While most Republican lawmakers grilled HUD Secretary Julián Castro on the recent lowering of the FHA mortgage insurance premiums and FHA's MMI Fund Wednesday during his testimony to the House Financial Services Committee, Representative Mia Love (R-Utah) opted to cover a different subject: defaults and their potentially negative effect on their respective neighborhoods.
While much has been made during Castro's first seven months as HUD Secretary about increasing homeownership and getting people into homes, especially first-time buyers, little has been said publicly about how HUD and FHA intend to help the new owners sustain homeownership once it is attained. During her five-minute questioning period of Castro, Love questioned the secretary on the expected default rate of people gain homeownership as a result of recent housing policy changes enacted by HUD or FHA and on what he expected would happen to surrounding homes in neighborhoods where defaults occur.
Castro did not have much to say regarding how the agencies planned to sustain homeownership, however. The majority of his answers to Love's questions involved praising the work of HUD and FHA.
Love presented a map that showed distressed residential areas from 2008 to 2012 to illustrate her point that she did not believe the recent housing policy changes were helping Americans achieve the goal of not only attaining homeownership but maintaining it once they are in the homes.
"[T]he people who run these (distressed) areas have the same political view as you do," Love said. "In the words of the president during the State of Union address, if it's not working, it's time to do something different. We need to do everything we can by not just worrying about just one family, but worrying about as many people as possible."
While Love began her questioning period by acknowledging that the questions Castro had been asked that day were "really hard" – Love's questioning occurred within the final 15 minutes of a marathon four-hour long hearing – she quickly moved into asking the secretary about the expected default rate of people who gained homeownership as a result of lowering the insurance premiums.
"We have a default rate of less than 10 percent," Castro said. "It's improved over the last couple of years. We also have seen serious delinquencies, which refer to 90 day delinquencies, drop by 27 percent since 2013 because 2013 and 2014 have been some of the strongest on the books."
In response to Love's question about what happens when the loans go into default, Castro said, "That’s a great question. There's a long process before that happens. In fact, I think to the credit of FHA, and in part to the committee, we have improved our loss mitigation process. We work with folks through housing counseling and through other measures to try and avoid default."
When Love turned her questioning toward what happens to value of homes in the areas where homes default and what happens to the people who have "gotten into their homes responsibly" when someone around them defaults. After Castro said he disagreed with the premise of the question, Love repeated her question as to the effect of defaults on surrounding home values.
"I think the answer to that is that varies," Castro said. "Sometimes those homes are sold, and somebody new moves in, so you have a variety of experiences out there in terms of what happens in that circumstance."
Love pointed out those effects by drawing from an economic review by the Federal Reserve Bank of Atlanta: "Given that foreclosure properties generally sell at a discount, the natural question arises as to whether these distressed properties in turn put downward sale prices, pressure on neighborhood properties resulting in negative externalities." She also quoted former HUD Secretary Shaun Donovan, Castro's predecessor: "Foreclosed and vacant homes have a debilitating effect on neighborhoods and often lead to blighted neighborhoods, decay, and reduced property values." Love discussed the importance of looking beyond what is "seen" and stating that the issue goes beyond just simply getting people into homes.
"What I'm trying to say is, this is not just a fiscal issue for me," said Love, a former mayor in Utah who began her first Congressional term in January. "This is a moral issue. . . What do you say to the people who have gotten into homes responsibly, and all of a sudden, because of so many different foreclosures around that area, realize their neighborhoods are going into decay and they've lost the value in their home? What do you say to those people?"
Castro responded with a plug for FHA.
"I'd say first of all, if they're in that neighborhood, chances are that those responsible homebuyers were through FHA, because we've been doing our work," Castro said.
Love wasn't convinced that the secretary was seeing the bigger picture, however. She pointed out in her response that she knew Castro, a former mayor like herself, had seen the devastating effect that foreclosures have on neighborhoods, and how those communities turn into something "less than desirable" compared to what those families and individuals wanted when they moved into those communities.
"This is about bringing people from the lowest common denominator up," Love said.