David Dworkin on affordable housing and delaying QM rule
This week, HousingWire’s Editor in Chief Sarah Wheeler interviews David Dworkin, president and CEO at National Housing Conference. In this episode, Dworkin discusses how the NHC thinks about affordable housing and which federal policies could improve Black homeownership.
Additionally, Dworkin addresses a recent decision by the Consumer Financial Protection Bureau to delay the final QM rule and how that might have unintended consequences for affordable housing and some of the consumers the bureau is attempting to help.
Here is a small preview of the interview, which has been lightly edited for length and clarity:
Sarah Wheeler: The National Housing Conference is the oldest coalition of affordable housing leaders in America. But I think the term affordable housing can mean different things depending on the context. How does the National Housing Conference think about affordable housing?
David Dworkin: Well, it’s evolved over time. When we were founded by Mary Kingsbury Simkhovitch, who was a social worker in New York City, our focus was on government investment in building public affordable housing to replace horrific slums in New York and around the country. And you know, when we talk about slums and substandard housing, we’re talking about 10-story walk-up tenements, with no running water or electricity, and an outhouse in the alley. So, half of the population of New York in 1931 was living in housing similar to that. What we found is that there wasn’t a great deal of interest, especially at the beginning of the Great Depression, to focus on those housing needs. So, we partnered with home builders and labor unions and became the unlikely coalition. Our slogan was “housing as jobs and jobs as housing.” That’s been a common thread through our entire 90 years, but more recently, I think you would better describe our focus as housing affordability. All housing is affordable to someone, I guess, unless you’re homeless, but the reality is, most people cannot afford the housing they need where they need it. And this is true up and down the income scale. I think there are a lot of upper-middle-class people in this country who have children who have gotten jobs in thriving communities and can’t find a place to live. I think we all know about the millennials sleeping in their bedroom that they grew up in, and while we see that with people of higher income, the situation is really bleak the further down the income scale you go. And ultimately, what we end up with is housing prices are too high, economic pressure is growing, and we have hundreds of thousands of people who are homeless today, the highest in recent history. That’s just unacceptable.
The Housing News podcast explores the most important topics happening in mortgage, real estate, and fintech. Each week a new mortgage or real estate executive joins the show to add perspective to the top stories crossing HousingWire’s news desk. Hosted by Sarah Wheeler and produced by Alcynna Lloyd.
Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:
Sarah Wheeler: Welcome, everyone. This is Sarah Wheeler, editor in chief at HousingWire with the latest episode of our “Housing News Podcast.” Our guest today is David Dworkin, the president and CEO of the National Housing Conference, which is the nation’s oldest housing coalition. But everyone in our industry is very familiar with David. You know, prior to joining NHC in 2018, David was a senior policy advisor at the U.S. Department of the Treasury. He also served as a member of President Barack Obama’s Detroit interagency team, where his responsibilities included developing and implementing strategies to assist in the city of Detroit’s revitalization. Previous to that, he managed the Capital Magnet Fund at the Treasury Department CDFI Fund, which disbursed 80 million in grants for economic revitalization and community development, through investment in and assistance to community development financial institutions and nonprofit housing organizations.
Then prior to joining the Treasury Department, he was CEO and founder of Affiniti Strategies. David also served in a number of leadership positions at Fannie Mae and served in the administration of President George H. W. Bush, including the State Department’s acting deputy assistant secretary for Legislative Affairs. I feel like we could go on and on, there’s actually a whole paragraph after this bio, David. So let me just say, you know, we’re really excited to have you. There’s no one better to talk about the issues we’re going to talk about today. And thank you for being here.
David Dworkin: It’s great to be here. Thanks for having me.
Sarah Wheeler: Well, you know, the first question we always ask on this podcast is how did you get into housing? And I think your story is probably even more interesting the most. So, you know, how did you get into housing?
David Dworkin: Well, as you mentioned, I was a diplomat following a 10-year career in foreign policy, that started as a war correspondent, and the counselor to Secretary Baker, Bob Zoellick, went to Fannie Mae as their general counsel. And after about a year, he said, you know, “Why don’t you come here? I have some things I need you to do.” And I warned him, the only thing I really know about mortgages is I just got my first one. But he had some ideas. And he said, “We can teach you about mortgages.” And they did. And unexpected, certainly to both of us, I fell in love with housing and have never looked back.
Sarah Wheeler: Wow, that’s so interesting. We don’t get a ton of former diplomats in housing. But I’m sure that, you know, all those skills are also applicable here.
David Dworkin: They are. It’s useful to be able to help people see their common interests. And since I’ve been involved in housing, I’ve never had to tell anybody to close the torture chamber under the runway. And so that’s been both a relief and keeps everything else in perspective.
Sarah Wheeler: Your day just looks better already when your day…
David Dworkin: Every day is a good day on that scale.
Sarah Wheeler: Wow. Well, you know, one of the things we want to talk about is affordable housing. And the National Housing Conference is the oldest coalition of affordable housing leaders in America. But I think the term “affordable housing” can mean different things, depending on the context and to different people. So how does the National Housing Conference think about affordable housing?
David Dworkin: Well, it’s evolved over time. When we were founded by Mary Kingsbury Simkhovitch, who was a social worker in New York City, our focus was on government investment in building public housing to replace horrific slums in New York and around the country. And, you know, when we talk about slums and substandard housing, we’re talking about 10-storey walk-up tenements with no running water or electricity, and an outhouse in the alley. So half of the population of New York in 1931 was living in housing similar to that. And what we found is that there wasn’t a great deal of interest, especially in the beginning of the Great Depression, to focus on housing needs. So we partnered with home builders and labor unions and became the unlikely coalition. And our slogan was “Housing is jobs, and jobs is housing.” That’s been a common thread through our entire 90 years.
But more recently, I think you would better describe our focus as housing affordability. All housing is affordable to someone, I guess, unless you’re homeless, but the reality is that most people cannot afford the housing they need where they need it. And this is true up and down the income scale. I think there are a lot of upper-middle class people in this country who have children who have gotten jobs in thriving communities and can’t find a place to live. I think we all know about the millennials sleeping in their bedroom that they grew up in. And while we see that with people of higher income, the situation is really bleak the further down the income scale you go. And ultimately what we end up with is housing prices are too high, economic pressure grows, and we have hundreds of thousands of people who are homeless today. The highest in recent history. And that’s just unacceptable.
Sarah Wheeler: I think it’s really interesting that you said that, you know, jobs is housing, housing is jobs because we know that housing is just one part of a larger picture in someone’s life. You know, I think about the gap between white and black homeownership continues to be a topic of interest, not just in our industry, thankfully, but really across the country. What are some of the federal policies we need to move the needle forward on black homeownership?
David Dworkin: I think there’s a wide range of policies that we have to do in concert together if we’re going to actually make a difference. What we’ve seen since the Great Recession is black homeownership plummet to levels basically lower than or as low as the period before the Fair Housing Act was passed, when mortgage discrimination was still legal. During the ’90s, black homeownership rate along with other homeownership rates began to climb, and it almost reached 50% by the early 2000s. What happened then, among most of the country is you saw easy credit becoming available and a lot of people buying. Investment properties, you saw securitization and derivatives increase, a lot of risk being leveraged into the housing markets. The narrative for most people was that well, people were getting mortgages that were bad to buy homes they couldn’t afford. And that was certainly true of many people. But in the case for African Americans, that’s really a false narrative.
The experience most African Americans had at that time was that they were in good mortgages, in homes they could afford, and got refinanced through cash out refinances that stripped their home of their equity, and put them in very unstable mortgages that had to be refinanced every two years. And so as their equity reduced, their ability to weather the Great Recession when it came evaporated. And so, many more African Americans lost their homes. And the experience in the community after decades of and really a century or more of mortgage discrimination, housing discrimination, many people would say it goes back to our founding, which is true, was just more than they could bear and withdrawn from the mortgage market because of personal and multi-generational experience, which is very understandable. It’s still the most important way to build wealth for people who are middle income. And so we’ve got to help change that attitude. But part of changing that attitude is also making a fact-based case that we’ve addressed a lot of these abuses, and helping people navigate through that system, both financially, emotionally, and through, you know, education and information.
Sarah Wheeler: Interesting, you know. So I just asked about federal policy, but something that we’ve seen just in the last couple of months is several bills working their way through Congress to help first-time homebuyers. You have one that’s really focused on first-time homebuyers and one that’s focused on first-generation, first-time homebuyers. I would, you know, love to hear what you have to think of those, and if they’re helpful, and what their chances are of passing.
David Dworkin: They are very helpful. I think the down payment assistance act that Chairwoman Waters has drafted is very important. It needs to be properly funded. If it’s not funded well enough and that funding is not sustainable, it’s probably not going to have an impact. But the down payment is a big barrier for first-time homebuyers. The focus on first-generation homebuyers is really important because that helps narrow the focus in people who are not benefiting from multi-generational housing wealth. There are other bills too, that are going to be very important. One of them is the Neighborhood Homes Investment Act, which will create a tax credit to allow for the closing of the appraisal gap that we see in communities where housing is actually cost too little rather than too much. People would say, “Well, why is it a problem if it’s too little?” And the answer is because the cost of doing the rehab or building a new home doesn’t match the appraisal and you end up not being able to finance it or justify the construction costs. And so we needed tax credit to actually close that appraisal gap. That’s going to be very important, a strong bipartisan support.
Another area is that exclusionary zoning makes it harder to build housing that’s more affordable to most people. These are rules, and regulations, and impact fees that occur in communities across the country that make it harder to build anything but large single-family homes on quarter or half-acre lots. This is something we’ve got to deal with. And the beginning of dealing with that is a bill called the Yes in My Backyard Act or the YIMBY Act. That’s going to require if you’re getting CDBG funds, that you have to file a report on what you’re doing about exclusionary zoning. It does not link that assistance or any other assistance to actually making progress. But I think the reporting itself will be important start. And because it’s just reporting, it’s a basically not even quite a carrot and no stick. It will begin, I think, an ability to assess the situation and make a stronger case as we move forward.
Sarah Wheeler: Yeah. You know, local zoning is just such an interesting impediment because it is daunting when you think about all of the, you know, state level, county level, city level neighborhood, HOA, you know, all the things, all the gauntlets that have to be run there. So we’re definitely looking at the YIMBY Act, we’ll be paying attention there. You know, you wrote a recent article titled “The Right Lessons from the Wrong Crisis,” which I found really interesting. And in that article, you mentioned the recent decision by CFPB to delay the final QM rule, and how that might have unintended consequences for some of the consumers that the Bureau is presumably trying to help. So can you expand on how delaying that rule might affect affordability?
David Dworkin: Absolutely. So just to widen the lens a little bit and explain that the QM rule is the qualified mortgage rule. And in the Dodd-Frank Act following the Great Recession, one of the things that policymakers recognized is that there were two fundamental problems with the mortgages that were being made to people who had lost their homes. One is that the people themselves were not adequately qualified for the mortgages they got. This often just was demonstrated by people getting these 228 mortgages where you would be assessed for your ability to pay the mortgage based on the income you had. But the rate that they used would be the teaser rate. So when the rate reset in two years, you could not afford to make the payments. This gets into the ability to pay, which is one of the elements of the Dodd-Frank rule.
The other is the qualified mortgage rule, which says that those kind of mortgages, the 228s negative amortization, other types of mortgages, no interest, my favorite is the stated asset, stated income loan, which was popularly called liar’s loans, because all you had to do is say what you were making and that was enough. Well, as a friend of mine who was involved with this at the time said, “We were shocked that the people getting liar’s loans were actually lying.” Many times the people who were doing the lying were actually the people filling out the paperwork on their behalf, not the people themselves. And the Dodd-Frank rules made those kinds of things illegal.
Unfortunately, some of the elements of the qualified mortgage rule got swept up with basic underwriting principles that are used to decide if somebody is qualified for the mortgage. These include your credit score, the loan to value, your debt to income ratio, and other factors. And since the late ’90s, the way mortgages have been scored and your ability to repay assessed, has been by balancing a range of factors and recognizing that, you know, if your debt to income ratio is a little high, but your down payment is high or your credit score is excellent, it’s offset.
On the other hand, if you have multiple layers of risk, your chances of not succeeding in the mortgage of defaulting is much higher. That was too complicated for the CFPB to really model. So instead, they just set the debt to income ratio at 43%. That was way too low. And the result is it has blocked out a lot of first-time homebuyers, first-generation homebuyers and particularly people of color. And what we ended up doing was for every person we were protecting from getting a bad mortgage, we were forbidding nine people who were qualified from getting one. And so the reality with debt to income ratio is for some people 43% is too high. And for others, 50% is fine. And it really depends on the compensating factors, as we call them.
So, last year, the CFPB began a process of reassessing this qualified mortgage rule. And while it was under the Trump administration, it did a outstanding job of consulting very broadly with consumer advocates, with civil rights organizations, with lenders, with investors. And all of us worked very hard to find common agreement on what was the best way to address these issues, so that the rule would not unfairly exclude people from getting loans. And we reached an agreement that the CFPB put into its final rule. Unfortunately, the current administration at CFPB has decided that everything that was done in the previous four years was wrong, and all things should be reopened. In the case of the qualified mortgage rule, they have delayed the implementation of the rule and left open the possibility that it would be rewritten.
That’s created a lot of confusion in the mortgage industry. It’s contributed to some people being excluded from getting mortgages. And it’s just a really bad allocation of their time and resources. There is plenty of important work for them to do in looking at the decisions that were made over the previous four years. This isn’t one of them. And I’m hoping that they rethink this decision and allow the final QM rule to go into effect as soon as possible.
Sarah Wheeler: Yeah, I don’t think you’re alone in that. We’ve definitely heard from quite a few people in the industry who were part of the process, as you guys were to really come to that consensus, who are not excited about the idea of opening it back up. When you come to a hard one consensus to open it back up, just feels like you’re starting over.
David Dworkin: Absolutely. And we are really struggling with both the black homeownership rate, homeownership for all first time homebuyers. Housing prices are through the roof. And we do not need additional barriers to re-enter the system.
Sarah Wheeler: Well, you know, my next question is about what some people would see as an additional barrier. It depends on where you’re coming from. But we reported this week on the increased number of homes sold to institutional investors over the last year. You know, we saw that before, right? We saw that as we had a bunch of REO and foreclosures coming out of the system, that whole, you know, single-family rental. Now you could say there’s going to be more homes to rent. So if you’re a renter, that could be a good thing. But from a getting people into homes as homeowners standpoint, that could be bad, you know. Is that trend of institutional investors buying up a lot of homes, is that trend alarming to you?
David Dworkin: It is alarming. And it’s not just institutional investors. They’re actually a fairly small albeit growing part of the for rent single-family market. Mom and pops in very small businesses dominate this market. Most people don’t realize that half of the residential rental property in the country is scattered sites single-family. We think about it as large apartment buildings and, you know, small multifamily. But in fact, it’s mostly single family. And that number has grown dramatically at the expense of first-time homebuyers who are not able to buy. Oftentimes, we’ll see these homes go up for sale, and investors will come in and snatch them up for cash. And if you’re trying to get a property with a mortgage, you just cannot compete against somebody who’s coming and paying cash, no mortgage contingency, no appraisal contingency and in a very short closing period.
So this is something that we’ve been looking at. It’s very disconcerting. We want to make sure that homebuyers who are actually going to live in their home have a fair advantage in getting a home and buying one. And we’ve seen housing prices rising very quickly as a result. This trend started during the Great Recession when we were very concerned about vacancy that was caused by a massive wave of foreclosures. And I was at Treasury at the time. And I was certainly one of the people who thought that one of the solutions to our problem was encouraging more investors to buy these properties. The alternative was they would stay vacant, deteriorate, ultimately become blighted, and drive down the property values of surrounding neighborhood properties. That was a big problem.
What we did not anticipate, I certainly did not anticipate it, was that people would hold these properties for another 10 years. Our theory was that investors would buy the properties, they would rent them on annual renewing leases, and sell them into a rising market that would create a stable increase in properties that were owned, owner-occupied, as we say. And we found instead that they learned how to do this business well and they have not sold these properties and have been holding them ever since. And it’s not clear when these properties will re-enter the homeownership market. This is a big problem. We’ve got to solve it or we’re not going to solve our homeownership problem.
Sarah Wheeler: Well, what are some of the ways you solve that? Right? Because in, you know, free markets, as you said, they bought it, they figured out how to do it as a great business, it’s definitely meeting a need, or they wouldn’t have people living there. So what are some of the solutions in your mind that could at least, you know, even the playing field a little bit?
David Dworkin: I think there are two things. One is that we’re going to have to look at how single-family rental properties are taxed as opposed to owner-occupied properties. Is there a benefit you can give for the sale of an owner-occupied property on your capital gains? And how do we look at capital gains treatment for money that’s earned on investments that create new, affordable homeownership that will be owned by owner occupants?
But you’re right, this is a market-driven issue. And ultimately, I think that…and this gets to the overall affordability question. We have not nearly enough supply of housing that’s affordable to most Americans. We need to build a lot more. And we’re going to have to deal with some of the reasons why we’re not building enough. The biggest one of those is supply cost, the cost of lumber is up over 300%. And that just drives the cost of new housing through the roof. But it’s not just lumber, it’s also steel, and wire, and even gypsum that’s used for drywall.
Sarah Wheeler: Interesting. Well, you know, when you look at this, what would you consider a win like? You guys are stating affordable housing all the time. You know, this is your… You’re trying to move this mark. What counts as success for you? What would you be, you know…? Do you have a certain amount of increasing homeownership among certain communities? Or how are you guys going to measure success that we have expanded affordable housing?
David Dworkin: Absolutely. I think we got to get the black homeownership rate from the low 40s up to 50 and above. I think when we get to that level, we basically addressed most of them…pretty much all the mortgage ready, African American homebuyers. And then we’ve got to take a new look at the market we have then and how do we get to 60%, ultimately close the gap? Do we need to look at increased opportunities for first-time homebuyers among Hispanic, and Asian American, and other underserved communities? And we ultimately need to increase the overall homeownership rate back to its historic level. Those things will have a big impact on our economy. They create more jobs, they create sustainable growth, and they build wealth and help address the growing wealth gap that we have.
I think that homeownership is one of the, if not the most important factor here. It’s also important to remember that when you have more homeowners, you have more available rental units. And so where rental prices are highly inflated, you can address some of that. It’s a continuum. Because when you have fewer homeowners, you have higher rents. When you have higher rents, you have more homeless people. And if you want to address all of those issues, you have to address them all together.
Sarah Wheeler: Interesting point. I’ve never thought of it that way. The way that, you know, rising rents contributes to homelessness and just the whole continuum that you just described. That’s interesting. You know, what do you see happening right now? You’ve been in this industry in different parts, you know, at Treasury, at Fannie, in the private sector, now with an affordable housing group. What do you see happening right now that makes you hopeful that we are expanding affordable housing or that we will be able to?
David Dworkin: More people are talking about it, and the kind of demonization of housing as an important part of the economy, which occurred as a result of the Great Recession, was largely unfair and lasted way too long. We’re seeing a lot less of that. There isn’t a lot more I’m hopeful for, frankly. I think the fact that people are recognizing these problems and are addressing them as important is a vital first step. But the numbers are not improving. And until they do, I’m optimistic about the future, but I’m really not able to be optimistic about where we are right now until we actually start doing things to turn it around rather than just talking about them. Although clearly, talking about them is the start.
Sarah Wheeler: Well, thank you so much. We appreciate you coming on here and talking about them. It’s something that we’re definitely reporting on all the time and are very interested in. So thank you so much, David. Really appreciate you.
David Dworkin: Thanks for having me, Sarah. It is my pleasure.