Reuters Money

Housing bust squeezes renters

The housing bust horror flick is now giving way to a very unwelcome sequel: a big squeeze on the cost of renting.

The number of renters paying more than half of their income towards rent has hit record levels, according to a new study by the Joint Center for Housing Studies (JCHS) of Harvard University.

Rental affordability is a critical issue for seniors, who live on fixed incomes and already are coping with low yields on their savings, fast-rising healthcare expenses and stagnant Social Security benefits. Yet the struggle with affordability is found most often among low-income Americans; JCHS found that 75 percent of renters in the lowest quartile of income are spending more than half of their income on housing. JCHS also found that lower-middle class renters also are having trouble finding affordable rental housing.

For example, 33 percent of renters with annual income of $14,500 to $30,000 are facing “severe burdens” in finding affordable rent. And the problem is growing most rapidly among demographic groups traditionally less likely to have affordability problems, including younger households, married couples with children and renters with some college education.

“These are astounding numbers,” says Eric Belsky, managing director of JCHS. “If you are spending half of your income on housing, you have very little to spend on everything else.”

The problem stems from a mismatch of supply and demand of affordable rental housing in the wake of the housing crash. The recession pushed up vacancy rates, and depressed rents, property values and new multi-family unit construction. Meanwhile, the foreclosure crisis has sparked a substantial increase in the number of former owners who now need to rent — just at a moment when development of new affordable housing units has stalled:

The supply gap for very low-income renters (with incomes up to 50 percent of area medians) also increased. In 2003, 16.3 million of these households competed for 12.0 million affordable, available, and adequate units. In 2009, these renters numbered 18.0 million while the supply of units dipped to 11.6 million, widening the gap from 4.3 million to 6.4 million units.

Spouses of reverse mortgage borrowers get foreclosure relief

The U.S. Department of Housing and Urban Development (HUD) has reversed itself on a rule that was forcing some spouses of reverse mortgage borrowers into foreclosure.

For years, HUD has described reverse mortgages insured by the government as non-recourse loans.

Those loans, known as a Home Equity Conversion Mortgage (HECM), are designed so that borrowers could never owe more than the value of their homes, even though the loan balances rise over time. The intent was to assure elderly borrowers that HECMs were safe.

But a lawsuit filed last month by the AARP Foundation seeks foreclosure relief for spouses of deceased reverse mortgage borrowers. It charges that HUD illegally implemented two important rule changes in 2008. The first stated that the non-recourse provision would apply only when properties are sold. That means that if the spouse dies, the surviving non-signing spouse would have to repay the full outstanding HECM balance, even if the home’s value had dropped.

Second, HUD changed a rule stating that a borrower could sell a secured property for 95 percent to 100 percent of its appraised value. The new rule stated that only “arm’s length transactions” would be allowed under that range of prices. That effectively meant that a non-signing surviving spouse could retire a HECM only by repaying the full loan balance, but that a third-party buyer could purchase the property for as little as 95 percent of appraised market value.

The AARP lawsuit alleges that, as a result of the rule, many spouses or heirs who want to purchase the property have been unable to do so because they cannot obtain financing that exceeds the current value of the property. The federal lawsuit argues that the rule violates other HUD rules and existing contracts between reverse mortgage borrowers and lenders, and that it negates a key purpose for which borrowers had been paying insurance premiums.