Costly,Regressive, and Ineffective: How Sensitive Is Public Support for the Mortgage Interest Deduction in the United States?

ABSTRACT

Although the mortgage interest deduction enjoys broad public support, critics argue that the policy disproportionately benefits wealthy households, fails to expand homeownership opportunities to households on the margins, and costs the federal government an extraordinary amount of money in foregone tax revenue. Drawing on data collected through an online experiment, this analysis tests the sensitivity of public support to these critiques. The findings reveal that support for the mortgage interest deduction declines when respondents are presented with information about the cost, effectiveness, or distribution of benefits associated with the deduction. Support among renters is more sensitive to framing effects than that among homeowners. Republicans are less sensitive to framing effects than Democrats when the deduction is framed as distributing benefits unequally, but more sensitive to these effects when the issue is framed as costly. However, all groups register their lowest level of support when told that the mortgage interest deduction is not an effective tool for expanding ownership opportunities.     

Evidence and Actions on Mortgage Market Disparities: Research,Fair Lending Enforcement,and Consumer Protection

ABSTRACT

In this article, we present an overview of the research on discrimination in mortgage underwriting and pricing, the experiences of minority borrowers both prior to and during the financial crisis, and federal efforts to mitigate foreclosures during the crisis. We next discuss the history of legal cases alleging disparate treatment of minority borrowers, and recent cases alleging disparate impact in the wake of the Supreme Court’s Inclusive Communities decision. Using these discussions as a background, we examine and discuss mortgage regulations issued by the Consumer Finance Protection Bureau following the financial crisis, describe recent developments in the FinTech industry and explore the implications for fair lending policy and minority borrowers more generally. Finally, we draw conclusions and make recommendations for improving the mortgage market outcomes of minority borrowers and increasing minority borrowers’ access to credit.     

Islands of decay in seas of renewal: Housing policy and the resurgence of gentrification

Abstract

For many observers, the recession of the early 1990s signaled the end of what Berry called islands of renewal in seas of decay. In the past decade, however, shifts in mortgage finance have intersected with developments in assisted housing to alter the links between gentrification and housing policy. In this article, we use field observation, Home Mortgage Disclosure Act data, and HOPE VI plans to analyze the resurgence of gentrification in eight U.S. cities.

Between 1992 and 1997, gentrified neighborhoods attracted conventional homepurchase mortgage capital at a rate that grew at more than 2.3 times the suburban rate. Logit models confirm that mortgage capital favors gentrified neighborhoods even after controlling for applicant and loan characteristics, suggesting a new relationship between mortgage lending and neighborhood change. In some cities, gentrification has surrounded islands of decay and poverty with landscapes of renewal     

Income tax concessions for owner‐occupied housing

Abstract

This article considers arguments for and against the major tax concessions for owner‐occupied housing in the Internal Revenue Code—concessions that have a significant effect on the federal budget. It recommends retaining two of the concessions— nontaxation of net imputed income and exemption of capital gains—and abolishing two others—the mortgage interest and real estate tax deductions.

After a review of the market impact of removing each deduction, the article concludes that an appropriate phase‐out period of 15 to 20 years would virtually eliminate adverse effects on house prices and homeowners.     

Tax and direct expenditures: Perspectives on prepayment proposals

Abstract

If the government were committed to replenishing the inventory of project‐based assisted housing units when losses occurred, owners’ prepayment rights, with prepayment penalties, would be a desirable feature of the program. Additional unsub‐sidized housing units would be created every time a prepayment occurred, the freed‐up subsidies and insurance commitments would support a replacement low‐income unit, and prepayment penalty income could be used to offset mortgage insurance losses and thereby reduce the cost of mortgage insurance.

Under the much less than ideal conditions now prevailing, with no replacement project‐based housing available and no buy out arrangements in place, federal policy must attempt to limit prepayment by the owners of subsidized projects over the next few years.

An approach to establishing a “maximum price” that the government should be prepared to pay to induce each prepayment‐eligible building owner not to prepay is presented.     

The legacy of the home owners’ loan corporation

Abstract

The appraisal practices of the Home Owners’ Loan Corporation (HOLC) and its Residential Security Maps are often cited as major contributors to later redlining and the perpetuation of segregation through unequal access to mortgage credit. This article focuses on whether there was a relationship between the HOLC's neighborhood assessments and mortgage outcomes.

Our results indicate that the agency was clearly instrumental in restructuring the home finance system and permitting far greater access to homeowner‐ship, but it is important to consider other factors in examining the HOLC's legacy in the reshaping of the mortgage market and the operation of the financial sector after the Great Depression. Specifically, the issue of increasing segregation in older cities in the late 20th century remains inextricably linked to both the shifting nature of real estate finance after the HOLC era and the demographic, economic, and residential changes affecting U.S. cities.     

Ethnic Decentralization and the Challenges of Inclusive Governance in Multiethnic Cities: The Case of Dire Dawa,Ethiopia

Abstract

Ethnic decentralization which could emerge in the form of autonomy and/or federalism has become an important way of responding to the challenges of ethno-nationalist conflicts. Since 1991, Ethiopia has adopted an ethnic federal structure which provides territorial autonomy to its various ethnic groups. This approach to autonomy, however, has brought challenges to multiethnic cities and ethnic borderlands where different ethnic groups coexist. By examining the experience of Dire Dawa, the second largest city in Ethiopia, this article shows how federalism and territorial autonomy by themselves are not enough to address problems of participatory governance in multiethnic cities. The article finally underscores the need for policy innovations that would ensure power-sharing in multiethnic cities.     

Public housing desegregation: What are the options?

Abstract

This paper examines policy and programmatic options for the desegregation of low‐income public housing. Desegregation is a strategy for relocating public housing residents or units to communities that offer a better quality of life. This paper considers the likelihood of achieving desegregation, given the factors that created segregation, by exploring the role of past and present policies and programs in producing segregation and the effects of efforts to ameliorate it.

The major finding is that public housing segregation is firmly entrenched in many major cities, and attempts to reverse it have produced marginal changes. Although the federal government has ceased to play a major role in perpetuating racial segregation, it has not taken a strong, consistent, and clear stand on desegregation policy. Some innovative desegregation programs with promising outcomes are currently under way, but it is unlikely that public housing segregation will be abated in the future.     

When Mayors Matter: Estimating the Impact of Mayoral Partisanship on City Policy

U.S. cities are limited in their ability to set policy. Can these constraints mute the impact of mayors’ partisanship on policy outcomes? We hypothesize that mayoral partisanship will more strongly affect outcomes in policy areas where there is less shared authority between local, state, and federal governments. To test this hypothesis, we create a novel dataset combining U.S. mayoral election returns from 1990 to 2006 with city fiscal data. Using regression discontinuity design, we find that cities that elect a Democratic mayor spend a smaller share of their budget on public safety, a policy area where local discretion is high, than otherwise similar cities that elect a Republican or an Independent. We find no differences on tax policy, social policy, and other areas that are characterized by significant overlapping authority. These results suggest that models of national policymaking are only partially applicable to U.S. cities. They also have implications for political accountability: mayors may not be able to influence the full range of policies that are nominally local responsibilities.     

Differences That Matter: Overcoming Methodological Nationalism in Comparative Social Policy Research

Abstract

Welfare states are often discussed as if they were territorially homogeneous state-wide institutions measurable by state-wide expenditure averages and explained by country-level variables. It is rare in comparative policy studies to investigate the role of territorial politics in the outcomes of even federal countries. This article argues, using social policy examples in the UK and US, that the impact of intergovernmental finance and division of labour profoundly shapes social investment and redistribution – producing almost as much expenditure variance within the US as within the OECD. The findings show the importance of incorporating territorial politics and intergovernmental arrangements into comparative welfare state and policy analysis.     

Federal policy and postwar urban decline: A case of government complicity?

Abstract

Many urban commentators have implicated the federal government in the decline of central cities in the decades just after World War II. They claim that federal policies disproportionately favored suburban development over much needed urban redevelopment and exacerbated the deconcentration and decentralization of people and capital.

Close scrutiny reveals flaws in this argument and four of them are examined in this article: the core premise that suburban growth and population loss in the central cities are inversely related, the lack of attention to the actual chronology of events, the failure to address the geographic incidence of population loss from the central cities, and the deemphasizing of the role of the private sector, often acting with government support. The article concludes with a brief reflection on the tenacity of the complicity claim.     

Home mortgage lending by applicant race: Do HMDA figures provide a distorted picture?

Abstract

The Home Mortgage Disclosure Act of 1975 (HMDA) was designed to further fair access to mortgage credit and requires lenders to report such information as location, loan amount, income, and race and sex for each application. However, race is missing in a significant proportion of applications taken by mail or phone. Given the widespread use of HMDA data by lenders, community groups, researchers, and regulators and the importance of mortgage lending as a public policy issue, the strengths and shortcomings of these data must be clearly understood.

The main findings are that reported approval rates by race are significantly overstated for refinance and home improvement loans, while home purchase loans are little affected. A review of trends in how race is reported and in the technology of mortgage lending indicates that missing data on race will become a bigger and bigger problem in the near future.     

State and local governments: New initiatives in low‐income housing preservation

Abstract

Preservation of the federally assisted low‐income housing stock is a critical issue in housing policy for the 1990s. Most of the low‐income housing initiatives that emerged over the last decade at the local and state levels were in response to changing economies and housing markets, to shifts in composition of the low‐income population, and to cutbacks in federal housing assistance as well as potential losses in the federally assisted housing inventory. The expansion of housing initiatives at state and local levels has critical ramifications for federal housing policy. It is a challenge to the federal government, which has not undergone a similar dramatic change in housing assistance policies. A number of areas of a new “federal partnership” need to be explored.     

Research on discrimination in housing and mortgage markets: Assessment and future directions

Abstract

This paper presents a holistic conceptual framework within which various research topics related to discrimination may be interrelated and evaluated. It then critically analyzes extant research relating to central components in the framework: the detection of discrimination, causes of discrimination, consequences of discrimination, and policy initiatives related to fighting discrimination both directly by deterrence and indirectly by attacking segregation and the prejudices it spawns.

A great deal is known about the nature of private acts of housing discrimination, but little about which policies are most effective in combating such discrimination. On the other hand, relatively little is known about the extent of housing discrimination perpetrated by local governments and public agencies and about both differential treatment and disparate impact forms of discrimination in mortgage and related (appraisal, insurance) markets.     

Comment on “Does the Likely Demographics of Affordable Housing Justify NIMBYism?”

Abstract

Automated underwriting (AU) systems have become the tool of choice in mortgage lending decisions. While these systems provide significant benefits to mortgage originators and investors, questions have been raised about their impact on underserved populations. The questions focus on the relative accuracy of AU compared with manual underwriting and whether AU has increased the flow of mortgage credit to underserved consumers.

Using information from Freddie Mac's Loan Prospector AU service, we provide statistics useful in examining these issues. The data strongly support our view that AU provides substantial benefits to consumers, particularly those at the margin of the underwriting decision. We find evidence that AU systems more accurately predict default than manual underwriters do. We also find evidence that this increased accuracy results in higher borrower approval rates, especially for underserved applicants.     

Federalism,Physicians, and Public Policy: A Comparison of Health Care Reform in Canada and Brazil

Abstract

This article uses comparative historical analysis to explore physicians’ involvement in health care reform in Canada and Brazil. Drawing on historical institutionalism, the analysis stresses how, beyond partisanship, physicians build consensus around and promote specific policy ideas, and how federal institutions shape physicians’ mobilization. In both countries, physicians’ mobilization shaped the emergence of universal health care coverage, but in quite different ways, because of the differing federal institutions. Although the Brazilian medical lobby was far more heterogeneous than the Canadian profession, one faction was able to mobilize at the local level to pursue policy ideas favorable to universal health coverage.     

Beneficiaries of federal housing programs: A data reconnaissance

Abstract

This article reports on a reconnaissance of information systems containing data on the beneficiaries of direct and indirect federal housing expenditures. It covers data in the U.S. Departments of Agriculture, Housing and Urban Development, Veterans Affairs, and the Treasury; the Resolution Trust Corporation; financial regulatory agencies; and secondary mortgage market actors.

Data varied widely across agencies in availability, accessibility, and quality. Data are more systematically collected for low‐income beneficiaries of housing programs than for the more affluent beneficiaries of indirect housing expenditures. The systems need improvements in data quality and coverage and database format, though they have improved recently. Many research topics can be explored with new and underused data systems: the characteristics of beneficiaries of rural housing programs, urban rental housing programs, low‐income homeownership programs, and mortgage guarantee and insurance programs. But the lack of information on the systems themselves makes data difficult to locate and access.     

Federal Dynamics of Changing Governance Arrangements in Education: A Comparative Perspective on Australia,Canada and Germany

Abstract

Education policy is a highly interesting field from the point of view of governance, given the substantial changes that have been made throughout the world to the governance of such policy over the last 30 years or so. Western governments in particular have made significant changes in the governance arrangements of their education policy in order to achieve two fundamental goals: increased efficiency and greater accountability. In this process, the role of governments has changed but not diminished. This paper explores such developments by comparing the trajectories of governance reforms in three federal countries (Australia, Canada and Germany). What emerges is that the role of governments is key to all governance mixes modelled by the reform processes in the three analysed countries, and that there is greater “national” coordination than before, but also significant differences in the strategies adopted and in the content of reform, due to the differing nature of such countries’ federal dynamics.     

Mark‐to‐market: A fundamental shift in affordable housing policy

Abstract

Residential mortgage underwriting practice has serious shortcomings, including fixation on the present rather than the future. Accept‐reject decisions reflect some unknown interaction among implicit macro projections, implicit micro projections, and implicit policy toward assuming risk, and there is no way to relate the decision process to its components. As a result, there is no satisfactory way for a lender to incorporate a particular macro‐economic outlook into its underwriting standards. Further, different mortgage designs often carry markedly different degrees of risk. Most critically, accountability for underwriting decisions is obscured.

This paper proposes a fundamentally new approach to underwriting that makes full use of new technology. Under this approach, macro and micro projections of the future and the lender's policy toward risk are explicitly specified. The accept‐reject decision is automatic and transparent. Each of the parties responsible for the components of underwriting decisions can be held accountable, with the underwriter responsible only for micro projections.     

Comment on Elvin K. Wyly and Daniel J. Hammel's “Islands of Decay in Seas of Renewal: Housing Policy and the Resurgence of Gentrification"—Gentrification resurgent?

Abstract

Gentrification is a procyclical process by which certain inner‐city neighborhoods are revitalized to meet the demands of professional households. It is confined to cities with substantial central business district office growth and with housing markets characterized by substantial suburb‐to‐inner city filtering. The process remains limited in scale, and available data do not permit a judgment as to whether changes in mortgage lending have changed the nature of the process.