Economy
5:51 am
Sun March 18, 2012

Sweet Home: When Owning Isn't All About Money

It's not hard to figure out why the Rhodes family would want a house of their own. Their son Paul's passion for music makes it clear right away.

His mom, Tamika Rhodes, says in their last place, a two-bedroom apartment, Paul couldn't play the drums because it would have driven the neighbors crazy.

Now he, his two sisters, mom and dad live in a big, five-bedroom house in St. Paul, Minn. Rhodes says they all feel much more comfortable.

At the height of the housing crisis, low-income Americans had many opportunities to buy a home with the help of subprime mortgages, which proved to be disastrous. But those battered by the crisis continue to find paths to home ownership, despite financial disincentives.

"Our main goal of owning a home is a place that we can really call our own — a place that we feel safe and secure," Rhodes says. "Just a place where we can be free."

Out Of Debt, Into A New Home

Rhodes and her husband's path into this home is amazing, considering the foreclosure in their recent past.

A few years ago, they bought a home with a subprime mortgage that had ballooning payments. Rhodes wasn't working year-round and had a low-wage job. They were pulling in about $30,000 together. The house became unaffordable; they lost it to foreclosure, and their credit scores plummeted.

A local bank and a nonprofit called Build Wealth, MN, helped them do some intensive credit repair.

A couple years later, Rhodes and her husband make about $50,000. With three young kids, that still qualifies them as low-income by federal housing standards for the area.

But they were able to close on this house in December for about $146,000. Their monthly payment is less than $1,000, which makes Rhodes kind of giddy.

"That's the blessing in it," she says. "We're actually paying less now than we were, even in the apartment."

Low-Income Borrowers

It might seem surprising that at a time when mortgages can be difficult to get, a bank would take a chance on the Rhodes family and get them back into a home.

"Oh yes, [we're] definitely willing to work with them," says their loan officer, Vickie Reardon of Bremer Bank.

Reardon says she works with lower-income borrowers all the time.

"There [have] been many files I've started and worked with them for over two-plus years before they've actually closed and purchased," she says.

Nationally, the share of mortgages made to modest earners doesn't seem to have dropped off. In fact, it hit its high point of the decade in 2009 at 34 percent. At Bremer Bank, the share of mortgages made to low-income people nearly doubled between 2005 and 2011.

Reardon says these days a lot of Bremer's loans to low-income people are made through the Federal Housing Administration. It requires smaller down payments than traditional loans do. But she doesn't think that's driving people of modest means to buy houses.

"[Low] interest rates and lowering home prices is really what's helping them get into those properties," Reardon says, "because I don't think FHA or any of the other programs really have lowered their standards at all."

A 'Double Whammy'

Of course, there's a downside to the drop-off in home prices. The housing market in the Twin Cities is down about 35 percent from its peak a few years ago. Houses aren't quite the smart financial investment people once thought they were.

Additionally, housing expert Alan Mallach says, the financial benefits of home ownership can be even lower for people who don't make much money. Mallach published a study in 2011 for the Federal Reserve Bank of Philadelphia on lower-income home ownership.

"It's a double whammy. Your basic housing costs to begin with are going to be a much larger chunk of income, which means you have less slack," he says. "Plus, the likelihood that your house is going to need repairs is much greater than if you buy a much more expensive house."

Richer people who live in the fancier homes are also more likely to reap big tax benefits if they do repairs on their houses.

Strength In Stability

Still, Mallach says, if people of modest means hold onto their houses and don't go into foreclosure — for which they are at much higher risk — they can reap some big benefits. For one thing, their children do a lot better than renters' kids because they're not moving around as much.

As her children chat in the kitchen, Rhodes says the stability of home ownership is definitely something she's relished since her family moved out of their tiny apartment.

"My kids before — during the tough times — I noticed how they were more withdrawn, and they argued so much more with each other," she says. "But being stabilized has really brought all of us together more as a family."

That stability is more important to her than whether a home is a profitable investment.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

RACHEL MARTIN, HOST:

This is WEEKEND EDITION from NPR News. I'm Rachel Martin. At the height of the U.S. housing crisis, low-income Americans had a lot of opportunities to buy a home with the help of subprime mortgages. But those mortgages proved to be disastrous, and many people who got them ended up in foreclosure. We asked NPR's Annie Baxter to look into whether people of modest means are still finding paths to homeownership, and whether that's a still a good thing.

(SOUNDBITE OF DRUMMING)

ANNIE BAXTER, BYLINE: It's not hard to figure out why the Rhodes family would want a house of their own. Their son Paul makes it clear right away.

(SOUNDBITE OF DRUMMING)

BAXTER: His mom, Tamika, says in their last place, a two-bedroom apartment, Paul couldn't play the drums because it would have driven the neighbors crazy. Now, Paul, his two sisters and mom and dad live in a big, five-bedroom house in St. Paul, Minnesota. Tamika says they all feel a lot more comfortable.

TAMIKA RHODES: Our main goal of owning a home is a place that we can really call our own, a place that we feel safe and secure. Just a place where we could be free.

BAXTER: Tamika and her husband's path into this home is kind of amazing, considering the foreclosure in their recent past. A few years ago, they bought a home with a subprime mortgage that had ballooning payments. Tamika wasn't working year-round and had a low-wage job. The two of them were only pulling in about 30 grand altogether. The house became unaffordable, they lost it to foreclosure, and their credit scores plummeted. A local bank and a nonprofit helped them do some intensive credit repair. And now the Rhodeses are together pulling in about $50,000. With three young kids, that still qualifies them as low-income by federal housing standards for the area. But they were able to close on this house in December for about $146,000. Their monthly payment is less than a grand, which makes Tamika kind of giddy.

RHODES: So, that's the blessing in it, yeah. We're actually paying less now than we were even in the apartment.

BAXTER: It might seem surprising that at a time when mortgages can be difficult to get, a bank would take a chance on the Rhodes family and get them back into a home.

VICKIE REARDON: Oh, yes. Definitely willing to work with them.

BAXTER: Their loan officer, Vickie Reardon of Bremer Bank, says she works with lower-income borrowers all the time.

REARDON: There's been many files I've started and worked with them for over two-plus years before they've actually closed and purchased.

BAXTER: Nationally, the share of mortgages made to modest earners doesn't seem to have dropped off. In fact, it hit its high point of the decade in 2009 at 34 percent. Reardon says these days a lot of Bremer's loans to low-income people are made through the Federal Housing Administration or FHA. It requires smaller down payments than traditional loans do. But she doesn't think that's driving people of modest means to buy houses.

REARDON: Because of interest rates and lowering home prices is really what's helping them get into those properties because I don't think, you know, FHA or any of the other programs really have lowered their standards at all.

BAXTER: Of course, there's a downside to the drop-off in home prices that Reardon mentioned. The housing market in the Twin Cities is down about 35 percent from its peak a few years ago. Houses aren't quite the smart financial investment people once thought they were. And housing expert Alan Mallach says the financial benefits of home ownership can be even lower for people who don't make much money. Mallach published a study in 2011 for the Federal Reserve Bank of Philadelphia on lower-income home ownership.

ALAN MALLACH: It's a double whammy. Your basic housing costs to begin with are going to be a much larger chunk of income, which means you've got less slack. Plus, the likelihood that your house is going to need repairs is much greater than if you buy a more expensive house.

BAXTER: Still, Mallach says, if people of modest means hold onto their houses and don't go into foreclosure - for which they are at much higher risk - they can reap some big benefits. For one thing, their children do a lot better than renters because they're not moving around as much.

RHODES: Taneea, what did you just tell her?

BAXTER: As her kids chat in the kitchen, Tamika Rhodes says the stability of home ownership is definitely something she's been relishing since her family moved out of their tiny apartment.

RHODES: My kids before, during the tough times, I noticed how they were more withdrawn, and they argued so much more with each other. But being stabilized has really brought all of us together more as a family.

BAXTER: And that stability is more important to her than whether a home is a profitable investment. Annie Baxter, NPR News, St. Paul. Transcript provided by NPR, Copyright National Public Radio.