Homeownership In a New Era APIC Assets and Homeownership Symposium Los Angeles, CA June 4, 2008 Ellen Seidman Director, Financial Services and Education Project New America Foundation

Its Important to Think About Assets Income is important, but wealth has a more long-lasting effect Income is important, but wealth has a more long-lasting effect CushionCushion LeverageLeverage Intergenerational transferIntergenerational transfer PsychologyPsychology Asset poverty is even more pronounced than income poverty Asset poverty is even more pronounced than income poverty Asset inequality is greater than income inequality Asset inequality is greater than income inequality

Two Models – Same Goal The Credit Path Asset Accumulation Liquid savings Liquid savings Retirement savings Retirement savings Net financial worth Net financial worth Home equity Home equity Net worth Net worth © Alternatives Federal Credit Union

Determinants to Building Assets Individual Individual Economic resources and needsEconomic resources and needs Social networksSocial networks Financial literacyFinancial literacy Psychological variablesPsychological variables Institutional Institutional Access Information Incentives Facilitation Expectations Restrictions Security

Homeownerships Role in Asset- Building Benefits Benefits Shelter as well as investmentShelter as well as investment StabilityStability StatusStatus Opportunity to leverage that is widely available and frequently non- recourseOpportunity to leverage that is widely available and frequently non- recourse Easily used as collateralEasily used as collateral Externalities community stabilityExternalities community stability Concerns Concerns Highly leveraged Highly concentrated High transaction costs Requires intermittent but continuing maintenance and related costs (e.g., property taxes) that can be large and unpredictable Complex financing instruments Stickiness Prices can in fact go down

Improving the Odds – The Obvious High quality personal finance education from childhood High quality personal finance education from childhood Effective pre- and post-purchase counseling, including instruction in home maintenance Effective pre- and post-purchase counseling, including instruction in home maintenance Education, licensing and responsibility standards for brokers and others dealing directly with consumers Education, licensing and responsibility standards for brokers and others dealing directly with consumers Enhanced credit score accuracy Enhanced credit score accuracy Underwriting standards that relate clearly to ability to repay, with verified information Underwriting standards that relate clearly to ability to repay, with verified information Well-designed and enforced appraisal standards Well-designed and enforced appraisal standards Enforcement of anti-discrimination laws Enforcement of anti-discrimination laws

The Goal: A Good Loan Transparent: Consumer understands both advantages and risks of product Transparent: Consumer understands both advantages and risks of product Simpler productsSimpler products Clear, balanced, timely disclosureClear, balanced, timely disclosure Quality adviceQuality advice Fairly-priced: Priced in a manner consistent with underlying risk and cost Fairly-priced: Priced in a manner consistent with underlying risk and cost Models complete and verifiedModels complete and verified Incentives alignedIncentives aligned No discrimination, including geographic discriminationNo discrimination, including geographic discrimination Net benefit: Consistent with long- and short-term interests of consumer, who has a reasonable prospect of repaying Net benefit: Consistent with long- and short-term interests of consumer, who has a reasonable prospect of repaying At end, consumer should have greater net worthAt end, consumer should have greater net worth

Improving the Odds--Further Afield Understanding the transportation and energy implications of housing choices and doing something about them Understanding the transportation and energy implications of housing choices and doing something about them Product limits Product limits Product innovations, such as automatic savings, shared equity Product innovations, such as automatic savings, shared equity Default products Default products Non-fee options, e.g., community land trusts, co- housing Non-fee options, e.g., community land trusts, co- housing Timely and accurate comparative data about firms mortgage offerings and performance, including in non-prime sector Timely and accurate comparative data about firms mortgage offerings and performance, including in non-prime sector Safe, affordable, locationally-desirable rental housing Safe, affordable, locationally-desirable rental housing