This document is the transcript from Dr. Thomas s Webinar. View additional Webinar materials.

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1 On at 2:00 PM EDT, the Self-Sufficiency Research Clearinghouse (SSRC) featured SSRC Emerging Scholar Dr. Hannah Thomas in a titled, with Dr. Curtis Skinner as a discussant. Despite general improvements in the economy, foreclosures continue to impact families and communities across the country. In this, Dr. Thomas explored the ways that foreclosure affects households, including finances, health, trust in lending institutions, and stability. Based on interviews with families in Boston, MA, the Scholar relayed her findings as to why households in foreclosure often end up spending their hardearned savings and wealth in a process of asset depletion. This document is the transcript from Dr. Thomas s. View additional materials. WELCOME Moderator: Good day and welcome to the Self-Sufficiency Research Clearinghouse, The Great Recession Hits Home: Asset. Today s conference is being recorded. At this time I d like to turn the conference over to Dr. Kristin Moore, Senior Scholar at Child Trends. Please go ahead. Dr. Kristin Moore: Hello, everyone, and thank you. Welcome to our on how The Great Recession Hits Home, a presentation by Dr. Hannah Thomas, who is our eighth Emerging Scholar for the Self- Sufficiency Research Clearinghouse. I will also welcome Dr. Curtis Skinner from the National Center for Children in Poverty who is our discussant today. OVERVIEW OF THE SSRC Dr. Moore: Briefly, a quick overview of the SSRC, which is sponsored by the OPRE at HHS [U.S. Department of Health and Human Services]. That s the [Office of] Planning, Research and Evaluation. And the SSRC, Self-Sufficiency Research Clearinghouse, is as shown on the next slide a virtual library. It now has over 3,490 items on a dozen topics. The topics are shown on the right side of this slide, and they range from assetbuilding and tax policies, which is, of course, today s focus on asset-building, to child care, to health, and TANF [Temporary Assistance for Needy Families] policy, and transportation. So a wide array of topics as they relate to self-sufficiency. As you see on the left, the SSRC includes a number of features: customized search, the browse topics button, a section on Our Librarian Recommends, particular papers and research pieces, a summary of federal laws and regulations that are relevant. It also includes an events calendar and information on data sets and data sources that can be used for self-sufficiency research, and a gallery of partners shown here on the right side. SELECTION CRITERIA 1

2 Dr. Moore: Through the SSRC s Emerging Scholars Initiative, we show here the selection criteria. They include: being a graduate student or a degree recipient, no more than 10 years of experience, and currently doing research on a self-sufficiency issue related to the SSRC 12 topic areas, conducting high quality research that fills a knowledge gap or addresses a self-sufficiency issue that warrants greater visibility. And they can be working in any of a variety of settings -- an academic program, of course, but also a think tank or an agency setting. And we are open to receiving nominations for qualified candidates who are doing interesting work. So please do go to the website and nominate someone as an Emerging Scholar if you know someone. HANNAH THOMAS, PH.D., EMERGING SCHOLAR JULY-SEPTEMBER 2014 Dr. Moore: Today s speaker, Hannah Thomas, is a senior research associate at the Institute on Assets and Social Policy at The Heller School for Social Policy and Management at Brandeis. She has a Ph.D. in Social Policy and Sociology from Brandeis. And her research interests, as you might expect, are on the intersection of wealth, family, and community and the accumulation, depletion, and uses of wealth. Her recent research is, of course, available on the Self-Sufficiency Research Clearinghouse. CURTIS SKINNER, PH.D., DISCUSSANT Dr. Moore: And our discussant is Curtis Skinner. He is a labor economist and director of the Family Economic Security Team at the National Center for Children in Poverty. He has a Ph.D. in Economics from Fordham University and is interested in the measurement of poverty at the state and locality level and also state best practices in protecting the social safety net in the aftermath of the Great Recession. Q&A Dr. Moore: First Dr. Thomas will speak and then Curtis will speak, and then we will offer you throughout that time the opportunity to submit questions and answers. You will see this feature at the bottom right part of your screen. And after Dr. Skinner s comments, we ll have an opportunity for discussion and ask Dr. Thomas to answer these questions. And if there are questions that they are not able to answer, we will answer them after the is formally over. But please do feel free to offer your questions throughout the discussion. Thank you very much, and now we will hear from Dr. Hannah Thomas. THE GREAT RECESSION HITS HOME: ASSET DEPLETION AND FORECLOSURE IN BOSTON 2

3 Dr. Hannah Thomas: Thank you so much, Dr. Moore and the Self-Sufficiency Research Clearinghouse. I am honored to have this opportunity to talk about my work. So today, as the title suggests, I am going to be talking about asset depletion and foreclosures in Boston. ACKNOWLEDGMENTS Dr. Thomas: So before I get going with the presentation, I do just want to acknowledge and thank some key organizations and individuals who were involved in making this research possible. I want to acknowledge the Rappaport Institute at the Kennedy School who funded the initial research as well as the Department of Neighborhood Development at the City of Boston who hosted me as a fellow to do the research and helped with the recruitment of participants for the interviews. I also want to thank the Department of Housing and Urban Development and the Federal Reserve Bank of Boston, both of whom funded different parts of the research. And I want to thank my advisor and mentor, Thomas Shapiro, who helped inform my thinking about the research project. I should say though that the mistakes are all mine, not anyone else s who I have thanked here, and none of the findings can be attributed to any of those who funded or helped inform the research. OVERVIEW Dr. Thomas: So in this presentation, I am going to spend some time exploring two key questions. The first one is what the negative consequences are for a family in foreclosure. What are the impacts of being in foreclosure on that family? And the second question is why families spend down their assets when they are in foreclosure. And within this, I am particularly interested in why we see families getting themselves to the point where they are incredibly financially vulnerable. So to do this: I am going to talk through what happens in foreclosures; we re going to look at what wealth and homeownership mean for families; we will try to understand some of the context of the study -- what happens during the process of asset depletion and exhaustion in the foreclosure; why families deplete their assets; and then finally we will talk about some policy implications. WHY DO WE CARE ABOUT WEALTH AND HOMEOWNERSHP? Dr. Thomas: But first, before we get to answer the questions I outlined, let s just take a step back and ask why we care about homeownership and wealth. There are certain specific benefits that household members gain from homeownership. The actual or threatened loss of the house through foreclosure highlights these benefits as family members realize what they are losing. The research literature has researched the benefits of homeownership and points to a variety of different benefits. They include greater civic participation; for example, neighborhoods that have higher homeownership rates tend to see higher voter turnout. Homeowners have also been seen to have improved health. The children of homeowners seem to have better educational performance. And families who own homes have greater financial predictability and stability from having fixed housing costs. We also know that homeownership provides a sizable portion of 3

4 any single family s wealth, a fact that s particularly true for African-American families and low- and moderateincome people that are building wealth. And then related to this presentation, I want to just highlight that homes provide a real sense of security and emotional satisfaction. The research has documented the ways that in the United States, as well as Great Britain, owning a home provides a sense of identity and security. Owning a home has a variety of different emotional attachments related to class status, security of tenure, and signifies being an owner. The American Dream, for example, is strongly constructed as owning one s home is part of that American Dream. Hence, we see large numbers of Americans aspiring to own a home. BENEFITS OF HOLDING ASSETS Dr. Thomas: And so why do we care about how much wealth a family holds, and why their wealth might be depleted as a result of foreclosure? We often think about income as the measure that we want to look at to understand a family s economic security and well-being. But income is like a river that provides economic security for only as long as it is flowing. Wealth, on the other hand, is like a pond. It is a store of financial resources that allows families to manage periods when the river as income dries up. For example, during a period of unemployment or when a family has a health event for one of the major owners. So we can expect that if a family is in foreclosure, an economically challenging event, there may well be an impact on their wealth. CONSEQUENCES OF ASSET DEPLETION Dr. Thomas: How families respond to foreclosure, whether they use up their wealth stores, will impact their future well-being. Families with fewer assets more often experience material deprivation such as hunger or homelessness. Asset depletion through foreclosure may impact the resources that are available for children to attend college or to buy a home in the future, and it may impact the security of a household in later retirement years. And it will likely impact how a household weathers another economic challenge such as a period of unemployment. DISPARITIES IN WEALTH HOLDING Dr. Thomas: Some families hold more wealth than others, and so the consequences of asset depletion may be greater for them than standard families. The average African-American family holds about one dime of wealth for every one dollar of wealth that a white family holds. So the impacts of losing wealth through foreclosure can be seen as having more devastating effects on some groups who hold less wealth. And as we will see, families of color who tend to hold less wealth than white families, on average, see a disproportionate share of foreclosures. 4

5 FORECLOSURES Dr. Thomas: So let s look at the foreclosure crisis in the U.S. now. Since 2007, well, between 2007 and 2012, 12.5 million homes went through the whole process of foreclosure. While the number of new foreclosures is finally slowing down, foreclosures do still continue. In 2013, foreclosure starts fluctuated around one million homes a month, and these are new foreclosures when I say foreclosure starts. And then in July of this year, there were fewer foreclosures than that but there were still nearly two-thirds of a million homes that were in some stage of foreclosure. So while we think the foreclosure crisis is over, a large number of homes are still going into foreclosure, meaning that foreclosures are still impacting families. Those foreclosures are not evenly distributed. This map from July 2009, just as one example of a snapshot, gives a general sense of the counties in the U.S. where there were more or fewer foreclosures. Where you can see the darker counties, those are where the hotspots are, and where they are lighter there are fewer foreclosures. As you can see, the rough belt, the Southwest and Florida, were some of the main areas hit by foreclosures. Also hard hit was Massachusetts where this study was conducted. INEQUITIES IN DISTRIBUTION OF FORECLOSURES Dr. Thomas: Those foreclosures were not distributed evenly demographically either. This slide shows how communities of color have had a disproportionate share of foreclosures during the foreclosure crisis. Data in Boston, where the study that I will talk about took place, demonstrates the geographical clustering of foreclosures within neighborhoods that have historically lower income and communities of color. And this graph shows the distribution by race nationally between Hispanic, black, Asian, and white families. As you can see, Hispanic and black families have many, many more foreclosures proportionately as a percentage of outstanding mortgages than did white families. WHAT HAPPENS IN A FORECLOSURE? Dr. Thomas: So let s make sure that everyone is on the same page about what happens in a foreclosure because it can be a little complicated to understand. THE FORECLOSURE PROCESS Dr. Thomas: When a borrower is three months behind in making their mortgage payment, they get a notice of default. Then when the borrower goes into default there are a few different directions that things can go in. The borrower can cure the default themselves by paying all the money owed plus fees, if they have that money available and they choose to. They can request a loan modification, although this didn t exist as an option in 2007 and early A loan modification is when the borrower calls up the servicer and asked to 5

6 reduce their mortgage payments for a number of months. This may include temporarily lowering the interest rate or tacking on to the balance of the mortgage any arrears in difference in payments, so that balance is paid at the end of the life of the loan. The homeowner can also sell their house for less than the value of the mortgage, and this is called a short sale. So the short sale requires that the homeowner goes they get an offer on the house for a sale but it is less than the value of the mortgage, and they have to then go to the servicer and ask for the mortgage services agreement to sell the house at this lower rate, since the mortgage servicer and the investors who have financed the mortgage servicer will have to take a loss on that mortgage possibly. If the mortgage servicer agrees, then the borrower or the homeowner can go ahead and sell the property at this less or lower value. However, sometimes in the past the servicer has refused to take that offer, and so the short sale doesn t go ahead. If that happens or if any of the other options that I have just talked about don t happen, then the homeowner will probably go to foreclosure option. And this is what you probably think of when you think of the foreclosure, when it either goes to court or someone stands in front of the house and says, Once, twice, three times, sold. Some states have a judicial foreclosure option while others have a non-judicial foreclosure option. In the states where there is a judicial foreclosure, the homeowner has the opportunity to go to court and challenge the foreclosure in front of a judge. And this can be helpful in cases where the foreclosure is being wrongfully applied. It does slow the entire process down. And so there is not really any good average for the length of time that it can take between the borrower going into default and then the house being sold at the foreclosure auction. Now at any point during this process, the borrower or homeowner theoretically has the capacity to pay off any of the overdue amount or to pay off the full amount of the loan if they can find that money through a refinance or sell it to a member of the family. But in practice these are much harder options to proceed. The short cartoon provides a little tongue-in-cheek look at the foreclosure process. In this situation, the igloo owner is three months past due. The bank shows up with a blowtorch to melt the igloo while the owner is read their rights. FORECLOSURES HAVE CONSEQUENCES FOR THE INDIVIDUAL FAMILY Dr. Thomas: So what do we know about the consequences that foreclosures can have on an individual household? HOUSEHOLD CONSEQUENCES OF FORECLOSURE 6

7 Dr. Thomas: As a result of a large number of cases that people have been able to study during the most recent foreclosure crisis, we have a bit more of an idea these days of the kinds of consequences that foreclosures can mean for a family. Studies have found negative health impacts from foreclosures on different household members, psychological impacts such as increased stress, and social impacts such as decreased civic engagement, as well as poor performance in school. Let s dive into each of these in a bit more detail to look at what those impacts are. HEALTH IMPACTS, SOCIAL IMPACTS, FINANCIAL IMPACTS Dr. Thomas: So health costs from the foreclosures have been documented in both the U.S. and the U.K. Being in foreclosure increases, in some studies, the proportion of family members visits to the doctor. Families who are in foreclosure saw measurably higher rates of stress. Research has also linked increased residential mobility, which would result from a foreclosure, to an increased risk for behavioral and emotional problems in children. Other more recent research is pointing to a higher risk of foreclosure families in foreclosure having major depression and suicide. And families are also at much higher risk of missing a prescription. There is also the risk of increased food deprivation for families. So these range of different health impacts really do have the possibility of reducing the health of different family members. There are also many different social costs for households who are in foreclosure. Children who need stable routines to thrive are impacted from having to move their homes and, in some cases, their school. There is evidence from analysis in New York City that children perform less well in school as a result of foreclosure, though other studies have had more mixed findings. Voter turnout is lower in neighborhoods where foreclosures have occurred, either as a spillover effect from that foreclosure or as a direct impact on the individual s buy-in into the political system. Research has also demonstrated that individuals who have gone through foreclosure demonstrate less trust in banks after having gone through foreclosure, a critical piece as we think about some of the financial impacts that there may be. And to turn to those financial consequences, research has documented a massive decrease in wealth as a result of foreclosures, estimated at somewhere around $7 trillion nationally by Families also have documented lower credit scores and increased bankruptcy rates. These consequences hit households of color harder, both because they are disproportionately represented among families of foreclosures as compared with white families and because households of color tend to hold less wealth in home equity than white families. CONTEXT OF THIS STUDY Dr. Thomas: So let s jump into this study in Boston where I m going to talk more about the impact of foreclosures particularly on wealth. But before I get into the findings, I do want to just highlight the context of the study: who I talked to, what I did, and where it took place. 7

8 DATA AND CASE Dr. Thomas: This study draws from 37 in-depth interviews that were conducted in 2007 and 2008 in Boston. That was right at the start of the foreclosure crisis. Those interviews, as I ll show on the next slide, were predominantly with black Caribbean immigrants, African Americans, or Latino families. I partnered with the City of Boston and the Department of Housing and Urban Development to recruit families into the study. Families interviewed were drawn from around the city of Boston and represented the geographical distribution of foreclosures in the city at that time period. Interviews typically lasted about one to two hours. The interviewee got to choose where they did the interview to give them the most control, since most elements of their life were out of control at that particular moment. Information covered in the interview included the story of the foreclosure, the precipitating events for the foreclosure, and financial information about the household. TABLE 1. SAMPLE CHARACTERISTICS CATEGORY INTERVIEWS (N = 37) Dr. Thomas: Here is a quick look at what the sample looked like. Three-quarters of the sample was African- American or black immigrants. Nearly half the sample were immigrants of some kind, whether they were black immigrants or Hispanic immigrants or white immigrants. The mean age was 50 years and about half of the sample that I interviewed were married. One-third of the sample had completed college and another third had got beyond high school but hadn t gone to college. There were renters present in just over half of the interview sample, a reflection of the large number of multifamily properties in Boston. And you will see in a couple of slides time that multifamily situation does have an impact on some of the reasons that we see why families were going into foreclosure. HOW DO FORECLOSURES IMPACT HOUSEHOLD ASSETS? Dr. Thomas: Okay, so let s turn to examining what happens when families face foreclosure. What is the impact on their household assets? THE STORY OF RALPH Dr. Thomas: We will turn to the story of Ralph who was completely emptied out, as he put it, as a result of going through foreclosure. Ralph, an older African-American man who worked in the homebuilding business, wanted a house for his disabled wife. He hoped to live with her in their retirement in a secure place that had manageable costs. As he said, In this point in our life, we needed to have something that we owned so we could, as I said, try to have a steady cost we could fix within my fixed income. 8

9 He and his wife bought a home, but they got an adjustable rate mortgage. And then when the Great Recession reduced the income from his business, he found himself emptying his savings in stages to pay for the mortgage. Then the increase in the mortgage monthly payment, after the interest rate increased, which is what happens in adjustable rate mortgages -- at some point the mortgage payments increase. These increases meant that he used more of his savings to pay for the mortgage. He said, Well, it didn t completely empty it out, but it got it down pretty low, and then when the escalations came on, that completely emptied it out, which was this year. Well, not this year, last year, 2007, that s when it got completely emptied out. And now I m on deficit spending. He reminisced about the good times when he could save for retirement. He said, It s gone now. It s just a memory. A memory from when the housing boom was going high, and I had more work than I could handle, and I was able to put something away. Then Ralph found that the lower income from his business in the slow economy and the cost of putting his kids through college coupled with an increase in his mortgage payments had eaten away at all of his savings, leaving him in a precarious financial situation for retirement. Ralph, indeed, ended up losing his home in foreclosure, a case of total asset exhaustion. Ralph s situation was a common one in the interviews. TABLE 2. ASSET EXHAUSTION AMONG INTERVIEWEES AND FORECLOSURE OUTCOME Dr. Thomas: This table shows the first 10 interviewees that have the information here about what the events were that led to a decrease in income or an increase in expenses. It also talks about the assets that were exhausted and any loans taken out. So to give you a sense, just summarizing this table, most of the families that were interviewed in this study were employed. The event that caused them to have an unsustainable budget included a variety of different reasons, from an unaffordable mortgage, the loss of rental income which is related to this number of multifamily properties in Boston, unemployment was important, and divorce, as well as one case of a husband gambling. As you can see in the table, families used their assets from their savings, from their retirement accounts, they took out loans from friends, and they used credit cards, all to try to make ends meet and pay their mortgage. Facing unbalanced budgets from an income reduction at work, unemployment, or the mortgage payment that was always unaffordable, they spent down their household assets, as I said. Some even took on debt. Others drew on their extended family members to ask for help. Sometimes this plan worked. Using some of their stored wealth, families restored their household budgets, either stabilizing their finances and preventing further use of the assets in that moment or even allowing for rebuilding savings. However, as occurred in the case of many of the families in foreclosure that I interviewed, sometimes they continued to deplete their assets until they had none left. Such families were left in a state of complete asset exhaustion. 9

10 ASSET DEPLETION AND ASSET EXHAUSTION Dr. Thomas: It s important to make the distinction here between asset depletion and total asset exhaustion. When families deplete their assets, they still have some financial resources to bring to bear on family wellbeing, both in the present and in the future. On the contrary, when families have exhausted their assets, they become particularly vulnerable to future financial instability economic shock. They are no longer able to invest in their children or themselves unless they can rebuild their asset store. It s more likely that such families end up needing help from their extended family and community networks and government resources. In families interviewed in Boston that were in foreclosure, depleting assets to the point of asset exhaustion occurred because of the interaction between an unsustainable budget situation and a strong motivation to remain a homeowner. Families reported that they took money out of savings or retirement funds in stages, and sometimes they were able to get back on their feet for a while only to get into financial trouble again. Thus, asset depletion unfolds as a process until the point of asset exhaustion. WHY WERE FAMILIES DEPLETING THEIR ASSETS? Dr. Thomas: We have to ask why families chose to forfeit future well-being for staying in their home. Surely if they looked at their budget and saw that they weren t making enough money to support their mortgage, why didn t they sell their homes, especially in 2007 when the housing market had not yet crashed? The answer is in the strong meanings that were attached to the homes they lived in and the challenges presented in the alternative rental market. I will now turn to some stories to illustrate the ways that meanings motivated spending down assets or taking on debt to prevent losing the home. THE AMERICAN DREAM Dr. Thomas: The one key motivation that we saw, that I saw in the interviews for trying to hold onto one s home was particularly important to the immigrants interviewed. It was being part of the American Dream. Solomon spoke about why he wanted to own a home. He said, Ah, why I wanted to buy a house? Because it s always the American Dream. One wants to buy one s own house to live well to be paying for oneself. Owning one s own home is a deeply held value in the United States. It provides, therefore, a particularly strong motivation for families to keep their homes even when doing so threatens their current financial viability and their financial future. Many of the families were like Solomon, an immigrant family for whom owning a home was a particularly important reality, and helps explain why they spent down some or all of their assets in order to keep their home. 10

11 FINDING A SAFE PLACE TO LIVE Dr. Thomas: Families also talked about the importance of safety and control. Katarina, an immigrant, bought a condo in Boston but found that the mortgage payments were too much to keep up with. She had taken on credit card debt to keep paying the mortgage. At the time of the interview she was in foreclosure trying to get help from a counseling agency. She summed up the importance of safety for her children and why she did not want to rent again when she described the low-quality rental options she had experienced before buying her condo. When she was renting, she had found her next-door neighbor was coming into her apartment without her permission. She wanted to make sure that she had a safe place for her children. As she explained, I found this person was going to my porch, opening the doors, doing whatever he wants in my apartment. So, I feel like it s dangerous because at nights those apartments don t have a key on every room. When my other two kids come to this country, I better have something safe for them because it was, it wasn t safe. Nothing happened to me, but it was like, you know, door open, cigarettes, things in my apartment, and sometimes there was marijuana next-door. So, it s better me living here. So, that s why I was looking to buy an apartment. A PLACE TO RAISE CHILDREN Dr. Thomas: Having a place to raise children was also an important motivation. Yolanda, an African- American mother, saw homeownership as a way to ensure she had a place where children could run and play, raise her children without a headache. The more general prospect of losing a home and the impact this might have on children provided a key motivation for Jana as she considered whether or not to spend down her assets to save her home. She said, You know what is sad? If you don t have any kids I mean, you don t care, you just go pay rent somewhere else or do something but when you have kids, you look at them, at your situation. You don t think about you, you think about them. What is going to happen to them if they call home and there is no home anymore? And when they re too young to understand these kinds of things, so you have to try to tell them, well, it s not our house anymore, we have to move, we can start again. But kids get used to things like anybody does. SYMBOLIC MEANING OF HOME Dr. Thomas: For other families the home had symbolic meaning. There were family memories and history, and losing the home would have meant losing these memories. Donna described the family significance of her home, important to her as she again considered whether or not to keep trying to pay the mortgage and take on debt or use her assets. She said, I inherited it from my grandmother, about 20 years, maybe more. I took care of my grandmother, lived there. It s a family house. 11

12 These sets of meanings that families associated with their homes meant that they were willing to work hard and spend any saved wealth they had to try to keep their home, even if it meant trading off their future wellbeing to do so. WHAT ARE THE IMPLICATIONS OF THIS RESEARCH? Dr. Thomas: So what are the implications of this research? Well, there are many families that are still going through foreclosure today. And so the research continues to be relevant to our understanding of how households are coping and managing financially. As policymakers, we need to look at ways to help rebuild family economic security and to think about the way we design programs to make sure that families in foreclosure understand very explicitly the financial trade-offs that they are making by trying to stay in their home. We also have to do preventative strategies to make sure that families have assets to start with. BUILDING ASSETS Dr. Thomas: Building family resilience means building a base of assets that families can draw on in times of emergency and that they can use for future financial well-being. There are a range of programs that help to build assets for families such as matched retirement accounts at work and individual development accounts, which are often offered through community development organizations. There is a proposal currently amongst some federal legislators to create a financial security tax credit, which would make a matched savings account for low-income families that could be created at tax time around the same time that folks are getting their earned income tax credits back. That financial security tax credit does seem to have some play and so that s one to watch that could be a good policy for building family assets. Other research that I ve been involved in points to the important role that sufficient income plays in building assets. Not only is sufficient income important but jobs with characteristics such as benefits and flexible work schedules. Families need decent paying jobs with matched retirement savings opportunities, health insurance, investment in human capital, and job flexibility if they are to build wealth. And I may get asked questions about this, but other research that I ve done in the Leveraging Mobility study really points to the role that the type of job that a family has can play in building family wealth. And for families to maintain a decent asset profile, they need protection of those assets so that during financial potholes like unemployment they don t exhaust their assets as we ve seen in this study. Many of the families that face foreclosure face life events that happen to families on a regular basis. But they challenge those families capacity to cope financially, and we need to look at and think about ways that we can help families during financial potholes to emerge more resilient. PREVENTING UNSUSTAINABLE HOMEOWNERSHIP 12

13 Dr. Thomas: A key part of the policy implications of this research is also ensuring that families don t get into unsustainable homeownership situations. Unsustainable homeownership can come from buying too much home, but often it occurs because of inappropriate mortgage lending practices. Programs such as Self-Help Community Advantage Program offer mortgages with appropriate terms, supporting borrowers through life events such as unemployment, enabling for families to succeed in homeownership. The motivation is there for the families to succeed in homeownership, but we need to make sure that the support structures to create sustainable homeownership are also there to meet those families. And we need to ensure that there are appropriately-priced properties. Particularly in strong housing markets such as Boston, moderate- and lowincome homeowners face high home prices that make it hard to get into homeownership without stretching oneself financially. Affordable homes are needed in such markets so that an affordable and safe alternative to renting exists. And so this takes me to another piece of this preventing unsustainable homeownership. We need to look at the rental market, which is the alternative to homeownership, and we need to clean it up. Basic protections of standards need to be in place and enforced. The pressure from unsatisfactory rental housing stock pushes families into homeownership when that may not be the best option for them. And as we saw in the case of Jana that was I m sorry, Katarina, that was pushing her towards homeownership when she may have done better to stay in a rental situation. PROTECTING ASSETS IN THE FORECLOSURE PROCESS Dr. Thomas: We also need to protect assets in the foreclosure process, and so the next two slides are going to talk a little bit more about the specifics of foreclosures rather than the more general context surrounding them. We need to protect those assets and find ways to ensure that families take into full account the consequences of decisions that they make during the foreclosure process to spend down their assets or take on debt. Policymakers might consider three steps that increase the awareness for the family decision-makers as they make those decisions. The first one could be to help families make informed decisions; policymakers could establish withdrawals as a trigger for counseling about other possible options. So as a family is about to take money out of their retirement fund, they are triggered to have a conversation with some credit counselor or other retirement counselor to think about what other options may be available to them such as loans against their retirement account or other financial help available in their local area. Coupled with such financial counseling, we need to think about an asset vulnerability assessment tool other ways that we can help families understand different scenarios that they could see themselves in as a result of different decisions that they made when they were in a financially difficult position. For example, what would be the decision of allowing the house to go through foreclosure versus cashing out their 401(k) or savings. 13

14 Thirdly, we need to think about a mortgage grace payment period from the mortgage servicer. Everybody is going to have events such as illness and unemployment. And programs such as the Community Advantage Program that I mentioned earlier offer ways for families to come to some arrangement in working through those difficult periods of life and continuing to keep their mortgage current. The loan modification program is a variation on this, but it is currently not required as standard practice across the industry and people are often rejected from getting loan modifications. If there was a way that that could be expanded for more families, I think that could be a strong impact on preventing families from getting into the foreclosure situation and facing losing their house. And finally, for this slide, given the meanings and attachments of homes for many families, housing and foreclosure counselors need to be trained in how to provide meaningful counseling about the emotional burden of the foreclosure or to have a list of referrals that they can make to therapists and other social service workers. The process of potentially losing a house creates an important set of emotional and psychological losses that a family has to face. And in order to face them, they need help. Our housing counseling and foreclosure counseling system is not well set up for this currently. And I think that it is critical for us to look at this emotional piece of the potential loss so that families can make better financial decisions, informed from what their emotional not just from their emotions but also from reason for their long-term well-being. REBUILD HOUSEHOLD ASSET PROFILES Dr. Thomas: Finally, we need to look at ways to rebuild household asset profiles. If the families profiled here are anything to go by, the survivors of the first wave of foreclosures between 2006 and 2008 are very likely financially vulnerable, exiting foreclosure as homeowners or now as renters. These are families that federal programs have largely ignored because they were so early in the foreclosure crisis. Advice for families post foreclosure has mostly focused on rebuilding credit, which is a critical and long-term step to regaining financial stability. Policymakers have a role in helping with that rebuilding and talking to lenders and insurance agents and even credit scoring agencies to remove or reduce the impact of foreclosure on credit scores. But we also need to look at how we rebuild assets for families that have exhausted in many cases much of their personal wealth. A federal program that attempted to assist rebuilding assets for the families of foreclosure would help reduce future re-foreclosures and would ultimately assist in stabilizing the housing market as well as establishing future stability and well-being for those families, not to speak of that set of families that will be entering retirement soon. Understanding the implications of family assets of trying to stave off foreclosures is a critical component of building effective policy to prevent more foreclosures. This understanding is also necessary to remedy the consequences of foreclosure for families that are already in it or that have survived it. These findings lay a foundation for that understanding, and they also provide a window into the wealth implications of homeownership, raising critical questions about the structures surrounding homeownership. If adverse life 14

15 events negatively affect income, such as unemployment, health shocks, and loss of rental income, can be expected to occur on a regular basis, then we also can expect that more families will exhaust their assets. It is this likelihood then that the current system of mortgage finance and servicing needs to better take into account if we are to expect homeownership to offer wealth building opportunities for everyone rather than wealth depleting experiences for some section of society. THANK YOU Dr. Thomas: Thank you so much for listening to this research, and I will turn it over now to Dr. Skinner. Or back to Dr. Moore. Dr. Moore: Thank you very much, Hannah Thomas. We will now go from Boston down to New York where Dr. Curtis Skinner will provide some brief remarks as our discussant. Thank you. QUESTIONS AND ANSWERS Dr. Curtis Skinner: Thank you, Kris, and thank you for the opportunity to be a discussant on this session. Dr. Thomas, I thought your research was very interesting and very important work. It also shows the importance of primary data gathering and qualitative research, because I think this is really an oft overlooked problem. People know about foreclosure, but they don t really know about this issue of asset depletion to try to prevent foreclosure and hang on to the house. So I think this was really important to draw attention to. As you mentioned, it does seem to be a very difficult problem because it s got both emotional and financial investment in homeownership here in the U.S. So the mortgage is paying not only, you know, for shelter, but it is paying for increments of an asset. And, as you mentioned, owning a home is linked to a lot of positive experience here in the U.S., and it is part of the American Dream. So I think it makes it extremely difficult for people to walk away from an investment in a home even though they should know better, one would think. It s also, I think, really hard to know how long to draw down your assets, which can be rational if you think the reduction in your income is due to a shock and is likely to be temporary. It s just really hard to know how long you should do this. I was really intrigued that a large share of your sample are employed. And I wondered I thought all of your policy recommendations were quite good, but I wondered, too, thinking about that whether there might be an expanded role for employers in financial counseling for their workers. Also, I wondered a bit about other possibilities maybe for interventions, thinking about credit unions, community savings pools, low-cost credit to cover temporary reductions in income, and whether communities and community-based organizations can maybe think about pools of funds. It s probably way too big a problem for them to do a whole lot, but there may be something they can do. And certainly low-cost government loans. 15

16 I was interested, and I think it is such an interesting project that I was interested, too, in whether you or others are planning to do similar research in other low-income areas with high rates of foreclosure, because I think it would be really interesting to know how widespread the problem is. And, it looks like there s a number of data sources out there from the Federal Reserve Bank and from HUD that identify neighborhoods with high rates of delinquencies and high rates of subprime lending and would allow policymakers and others I think to monitor neighborhoods at risk. And then hopefully, conceivably, both nonprofit organizations and local governments could maybe intervene with counseling services and with targeted information for these for these neighborhoods. So that s, again, thanks so much for this work. I find it really interesting, and I suppose we can turn it over to questions from the audience now. QUESTIONS AND ANSWERS Dr. Moore: Thank you so much. Please, audience members, feel free to ask questions by writing them in in the Q&A section at the lower right-hand section of your screen. One question is: noting that half of the respondents had renters, couldn t renters have helped solve this problem? Dr. Thomas: That is a really interesting question, and actually yes, there s been a line of thinking in Boston, there have been groups working from a group called City Life and also Boston Tenants Coalition who have been working to see if they can have tenants cooperatively buy the property that s in foreclosure from the owner. So that has been looked at as one possible avenue. I think that there are other ways that renters or tenants could be seen as ways of helping in solving a potential problem in foreclosure. But I think what would happen in the interviews was that, at least in the cases where tenants weren t providing income for a period of time, it was the financial stress that the tenant themselves was experiencing which meant that they often weren t paying for the rent. Now, the other portion of sort of closed off income that the families who were in foreclosure had often rented to Section 8 renters, and they would find that, what s now called Housing Choice Voucher Program, that Section 8 wasn t actually providing the certification that they needed in order to get the rental income coming in. So they had a sort of a Catch-22 where they needed to invest some money to improve usually not a huge thing in their apartment, it might be replacing a laundry unit or mending a window. But that cost was sufficiently large that they didn t have they weren t they maybe had spent some money on doing that, but then there was a lag period between the time when they then got the certification and then the money started flowing back in into them. So there were a number of families that were struggling with on the Section 8 with Section 8 rental income. But I do think it s an interesting question to think about policy, ways that the renters themselves could be part of the solution. 16

17 Dr. Moore: This question, Bill thank you had asked. It s really fascinating and very poignant about their stories, thinking for myself. A question about whether this is still happening and whether it is built on Curtis Skinner s question. Are there any national data on how common this is? Dr. Thomas: Well, yeah, the data nationally on foreclosure is a bit challenging. There have been many studies like mine that have gone into different communities around the country and done interviews with families who are in foreclosure, but there hasn t really been a standard interview protocol. So one of the questions that I think one of the sort of pieces that I think would be a really fascinating next step would be to bring together all of the researchers that have done interview studies like this, compare interview protocols, what the questions are, what are the common data points. I mean from my perspective I would be very interested in the common financial data points and then really try to see what we could learn from I think would be quite a number of different, quite a large sample at that point from around the country. There are national data sets available on foreclosures but it s really on the loan rather than the borrower. And so the information in it doesn t give you a great deal of sort of household level financial detail that would be really critical to answering the extent answering the question of how extensive is this problem. I ve sort of looked at some national surveys like the Panel Survey on Income Dynamics where they started asking questions about foreclosure, but there is just simply not a large enough sample. I mean we are still talking in the below 5 percent of the entire U.S. population. Even though the numbers are large in millions, the actual percentagewise of the U.S. population is quite small. And so when you get to a national survey like the Panel Study on Income Dynamics, there s just simply not a large enough sample to really get anything useful from it. Dr. Moore: Okay. Go ahead, Dr. Skinner. Dr. Skinner: Oh, Dr. Thomas, I wondered do you know of any local groups, nonprofit groups and communitybased groups, that are cognizant of this problem and are working with people to kind of manage their assets and make decisions such that they don t exhaust important retirement vehicles and so on? Dr. Thomas: I don t know, I actually don t know of any group who is specifically well, I should say I think most foreclosure counselors are thinking about sort of about these questions but they are in a very sort of more crisis-oriented moment and underfunded organizations. So I think it s so there s that sort of piece. I want to just acknowledge the work that foreclosure counselors are doing because they are working very hard in the field. But at the same time, I don t actually know of any group that has been really looking at the asset profiles in depth of the families and sort of going through a more in depth, longer-term process. I mean I think that s possibly one of the tensions. And what I m proposing in terms of my policy recommendations is that we do a more intensive process with families, and the funding hasn t been there to date to be able to do that. I suspect that s part of the challenge. And the tension between trying to put out fires and really respond to the immediate desire that the family has to save their home versus helping that family slow down, while the clock is always ticking towards the possible loss of the home. So I mean I think there are a number of things that sort of make it harder to do that. And one of the nice things that we might sort of ask of the mortgage 17

18 services in some ways is that if the process is slowed down, families could really begin to get to grips with what their financial situation is and what the better outcome might be. Now, so I say all of that. The Community Advantage Program and Self-Help does seem to have and I ve sort of looked at them from afar and would love to do a study of them, but I think that they have mortgage service practices from what I understand that integrate more of the financial counseling model, more of this working with the homeowner in more depth to accommodate their financial reality. So it s a different model than the current model of mortgage servicing coupled with foreclosure counseling. Dr. Skinner: And what s the name of this group, Dr. Thomas, again? Dr. Thomas: The Self-Help Credit Union. They re based in North Carolina and they have a large, well, relatively large secondary market program called the Community Action Program or CAP. It was funded by the Ford Foundation and it was to demonstrate the viability of low-income homeownership and to demonstrate, to see, basically it was set up to demonstrate that low-income borrowers could really borrow and maintain their mortgage without becoming delinquent. And through the foreclosure crisis, they had very low, comparatively with similar other populations, very low foreclosure rates. So it s been a really great model I think. Dr. Moore: Interesting. Here s a question that just came in, it s lengthy but a good question. Aren t some of the consequences of foreclosure intentioned? So asset exhaustion is a consequence of foreclosure as folks deplete assets to avoid the foreclosure. Increased mobility lowers voter turnout; that is also a consequence of foreclosure. So, if I m counseling someone, which consequence is worse? I can encourage preventing mobility and community impacts by leveraging assets to prevent the foreclosure, but that just gets the borrower closer to asset exhaustion. Does the research indicate which side to err on? Dr. Thomas: This is a really good question because I mean it s getting at the challenges of the neighborhood consequences versus the individual household consequences. And sometimes those two consequences, as the person who s writing that question, is indicating are in contention with one another. And I think this is where sort of community organizations that are working on this problem I mean I think the goal of foreclosure counseling, as I understand it, is to sort of to figure out what the best situation is for that individual family. And then we have programs trying to work with the consequences for the neighborhood of that foreclosure. And if I mean some other research that I have done has looked at specifically the community impacts from the foreclosure. And while there is some, the mobility piece is obviously a challenge, but I think part of the challenge with the mobility and where the research gets into the consequences from that mobility is when that mobility is from a forced decision. So if someone who is in foreclosure feels that they are being, sort of right up to the end, they are not wanting to leave their house, and even despite everything they are doing, despite spending down their assets, they are still having to leave the house in foreclosure; that is still going to feel like a forced decision, right? Even though they are continuing to fight it, if that family makes a decision earlier in the process and says, Well, if I look at my overall financial picture, I might be in a much 18