Issue #136, July/August 2004
Section 8 Homeownership Program
Is the push for homeownership helping or hurting?
By Violet Law
For more than a decade, all that Tanya Anderson could do to spiff up her eat-in kitchen was to plant two plastic yellow roses on the dining table. However hard she mopped it, the dirt-colored linoleum floor never seemed to look clean. The beige countertop and wood cabinets remained dull and drab. Anderson would have loved to redo the floor and the fixtures, but she didn’t because, if she were asked to vacate, she wouldn’t have been able to pack any of it into the moving truck.
Last fall though, Anderson installed an antique-style ceiling fan in the kitchen of her home of 12 years. She plans to redo the floors next. Meanwhile, her 15-year-old twin daughters have big plans for their bedrooms. “I’m going to let my daughters paint the rooms,” says Anderson. “They already picked the colors.” She no longer worries about sinking money into home improvement work that she can’t take with her. She now owns the three-bedroom apartment in southwest Toledo that she’s rented on a Section 8 voucher since 1992.
Anderson, 47, is one of the 2,000 Section 8 renters in the country who have purchased a home under the Section 8 Homeownership program. The program was piloted in 15 public housing authorities (PHA) in the late 1990s and rolled out nationwide by the U.S. Department of Housing and Urban Development (HUD) in 2001.
Much like under the conventional Section 8 voucher program, homeowners pay 30 percent of their income toward their monthly mortgage payment. The voucher covers the remainder of the monthly mortgage. Homeowners receive in mortgage subsidy the same amount they would get in rental subsidy. To qualify, the voucher holders must have sufficient savings to cover at least 1 percent of the housing cost as down payment and closing costs. Under the program’s guidelines, applicants must be employed full-time for at least a year and have an annual household income of at least $10,300.
To launch the Section 8 Homeownership program, most PHAs turned to the local nonprofit housing groups that have more expertise in shepherding low-income families through the home-buying hoops. Although guided by the final rule proposed by HUD in February 2001, each housing authority structures its program differently.
In 2002 HUD published a two-volume report with case studies on the 12 housing authorities participating in the homeownership program. The report details some of the challenges housing officials faced as they introduced the program, such as housing affordability in the local market, credit-readiness of program participants and lenders’ reluctance to work through participants’ credit problems.
The case studies found that all of the housing authorities offer counseling to program participants (who are required to be first-time homebuyers). The majority of the participants are the first in their immediate families and social circles to become homeowners and have little knowledge of what homeownership entails. Their lack of experience with homeownership itself is an issue of major concern. Ten of the housing authorities use the NRC-affiliated NeighborWorks organizations to provide the counseling to participants. Some programs also offer post-closing counseling. Of the two housing authorities examined in this article Toledo, OH, and Yonkers, NY only the former requires participants to complete post-purchase training.
“For people who’ve never owned a home before, there’s a lot of fear because it’s a big responsibility. They wonder: ‘Can I do this?’” says Nancy Dey, fiscal officer of Neighborhood Housing Services of Toledo, whose partnership with Lucas Metropolitan Housing Authority has helped Anderson and two dozen other Section 8 renters buy their homes.
After living in what she called constant hassle from the property manager, Anderson was ready to take charge of her home, a wood-frame bungalow with an elongated backyard. “I just felt like I was trapped. I was here for 12 years, but I was never allowed to do anything,” says Anderson. “But now I’m a homeowner I can do whatever I want, because it is my property. And little by little, you know, when I get some of the bills paid down, I’m going to do more things to enhance the house and make it look better.”
Anderson guards her house a $58,000 investment with care and vigilance. She installed an alarm system soon after closing last September; she checks the eavesdrops to make sure they channel rainwater away from the foundation; and she’s planted tulips under the front window to help detect burglary attempts. Anderson’s twins, Rachel and Ramona, have asthma and need sound air conditioning in order to breathe. She fears the window units will tempt a few thieves, so installing central air is her next project, for which she is putting away money little by little, about $25 a month.
Although Anderson, who teaches pre-school at a local hospital, says her already-tight budget now gets a bit tighter, she believes buying the home allows her to begin building wealth and securing her and her daughters’ financial future. “If [I] just rent, when I die, my kids have nothing left. I was thinking of something to leave that is worthwhile property for my kids,” Anderson says.
The future of the Section 8 Homeownership program, however, is far from certain. The funding shortfall of the existing vouchers under the proposed FY04 federal budget could threaten the sustainability of the program and discourage local housing officials from expanding it, or even attempting it. “This is only going to be a viable program to the extent that the Section 8 funding is reliable,” says Barbara Sard, director of housing policy for the Center for Budget and Policy Priorities.
In May, citing looming Section 8 funding woes, Boston Private Bank & Trust Company scrapped its plan to create a home mortgage product based on the program. Even those public housing officials who have been successful in implementing the program say that the funding cuts proposed by the Bush Administration will hurt the very thing it has purported to do expand homeownership opportunities for all.
“There is a fundamental disconnect between their homeownership initiatives and the steps they’re taking,” says Paul Dettman, executive director of the Burlington Housing Authority. With 52 closings, Burlington has the most among the pilot sites. “If HUD continues to cut the core funding, we anticipate we will have to shut it down. We’ll have to make choices with who we serve. Homeownership would be the first to go.”
As it is, PHAs do not receive additional funds to implement the program. Those that make it work have done so by piecing together local and national funding sources, such as the Federal Home Loan Bank and Fannie Mae. While they praise the program’s objective of assisting low-income renters, some housing advocates criticize the trade-off that makes it possible that a few renters are being bailed out on the backs of many who struggle to pay rent.
“The Section 8 voucher program is designed as a rental assistance program,” says Sheila Crowley, president of the National Low Income Housing Coalition. “What concerns me is the diversion of voucher resources away from the people who are on the waiting list.” Under HUD’s final rule, the Section 8 homeowners, if not elderly or disabled, will receive mortgage subsidy for the first 15 years of their loan terms, whereas the median length of stay of a Section 8 renter is three years. Crowley also warns that HUD officials may have overlooked “the precariousness of those arrangements in which [the homeowners’] income is insufficient to maintain the mortgage over time.”
Most Section 8 homeowners haven’t thought that far ahead. They have plenty to worry about now. For them, every little thing that goes wrong in their new home could spell a financial crisis. Eliana Benitez knows well what worries a new home can bring. As a young single mother in the early 1980s, Benitez, and her two boys, lost everything in an apartment fire and received a Section 8 voucher to help rebuild their lives. With assistance from the Municipal Housing Authority of the City of Yonkers and the Tarrytown, NY-based Housing Action Council, Inc. (a nonprofit that works with potential homebuyers), Benitez closed on a condo in March 2003. Shortly after closing, she found the bathtub stopped up and the building’s boilers kaput, leaving her cold for most of the winter. A year later, during recertification, a Section 8 inspector discovered other deficiencies that were overlooked in the Housing Quality Standards inspection done before her closing and demanded that Benitez fix them.
When she asked for help, counselors at Housing Action Council told her that, as a homeowner, she was on her own, Benitez recalls. “It’s more headache than happiness,” says Benitez. “I don’t have the peace of mind. I don’t have the support that I should have.”
Even though Benitez, 45, now worries about how quickly she can sell her condo so that she can move to South Florida to be close to her youngest son, she says she’s never regretted buying a home. Despite having hit a few snags, Benitez will still consider homeownership in the future. She says she’s learned her lesson. “I know that next time I will be more alert and careful and really check things that need to be fixed. Maybe I’ll get more information. I’ll read more…get more educated.”
In Toledo, Neighborhood Housing Services requires participants to attend training before and after closing. At a six-week post-purchase workshop, Anderson learned to do a bit of plastering and plumbing. Still, she has hired help, mostly handymen who go to her church, to get some small jobs done.
The Housing Action Council’s homeownership director, Terry Fleischman, says she plans to offer workshops in the future to educate participants about the new responsibilities that come with homeownership, although she thinks that no amount of training can prepare renters-turned-homeowners for the unanticipated.
“There is only so much you can tell somebody about buying a home,” says Fleischman. “They don’t understand until something goes wrong.”
Housing Action Council, Inc.
Neighborhood Housing Services of
Voucher Homeownership Assessment