The big story this week, besides the threats of imminent annihilation from North Korea, is the apparent push from the White House to encourage banks to loosen the current mortgage credit restrictions. So much media attention has been given to this that an uninformed observer would believe that the federal government is really working to expand homeownership back to pre-2008 levels.
I think this narrative, and the conservative furor/backlash being heard on conservative news shows like Hannity, is exactly the story that the White House wants the press reporting. By having this narrative in the media, the White House can make a case for a populist push to force "bad greedy banks" to make more loans to deserving Americans who have had their credit damaged during the recession, and they can make conservatives who oppose them out to be heartless bad guys. In reality, the true story of mortgage lending is very different than either side of this issue is reporting.
The truth is that the qualified mortgage standards being implemented next year will shut between 15% (according to the CFPB's estimates) and 40% (according to the QM critics estimates) of potential homeowners out of the market completely. Much is being made of the fact that FHA allows credit scores as low as 500, and down payments as low at 3.5%. In fact, most banks will not make an FHA loan without a credit score of at least 600 and many require 620 or 640. But new guidelines expected to be released in the next few months will raise downpayment guidelines for qualified residential mortgages up to 10%. While Fannie, Freddie and FHA have a seven year exemption before the loans they make have to qualify under the new guidelines, many mortgage professionals are looking ahead to the end of the seven years at a massive mortgage and housing constriction when the new guidelines are fully implemented for all lending types. And in the immediate future, the implementation of the Qualifed Mortgages and the Qualified Residential Mortgages and the 3% cap on points and fees next year is going to cut off access to mortgage credit and to mortgage credit providers.
So why is the Administration talking out of both sides of its mouth on this issue? Very simply, the Obama Administration wants to discourage private ownership, especially in the suburbs, and wants to encourage "sustainable development"--densely packed urban areas reminiscent of Manhattan. The problem is that Americans like homeownership, we like cars and we like suburbs. So the Administration does not want to say in a public forum that they are actively working against these aspects of American life. Instead, they have pushed through massive pieces of legislation such as Dodd Frank that contain thousands of pages of still to be written regulations that endanger private homeownership while they publicly claim to want to help Americans buy their own homes.
On March 18th, the National Review Online's Stanley Kurtz wrote an opinion piece entitled "Obama's Plans for the Suburbs: And How to Stop Them." On March 15, President Obama spoke at the Argonne National Laboratory and proposed $2 billion on an energy security trust fund for renewable fuel research and as part of the speech he promised "to shift our cars entirely...off oil" As Kurtz noted in his column, even the New York Times was skeptical since the President did not provide any real details as to how he would accomplish this.
On that same day, however, the Department of Energy released a series of reports called "Transportation Energy Futures" which outline a plan to reduce US greenhouse gas emissions by as much as 80% by 2050. Part of this report includes "the effects of the built environment on transportation." This report is a blueprint for restricting development in suburbs. Proponents of "smart growth" and "sustainability" hate the suburbs because they represent individual housing and private transportation, both of which are at odds with the United Nation's Agenda 21,an aggressive environmental blueprint to dramatically change the living conditions of the world. Agenda 21 has been in various stages of implementation on the local level for over 20 years as cities and communities embrace Smart Growth, but the Obama Administration is dedicated to using federal resources to stop suburban development, to limit private automobile ownership and to force Americans into small tightly packed apartments to and from which they will either walk or use public transportation.
To achieve this, the Department of Energy report recommends two policy options which are most likely to encourage dense development without exceeding the federal government's current authority. The first requires eliminating the home mortgage interest deduction, which is perceived to incentivize many people to purchase homes who would not otherwise do so. The second is to tie future federal aid, federal grants, and federal funding to "Smart Growth" projects. The DOE suggests that federal funding for schools and roads could be forced to pass a population density litmus test which would mean that suburbs would not qualify for these funds.
Kurtz also notes that on March 15th--the same day of Obama's speech at Argonne and the DOE report-- Bloomberg reported that the Obama Administration has announced plans to order all federal agencies to consider global warming before approving large projects. As the Bloomberg report notes, this strategy could block highway construction and suburban development projects.
I agree with much of Kurtz's article, but I think he is overlooking some key factors. First, he states that he does not believe that the mortgage interest deduction will be done away with. That may or may not be true--but after spending 15 years in the housing industry I believe that tax exempt interest is a secondary consideration in whether people purchase homes. Homeownership is the American dream, and for many Americans being able to write the interest off their taxes is not a primary incentive to buy--it is an added perk of doing so. However, Obama already has a cadre of weapons in his legislative arsenal to stop the growth of the suburbs. The new qualified and qualified residential mortgages are going to ultimately have such a great effect on who can purchase and who cannot and how much they can purchase that additional disincentives to purchasing single family homes will probably not be necessary. Smart Growth and Sustainable development policies tend to make housing much more expensive. In Portland last year, the new "affordable housing" urban project was a one-bedroom condo selling downtown for around $160,000. The new qualified mortgage guidelines state that a borrower's total debt cannot exceed 43% of his or her total income. What many do not seem to realize is that lenders, who are afraid of punitive government actions, have already placed serious limits on how much income they will consider for a borrower. For instance, last Christmas I was working on a loan for a man who had been a self-employed attorney for 30 years. Because he was retiring, his income was declining from year to year, although he still earned more than enough money to more than meet all of his current obligations and buy a small investment property. But the lender did not want to be accused of making a mortgage loan to a person who did not "qualify" so they had a rule that if the income were declining for two years in a row, regardless of the current income filed on the taxes or the overall ability of the person to meet his financial obligations--they would not allow us to consider any of his self-employment income. In the case of the attorney, the only income the underwriter would consider was just his fixed Social Security monthly income.
Such practices are going to cause many self-employed or under employed Americans to not qualify to purchase housing period. Americans who have had their hours cut due to the economy or Obamacare or who are working more than one job to make ends meet are going to have an increasingly difficult time qualifying. Millions of others are going to qualify for such low loan amounts that all they will be able to afford is a small urban condo. The Obama Administration does not have to make controversial public policies regarding housing--they just have to continue writing regulations which make it impossible for average Americans to afford homes.
The other part of this "carrot and stick" approach to implementing Smart Growth is also already happening through federal grants for sustainable projects. Kurtz points out that House Republicans blocked funding for the Sustainable Communities Regional Planning Grants in 2012. However, as he also mentions, there are a lot of grants out there now that builders and developers can use to build "Smart Growth" projects.
Consider "Block 21" in Aurora Colorado, a new mixed use urban housing project being built for the low, low price of $160 million through a joint partnership of Waveland Ventures LLC, Jackson Street Holdings LLC, and Arrival Partners LLC. The project includes a six story 200 room four star hotel (the brand will be announced later this month) with a pool and fitness center and a 30,000 square foot meeting room. It also features a four-story apartment complex with 100 units, a club house and a swimming pool, and 10,000 square feet of ground level retail space. Like all "Sustainable" communities, Block 21 will also feature the "Quadrangle" a heavily landscaped urban park.
The developers tell us that "Block 21" is named for Army hospital 21, a World War I hospital that once stood at the medical complex adjacent to the new development. Perhaps that is true, but it is an amazing coincidence that the name invokes images of Agenda 21, the United Nations aggressive environmental initiative which calls for "human settlements" very much like Block 21.
The most interesting part of Block 21 is the financing source. According to RE Business online, Waveland Communtity Development, a wholly owned subsidiary of Waveland Ventures, has received $312 million in tax credits since 2007. In addition to tax credits for Block 21, Waveland has also secured a commitment for the senior debt via the Federal EB5 program to finance the project.
That's exactly how this works--starve funds from the projects the government wants to kill and supply funds to the projects the government wants to promote. As Smart Growth projects are incentivized with tax credits and federal funding we are going to see more Smart Growth developments and less and less financing for suburbs. And as individual borrowers can no longer qualify to purchase homes in the suburbs, we will see more and more of these homes and ultimately more suburban communities going first into foreclosure, and then descending into "blight" only to be ultimately bulldozed and destroyed just as happened last year in Ohio with homes that could not be sold.
In his article, Kurtz recommends that Americans get involved in the process and let their Congressional Representatives know that they need to block funding for Sustainable Communities Regional Planning Grants. That is a good start. Another good start is to support candidates who are informed about Agenda 21 and the threat that it poses to American freedom and the American way of life and to support only those candidates who stand against it. A third is to stop falling into the trap of pretending that lending and mortgages are evils of the 21st century. As long as Americans continue to pretend that cutting off access to credit is doing our country a favor, we are playing right into the hands of the politicians who are remaking our society into one in which private property and single family home ownership no longer exist--a society where everyone lives and works exactly where the government tells them to. That is not the future that I want to leave to the next generation. What about you?
Find out more about Agenda 21, what it means, how it implemented, and what you can do about it by watching Alexandra's presentation: Agenda 21: Bankrupting Us into Utopia--One City at a Time
Find out more about Agenda 21, what it means, how it implemented, and what you can do about it by watching Alexandra's presentation: Agenda 21: Bankrupting Us into Utopia--One City at a Time
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at http://www.frontier2000.net.
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