 24

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE NWA Had it Right Full-cycle lending and sustainability matters Carefully educating and underwriting borrowers matters Flexibility in underwriting low credit score and low wealth borrowers is possible when done properly and with the right products

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE Seven-Point Plan Dispel myths about what caused risks to homeowners to mount and about the role of low-income housing policy Reassert evidence that shows can lend prudently to lower income/wealth/credit score borrowers Continue to research what works and doesn’t Show that full-cycle lending model is worth investing in Continue to fight for homebuyer assistance programs and housing finance reform that preserves access Remain flexible and responsive to housing demand in your markets Explore collaborations with Housing Finance Agencies