Robbing Hood: Trump’s 1st Day in Office Costs FHA Home Buyers $500 (On average)

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By: Reed MacMillan

The Department of Housing and Urban Development has several mission statements, including “Maintain and expand homeownership, rental housing and healthcare opportunities.” In the last quarter of 2016, home ownership increased slightly from 63.5% to 63.70%. The all time high of 69.20% was reached fin the second quarter of 2004, according to data provided by the Trading Economics website. In February of 2017, sales of new single family homes rose 6.1% for a seasonally adjusted rate of 592,000, whereas sales of previously owned homes dropped 3%. This may seem like a largely positive trend in the direction of home ownership. I do not disagree. Yet, if you look at the United States MBA Mortgage data, you will find that in March, both applications for new mortgages and refinancing fell 1.6 and 4.2% respectively.

CNBC’s Diana Olik (@DianaOlick) reported this story with the following headline, ” Trump’s first housing move tanks mortgage applications 3.2%.” To view the story click on the image below, which highlights the FHA fee cut and impact of $480/year to a buyer with a $190K mortgage. Volume was was 18 percent lower than the same week one year ago.

The report further details that there was a 13 percent drop in FHA applications, which they attribute to the Trump administration reversing a cut in the FHA’s annual mortgage insurance premium, just hours after the inauguration. Expressed succinctly by Mother Jones, “FHA loans enable homebuyers—often those with lower incomes and who have fewer assets or bad credit—to bypass conventional lenders who would likely deny them loans by taking out a mortgage that’s insured by the federal government. (Trump’s First Move as President: Screwing Over Homeowners, January 20, 2017)

To be clear, just hours after the inauguration, President Trump signed an executive order that reversed a cut in the FHA’s annual mortgage insurance, that would have decreased monthly payments for thousands of new, lower-income borrowers.  Presidential executive orders require no congressional approval to pass or overturn. Earlier this year, CNBC’s Diana Olik (@DianaOlick) reported that Obama signed this final Executive Order after after assessing that the FHA insurance fund, which had gained $44 million in reserves, could afford to pass on some of the savings to working families.
(CNBC, Obama lowers borrowing rates, claims Trump won’t reverse). Many Republicans in Congress were not happy about this, suggesting that

The mostly rural, middle-American areas that helped propel Donald Trump to victory in the presidential election, are also the areas of the country that have seen little growth in home ownership according to Laura Kusito’s (@LauraKusistoWall Street Journal’s article, Housing Gains Highlight Economic Divide. In this article, she talks about how these regions, with home prices between $100,000 -$150,000 on average, have been especially hard hit after the economic crisis of 2008, when the requirements for obtaining a mortgage became more stringent.

The National Association of Realtors article Hidden Demographics of First Time Home Buyers reveals that  the percent of first-time home buyers varies by region of the country. In the Mountain region of Montana, Idaho, Wyoming, Nevada, Utah, Arizona, Colorado, and New Mexico, all red states, first-time home buyers were only 21 percent of the total number of buyers in 2015, the lowest of any region. First-time home buyers made up 43 percent in the Middle Atlantic in New York, Pennsylvania, and New Jersey; and 42 percent in New England.

In assessing the impact of these actions on our national economy, and its economic stability, I think that you could make a case that it is risky to ease requirements for lower income and first-time home buyers. Yet, this runs counter to the mission of HUD to maintain and expand home ownership. It also runs counter to the narrative of our current President who promised the economically hardest hit new opportunities. For a President who promised to get the economy going again, it is a bit hard to understand Trump’s decision to undo the Obama-era rate reduction. It qualifies as a “Robbing Hood” because it has little effect on wealthier mortgage holders, and harms those with low incomes, middling credit scores or who have less than a 20% down payment on their homes.  Haley Sweetland Edward’s article in Time,  How Donald Trump Just Raised Many Mortgage Bills (January 2017), provides pros and cons for reversing the Executive Order. Whatever the pros are, they must be balanced against the reality of 40,000 Americans potentially losing their chance for a new home, a potential reality captured by Elizabeth Warren’s Tweet on January 20th:

“.@POTUS suspended a planned cut in FHA mortgage insurance premiums,” she tweeted on Inauguration Day, “which @nardotrealtor says will cost 40k families a shot at a new home.”

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The Whole Human: You are Going to Love It

You're Going To Love It
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You're Going To Love It
By Reed MacMillan

The topic of “jobs” was addressed by President Trump, in his February 21st CPAC speech. He said, “It’s time for all Americans to get off of welfare and get back to work. You’re going to love it. You’re going to love it. You are going to love it.” Many people on welfare are already working, which highlights the fact that what American workers need is the ability to earn a living wage. This blog briefly considers the idea of a living wage, and who earns one.

In a 2015 Washington Post article, by Emily Badger,  titled “When work isn’t enough to keep you off welfare and food stamps”  the author cuts to the chase about many people’s assumption that poor people have not bothered to find work. She disproves this assumption by citing research from the UC Berkeley Center for Labor Research and Education, which has found that 73 percent of people who benefit from major public assistance programs in the U.S., live in a working family where at least one adult earns the household some money.

Below, is a graphic from the UC Berkley Center for Labor Research, that shows the percentage of workers who work, but who also receive some form of public assistance in several key categories.

UC Berkley Center for Labor Research Workers who Receive Assistance Data
Fast food workers, child care workers, home care workers, and part-time faculty often receive some form of public assistance.

These data reveal the difficulty of getting people into work that allows them to make a living wage vs. simply getting “back to work.”  When workers cannot make a living wage, should we try and encourage them to exit these professions and find other professions that allow them to survive without public assistance? Who would replace them? Are there enough teenagers or part-time workers to take these jobs if the current labor force progresses to new professions? Or, should we expect people who eat McMuffins, place their children in daycare, or who have home care assistance, to pay more for these services? Or, should the owners of these small businesses give more of their own profits to their workers and live more modestly? All of these are very difficult questions to answer because they ask us to look at our own values and what we think is important.

I believe that most Americans are in favor of all workers earning a “living wage.” In this blog, I provide a look at a living wage calculator built by an MIT Professor and some data from the Bureau of Labor and Statistics. In subsequent blogs, I will try and consider some of the potential consequences of aspiring to a living wage for all workers.

Living Wage

A living wage provides sufficient income to cover the minimum necessary costs to live including: shelter, food, clothing, medical expenses, child care, personal necessities, and also should include transportation to and from work, and a way to go to the grocery store or to medical appointments. Dr. Amy K. Glasmeier at MIT first developed a living wage calculator in 2004. The MIT calculator takes into account parameters including whether the family has one or two workers, and how many children are in the family.  All calculations use geographically specific data, and the data sources and assumptions are clearly documented. You need two formulas to calculate the living wage. The first is to calculate the basic needs budget. Once you have that, you need to calculate the tax burden on this budget. Both formulas follow:

Basic needs budget
Food cost + child care cost + (insurance premiums + health care costs) + housing cost + transportation cost + other necessities cost

Living wage calculation
Basic needs budget + (basic needs budget * (taxes))

To get a sense of how this works, let’s look at some of the data from Hartford, CT.  If you click on the Hartford, CT link in the prior sentence, you can observe that: The more members in a family, the higher the wage needs required to achieve a living wage. Whereas, in Hartford, a single adult can survive on $11.00 per hour, a single adult with one child needs to earn $25.55 per hour,  and a two adult household with one child, and only one adult working, needs slightly less at $22.59 per hour. Logically, we can assume the single parent household with a child has more child care requirements than the one with a parent who stays home. Now, look at the bottom row of the same table, and you can see that the minimum wage in Connecticut is $9.15 per hour. Not even a single person with no dependents can achieve a living wage on $9.15 an hour. 

It is also useful to look at data from the Bureau of Labor Statistics. By looking at the May 2015 Occupational Employment and Wage Estimates,  you can get a quick idea of which professions could make a living wage in Hartford, CT..  Scroll down past the major occupational groups by category number to the table that lets you sort by any header category.  If you click on the header row titled Median hourly wage, you can sort the professions in ascending or descending order according to their median wage.

The MIT calculator told us that a family of three with one stay at home parent need to earn $22.59 per hour to make a living wage. You might be surprised to learn how few occupational categories satisfy this requirement.  Starting with our lowest earning category 35-201, which is for food preparation and serving workers, including fast food, who earn an average hourly wage is $9.09, you will have to scroll all the way down to category 13-1121 to approach this hourly wage, arriving at the meeting, convention, and event planners who earn $22.52 per hour. You will have passed by many many people in your community.

Some of the occupations which do not earn a living wage include: librarians ($22.10), brick masons ($22.32),  real estate brokers and sales agents ($21.93), precision instrument repairers ($21.94), rail yard engineers ($22.01), and healthcare support workers ($17.20).  I think we might agree that these categories of work are important to all of us and that we need people to do this work. Don’t they deserve a living wage? Also, can we really blame the fact that they do not earn a living wage on outsourced work or the global economy? How does renegotiating trade deals help these workers? Our current unemployment rate is 4.8% yet approximately 73% of those on public assistance are already working.

So, to put a finer point on it — for the remaining 4.8% unemployed workers in our economy, hopefully the new Republican policies will help them roll off of welfare onto a job that provides them a living wage. Having good skills and no children, may make it easier for them to survive and thrive.

Those who like the sound of  “workers getting off of welfare,” will also need to like the sound of “Paying more for products and services.” This is likely the easiest way to reduce worker’s reliance on the public assistance that helps them achieve a living wage.

We’re all going to love it, I’m sure!

(One final note for data geeks: The Bureau of Labor Statistics has a vast variety of detailed data that are worth studying, even briefly, to gain a clearer picture about the pain points within the American workforce.)