End of Mortgage Assistance Could Undermine Economic Recovery

A blog post by Mark Price, originally published at Third and State.

Economic forecasters predicting strong economic growth in the next several years rest those hopes on a robust recovery in residential construction. In light of that, The Philadelphia Inquirer has some troubling news this morning in a story about a surge in foreclosure filings over the last 12 months.

The rise in foreclosure filings may be the result of lenders moving forward with long planned foreclosures rather than a worsening of economic conditions. More troubling is the rise in 90-day delinquencies, which could be the result of the end of Pennsylvania's Homeowners Emergency Mortgage Assistance Program (HEMAP). The permanent end to HEMAP also means rising costs for future taxpayers.

Higher Tuition, More Foreclosures: Just Some of the Ways We Are Paying the Price of Service Cuts

Price of Service CutsLast week, the Pennsylvania Budget and Policy Center launched a new series about the impact of five years of state service cuts on the citizens of Pennsylvania. Check out the first three installments below, and keep up with all the stories in the days and weeks ahead by liking our Facebook Page or bookmarking our Price of Service Cuts web page.

End to Mortgage Aid Nearly Cost Pennsylvania Woman Her Home

Judy earned a modest income from her clerical job until an unexpected health problem hit. She needed to work to pay her mortgage, but her doctor and physical therapist told her she had to take time off to recover. Judy, who lives in Allegheny County, went five months without income and fell behind on her mortgage payments. She faced the awful prospect of losing her home. ...

When Judy turned to the Homeowners’ Emergency Mortgage Assistance Program (HEMAP) for help, she hit a wall. Funding for HEMAP was cut so deeply in the 2011-12 state budget (by $8.5 million or over 80% from the previous year) that the Pennsylvania Housing Finance Agency had no choice but to shut HEMAP down in July 2011. Read the full story.

Tax Flight Is a Myth, Report Finds

A blog post from Christopher Lilienthal, originally published on Third and State.

We’ve heard it before. If you increase state taxes, people will up and leave for lower tax states — especially the most affluent residents. You often hear the same argument used to support tax cuts.

A compelling new report from the Center on Budget and Policy Priorities busts this common myth advanced by those who oppose a balanced approach to budgeting and tax policy. Turns out Americans move from state to state for a variety of reasons, but tax levels rarely factor in.

Not surprisingly, cheaper housing and job opportunities are much more likely to drive people to move to another state than tax levels.

As the report finds, the effects of tax increases on migration are, at most, small — so small that states raising income taxes on the most affluent households can be assured of a substantial net gain in revenue.

The report cites numerous examples of research debunking the migration myth and, through case studies, shows how misinformation about the impact of taxes on migration can influence policymakers and the media. Those who support the migration myth often wrongly assume a cause-and-effect relationship, promote irrelevant findings, and inaccurately measure migration, the report found.

On the flip side, low taxes can prevent states from maintaining the kinds of public services that create jobs and build a strong economy — the very things that potential residents value.

An Overview of Pennsylvania’s 2011-12 State Budget

State legislative leaders and Governor Tom Corbett agreed on a 2011-12 state budget deal this week, and on Tuesday, the state Senate approved it on a 30-20 party-line vote. The bill heads to the House of Representatives next.

It would spend just $27.2 billion, down $962 million, or 3.4%, from the 2010-11 budget.

The Pennsylvania Budget and Policy Center will have a detailed analysis of the budget later in the week, but for now we will highlight funding levels for major programs. You can view budget tables detailing funding levels by major department and highlights of education funding levels.


The biggest cuts, in both dollars and percentages, are in education programs, including PreK-12 and higher education. While the budget makes some funding restorations from the Governor’s original budget proposal, the cuts are still significant:

  • Basic education funding, at $5.35 billion is cut $421.5 million, or 7.3%, from the current year.
  • Funding for Accountability Block Grants, at $100 million, is cut by $159 million, or 61%.
  • Special education is flat-funded for the third year at just over $1 billion.
  • Charter School reimbursements are fully eliminated (a loss of $224 million).
  • Funding was also eliminated for Educational Assistance (a tutoring program) and school improvement grants.
  • Both Head Start and PreK Counts were cut by about 3%.

The cuts in major education programs total $863 million.

Higher education fared much better under the final budget but still sustained cuts of about 18%, or $160 million. Penn State University received a cut of 19%, or $50 million, in basic support. Community colleges will see a 10% cut, or $23.6 million.

Health Care and Public Welfare

Eighty-seven Souls: Reflections on Tough Times and Tight Choices in 2009

On Monday people across the city remembered the eight-seven souls that died in this last year either living on the streets or in shelters. Eighty-seven people! This is a dramatic rise from the previous year and it is shameful. It is shameful of the Nutter administration, which has closed our homeless cafes, which are the last refuge for those of us without homes in times of unbearable bone-chilling weather. It is shameful of the federal government, which in a time of economic crisis chooses to bail out banks and looks the other way when it comes to dire LIFE AND DEATH services for people that are struggling to survive. And most of all, it is a shame on our free market system, which allows companies like AIG to prosper, giving away absurd amounts of money in bonuses--money that would make sizable dents in the deficit this city is trying to bridge. It is a shame on an economic system that is responsible for epic failures, yet still fights with armies of suited lobbyists--against health care reform and for a deregulated banking system--so the precious few can accumulate dollar upon dollar, while more and more of us are struggling to survive, and many of us are not surviving at all.

Housing Prices in the Philadelphia Metro and Pennsylvania

Last week Freddie Mac as part of the release of its financials published data on housing prices in the first quarter of this year. The data show a decline in housing prices in Pennsylvania of 1.3 percent in the first quarter of 2008, the first such decline since 1995. The fall in prices in Pennsylvania was smaller than the declines measured in 37 states, including five of Pennsylvania’s nearest neighbors.

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It's Tuesday. I say we screw low-income renters.

What is wrong with this picture? There is a rental suitability law in Philly, that largely protects low-income people from slumlords. (The bill was pushed through by Rick Mariano, right before he resigned to go to prison, so that he could have a legitimate legacy before he left.) It was a nice gesture, and was passed over opposition from landlord groups.

However, now the Nutter administration has decided that amidst a lawsuit from landlord groups, it is not going to enforce the law, until those lobbying groups approve of changes to the bill. Fox, meet henhouse. Please lock the door on the way out, and don't choke on too many feathers.

Given what is actually in the bill, that there is even a mild controversy over this is pretty strange. Because what controversial things did the rental suitability law actually say?

  1. That the landlord has completed all requirements from L and I, and has no violations. (Crazy!)
  2. That the unit has working smoke detectors and fire extinguishers. (No!)
  3. That the unit doesn’t have problems- like lead paint- that can cause health problems in tenants. (Bastards!)
  4. That these requirements will be maintained while the tenant is renting the property. (How could they!)

If you were renting a property from someone, wouldn’t you expect/demand that anyway? Of course you would- because if you are reading this blog you are likely reasonably well-educated, more likely than not middle-class, and have a basic understanding that you are entitled to certain crazy things, like a home free of lead paint.

The 'controversy,' in theory, is because landlord groups are complaining that the bill gives tenants too many rights and is too vague. They allege this:

Lawrence Fischer, an attorney for the Apartment Association of Greater Philadelphia, counters that the law is too vague, citing "health and safety" without defining those terms. And Fischer said it lets a tenant manipulate the law to avoid being evicted.

"That's just not right," he said. "Any person who is about to get evicted, all they have to do is concoct an allegation of a violation and it stops the process."

This is frankly laughable. Maybe things have greatly changed from a year ago, but I have actually sat in on Landlord-Tenant Court, at least a year after the bill was passed. To say that the Court or law was in any way stacked towards tenants is a total joke. And, to imply tenants can win by simply inventing violations is a flat out lie.

Landlord-Tenant Court is a piece of Municipal Court that is- as the name suggests- a place where tenants and landlords are supposed to be able to bring and settle disputes. However, tenants almost never actually use their rights, and LT court could more aptly be described as eviction court. What you generally have are low-income tenants, almost never with counsel and almost never with an understanding of their rights, facing landlords, often represented by counsel, who have been through this process before. The power dynamic is dramatically tilted to the landlord. And, while I am sure the tenant must win sometime, I never saw it, on a daily docket with about 30 cases.

Basically, Philly landlords got used to a court that quickly served their needs. Then this law passed, and despite the fact that the overall power dynamic hasn’t changed (because most tenants still don't have counsel and don't know their rights) - landlords got pissed. Now, despite his vote for the bill as a City Councilman, landlords appear to have an ally in Mayor Nutter and the City Solicitor. We have reached bizarro world when the City Solicitor states she is suspending a law protecting low-income people because she doesn't know if it is enforceable, and because... it might not be consistent with the Mayor's goals.

First, what goals are those? And second, I must have missed the lesson in civics class where the Mayor can stop enforcing laws he doesn't care for.

I challenge anyone- for example, the Mayor or the City Solicitor- to sit in on a few sessions of LT court, and then tell us with a straight face that tenants in this city have too much power in the eviction process. As tenant after tenant either doesn’t show up, or has no understanding of their rights nor any comfort level defending themselves, and are then evicted or pressured into a behind-closed-doors mediation process, the reality of the situation will become quite clear.

If the problem here is vagueness- then take the issue to City Council, and let them modify the bill. Because, when low-income advocates get City Council to pass a good bill, and the Mayor simply decides to stop enforcing it, there are some pretty crappy implications that can be drawn.

The Mayor should go back to actually enforcing the law that is on the books, and City Council can- out in the open- hold hearings on possible changes. A situation where the City simply cuts a deal with landlord groups is a shameful joke.

Rental Prices and Home Ownership Costs in Metropolitan Philadelphia

The Center for Economic and Policy Research (CEPR) and the National Low Income Housing Coalition (NLIHC) have released a short briefing paper estimating the cost home ownership and rental costs in 20 metropolitan areas including Philadelphia.

In the following table rental costs are Fair Market Rents. Monthly ownership costs are calculated based on 75 percent of the median sale price of homes in the region and three different interest rates, 6% (low), 7% (middle), and 8% (high) on a thirty year fixed rate mortgage.

The authors argue that because ownership costs are significantly higher than rentals costs the housing market in the Philadelphia metropolitan area was one of the bubble markets.

Update on Philadelphia Metropolitan Area Housing Prices

Economists Robert Shiller and Dean Baker have both argued that housing prices over the past century have more or less kept pace with the rate of inflation. In recent years however housing markets in many parts of the country experienced appreciation in housing prices that have far exceeded the rate of inflation. The Philadelphia metropolitan area (Philadelphia, Bucks, Chester, Delaware, Montgomery) is one of those areas with inflation-adjusted housing prices growing 52% between the fourth quarter of 2001 and the fourth quarter of 2006.

New data on housing prices has been released for the fourth quarter of 2007. Here is a brief summary of that new data.

Philadelphia Housing Prices What Does The Future Hold?

In his column Paul Krugman discusses the reasons he is worried that recent efforts by the Federal Reserve to stabilize financial markets are falling short. Of particular interest is the following quote:

"First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels."

The ratio of housing prices to rents is a way of trying to sort out whether housing prices are overvalued. What you’re doing is comparing prices to an estimate of the rents a homeowner could earn if instead of living in their home they rented it out. It’s calculated in the same spirit as a price-earnings ratio on a stock. The higher the ratio is relative to its long run average the more you worry that housing prices are unsustainably high. We can calculate a version of the housing price to rent ratio for the Philadelphia Metropolitan Division (PA Portion).

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Inclusionary Housing bill: making shared prosperity a priority in city government

City Council voted 12 – 5 today to approve Inclusionary Housing in Philadelphia.

Councilman Darrell Clarke has been championing the idea that developers need to give back to the city’s working people—-who have been struggling to match their wages with the rapidly rising cost of homes and increased rents on apartments. This is a really important notion and one that Philadelphia’s economic development planning, such as it is, has shied away from in favor of tax cuts and tax incentives.

Legislating the idea of shared prosperity is something new and wonderful for Philadelphia city government. And treating developers and business like partners in building a sustainable city--who must be held accountable as well as feted--is also an important change.

Problem is, that when Clarke first wrote legislation to deal with this issue, he targeted a group of wage-earners who most would argue don’t need help as badly as others.

In a city where there is a need for 60,000 new units of affordable housing, any money or physical units set aside by developers need to be handed out to the people with the most need.

To his credit, bowing to pressure from the Philadelphia Housing Justice coalition, the bill that was voted on today focuses more exclusively on the lower end of Philadelphia’s wage earners (you may remember that Clarke’s original bill would have allowed developers to set aside units to people who earned as much as 150% of area median income which I think is like $100 k for a family of four).

The amended bill requires half of the units to serve families, on average, at 40% of area median income (which is more like $30 k for a family of four), although the upper income level is set at 80% of area median income (as Jennifer already suggested, read WCRP ED Nora Lictash’s op-ed in yesterday’s Inky if you want more details here).

Here’s the catch.

Today’s legislation won’t take effect until “developer incentives”, or cost offsets, are decided. So that requires another bill in the new Council next Spring.

What are "developer incentives?"

Well, for instance, when the bill is passed, a developer could build 12 stories worth of condos, and be required to set aside a certain number of units. Council could decide that the developer has to put the set-aside units on the market at a price that a family of four who earns $32,000 k can afford and just take that loss in return for the privilege of being allowed to build here.

To offset this “loss,” Council could offer developers a variety of things.

Like density bonuses, where the developer is permitted to build more units than the zoning code would normally allow. Or, maybe allow developed to build higher in an apartment building than normal, or allow smaller lot sizes or smaller set-backs.

In short, developer incentives are things that directly increase profit for developers to offset any "loss" they see from contributing to our affordable housing crisis, but doesn’t directly cost the city anything.

From a coalition press release:

“We’ve worked with some of the top experts from the field and talked with key market-rate developers in Philadelphia to understand appropriate developer incentives,” said Nora Lichtash, Executive Director of the Women’s Community Revitalization Project. “We stand ready to work with City Council next year to develop fair and reasonable incentives that will make Philadelphia’s Inclusionary Housing program a model for future policies.”

However, some developers will be lobbying in the spring to have the city subsidize some of their loss on per-unit sales to low income families--with cash money.

There is a rumor that some developers have already asked for 100% subsidization--this of course would defeat the whole purpose of the bill—shared prosperity—and it’s something to keep an eye on. Between city contracts, possible BPT cuts, and a whole new set of priorities from a new Mayor and Council, I doubt we afford to subsidize developer contributions to affordable housing. Especially when the whole point of a bill was to find creative ways to fund an urgent problem.

There is a also a big picture to keep in mind here: the Affordable Housing Trust fund is already up and running, and developers are submitting RFPs to it to get money to build new units of affordable housing, for both sale or rent. Coalition folks tell me that the new stream of money from the Inclusionary Housing bill will double the reach and impact of the trust fund.

What does that mean in real numbers? In total, we're talking about construction of about 14,000 new units of affordable housing and/or repair to existing stock over 10 years.

And the need is at least 60,000 units.

So, I am glad this bill passed, and I hope the discussion of developer incentives is smooth, easy, and fast, as Council and the Mayor have a lot more work cut out for them to create more affordable housing than just this one bill.

In the meantime, let’s savor the victory today not just for affordable housing advocates, but for everyone who believes that our city government can and should so what it can to bring shared prosperity to all Philadelphians.

For the record: Supporting the bill were Clarke, DiCicco, Blackwell, Campbell, Savage, Miller, Tasco, Goode, Reynolds Brown, Kenney, Greenlee and Ramos. Call to thank them!

No votes were Verna, Krajewski, O’Neill, Rizzo and Kelly. Call to express your disappointment with them. Contact info is here.

Too bad some of the "No" votes aren't the people leaving Council next month. And in the meantime, I wonder where those folks are gonna be, and the new Mayor, on passing a reasonable package of incentives for developers.

THE TEASER FREEZER -- I must be missing something: Bush's people are on the right track?

This is sort of surreal. I semi-agree with Bush and Co.

So, right now, The Philadelphia Unemployment Project is trying to organize Countrywide Home Loan borrowers to demand loan modifications such that their introductory interest rate becomes a fixed-rate through the life of the loan. That it's a modification as opposed to a refinance is important, because then the borrower doesn't have to get a bunch of new fees loaded onto them.

See, mortgage holders always have the option to modify loans to easier terms any time they want. They seldom do it, but these are exceptional circumstance.

In summary: LOAN MODS NOW!!!

Unbelievably, the Bush Administration seems to be recommending a much more conservative version of the same thing (which is still pretty good). It's being called a "teaser freezer." Basically, loan modifications such that the borrower gets another couple of years at the teaser-rate. Not ideal, but a lot better than a rash of foreclosures. The White House is even arguing for the teaser-freezer as something that will benefit investors (we agree, but we're surprised to hear them say it).

Find out more after the jump!

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