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Testimony for Speaker's Task Force on Racial Disparities

December 11, 2020

Joaquín Altoro

Good morning Rep. Haywood, Rep. Wittke and members of the Speaker’s Task Force on Racial Disparities. It’s an honor to speak before your Education and Economic Development Subcommittee today.

I’m Joaquín Altoro, CEO of the Wisconsin Housing and Economic Development Authority and joining me today is May yer Thao, assistant deputy director. We appreciate your work to shed light on the serious racial disparities that are affecting people of color and all people in our state. Our presentation today aims to delve more deeply into the current challenges related to affordable housing and economic opportunity. We’ll start by providing some background on WHEDA, the current environment and conclude with our efforts to cultivate an ecosystem with greater equity and opportunity.

HOW WHEDA WORKS

WHEDA is a self-supporting public corporation that receives no tax dollars for its operations. For more than 45 years, WHEDA has worked to provide low-cost financing for housing and small business development in Wisconsin. Since 1972, WHEDA has financed more than 75,000 affordable rental units, helped more than 133,000 families purchase a home and provided more than 29,000 small business and agricultural loan guarantees. With some 160 employees, we manage approximately $3 billion in assets.

Through our WHEDA Advantage loan program targeting first-time homebuyers and working families, during fiscal 2019, we issued 3,703 loans valued at $480 million, up some 7% from the prior year.

  • Our multifamily programs also have seen tremendous success. In fiscal 2019, WHEDA financing created some 2,003 units through loans totaling $216 million – a 22% unit increase from the prior year.
  • Also during fiscal 2019, our federal and state housing tax credit awards produced an additional 3,829 units through awards totaling some $36 million.
  • In addition, WHEDA provides direct economic development support to entrepreneurs, established businesses and farms through a variety of loan and guarantee programs.

WHEDA’s financing tools are effective. But for WHEDA, hundreds of thousands more working families in Wisconsin would lack access to quality, safe, affordable housing. However, WHEDA’s tools alone are not sufficient to overcome legacy housing issues and evolving economic challenges. For example, in 2019, our single-family loans financed just over 2% of all home purchases statewide. In terms of first-time homebuyers with Fannie Mae and Freddie Mac loans, WHEDA financed about 13% of borrowers. So, rather than rely on our financial impact alone, to

drive systemic change, we at WHEDA must leverage the collective strengths of our people, partners, programs and practices. Collaborative, adaptive, innovative approaches are needed.

If we want to grow opportunity for all, we must work with others to cultivate an ecosystem that supports equitable access to affordable housing and the tools for economic success. This is Latonia Ford, who recently bought her first home using a WHEDA loan. She’s saving about $300 per month compared to the cost of renting.

THE CURRENT ENVIRONMENT

Now that you have some background on WHEDA and how we work, I’d like to provide some context on national-level and Wisconsin-specific racial disparities, many of which have been exacerbated by COVID. We’ll start with some overall U.S. economic numbers, then work our way through some of the racial gaps with single family homes, access to affordable rental housing and economic opportunity. As you can see here, on a nationwide basis, since the impact of COVID became evident in April, Blacks and Hispanics have experienced the largest declines in employment and continue to experience unequal recovery. Credit for this slide goes to Jaya Dey, Ph.D., a senior economist with Freddie Mac. We recently served together on a panel organized by the National Council of State Housing Agencies.

THE CURRENT ENVIRONMENT: SINGLE FAMILY

Next is some data on the continuing racial gaps in homeownership – in Milwaukee, in Wisconsin as a whole and nationwide. Homeownership is a critical tool for building savings and intergenerational wealth. According to the National Realtors Association, homeownership is also closely tied with educational achievement, civic participation, reduced crime and improved health. (https://realtoru.edu/wp-content/uploads/2014/06/Homeownership-Stable-Housing.pdf?sf53127756=1). While Wisconsin outperforms the nation as a whole in terms of homeownership, the story is much different among communities of color. In fact, according to the Realtors, Wisconsin ranks third worst in the nation in terms of African- American homeownership. (https://www.nar.realtor/sites/default/files/documents/2020-snapshot-of-race-and-home-buying-in-america-02-21-2020.pdf). National data and other local factors indicate these gaps are continuing to grow. WHEDA is working to expand its network of lenders in underserved communities.

In Wisconsin, higher mortgage loan denial rates for people of color contribute to the racial gap in homeownership. While Wisconsin as a whole fares better than the national average with fewer home purchase loan denials, Black residents fare significantly worse. The racial gap for home denials is particularly striking in Milwaukee County. Why are these denials occurring? The reasons are poorly understood and the subject bears further research. Existing research, including Jaya Dey’s work, points to factors including insufficient income; high student loan and other debt; and thin credit (as opposed to poor credit). For example, a substantial share of people of color who are characterized as “mortgage weak” have clean but “thin” credit files. WHEDA is working on multiple levels to increase understanding of these issues.

COVID has complicated the financial picture for everyone. Defaults on home mortgage loans are rising faster among people of color than among white borrowers. WHEDA recognizes the importance of keeping people in their homes during the pandemic as well as the financially devastating impact that a loan default can have on borrowers. We have been working with our mortgage loan borrowers on an individual basis to extend terms, eliminate late payment fees, accept partial payment and more. These activities qualify as forbearance. The pie chart above shows the percentage of home loans in forbearance by race. The racial percentages of people participating in forbearance plans is roughly equivalent to the racial percentages in WHEDA’s total portfolio, although there is greater representation in the “other” category. WHEDA’s forbearance efforts provide an important safety net in communities of color. Through the end of October, the unpaid balance of loans in forbearance totaled just under

$38 million. (This represents just under 2% of the $1.9 billion unpaid balance total in WHEDA’s portfolio.) The flexibility needed to sustain this forbearance support is provided through our Dividends for Wisconsin Plan.

THE CURRENT ENVIRONMENT: MULTIFAMILY

Cultivating an ecosystem that drives equity also involves increasing access to affordable workforce rental housing. Ashley Wilson and her four children will soon be moving into Oak Grove in Dodge County, a rural project made possible by WHEDA financing and state and federal tax credits. Wilson’s fiancée passed away unexpectedly earlier this year, so she has been living with her own parents while continuing to work. She’s excited to be moving into a place with more room for the children. The Oak Grove neighborhood is right across the street from the local school in Horicon.

During the 2020 cycle, WHEDA awarded some $32 million in federal and state tax credits to create 2,039 affordable housing units in 23 communities like the Oak Grove project and this project, Normandy Square for seniors. The 2020 federal and state credits deliver a value of some $248 million to developers over the life span of the credits. Since 1986, WHEDA has awarded more than $445 million in affordable housing tax credits, resulting in the development and rehabilitation of more than 53,000 units of rental housing for low- to moderate-income families, seniors and vulnerable community members. Units built by the credits are available to those earning 60% or less of area median income. Despite the success in allocating tax credit resources, the awards are highly competitive with demand outstripping supply. The 2020 allocation drew requests totaling $61 million compared to the $31.9 million available.

The high demand for affordable workforce housing is further demonstrated in recent reports by the Wisconsin Policy Forum and U.S. Government Accountability Office. In Milwaukee County in particular, rent burdens affect African American households at nearly twice the rate of white households. According to the Policy Forum, in the four-county Milwaukee metro area, approximately 40% of African-American households spent at least half of their income on rent compared with 21% of white households (https://wispolicyforum.org/wp-content/uploads/2018/08/CostOfLiving_Full.pdf). The term rent burdened means renters spend at least 30% of their income on rent. I want to emphasize that Wisconsin’s rural areas also face very real challenges regarding affordable rental housing. According to the 2017 GAO report, between 40 and 50% of rural Wisconsin renters are burdened (https://www.gao.gov/assets/710/707179.pdf).

THE CURRENT ENVIRONMENT: ECONOMIC OPPORTUNITY

One other line of emerging research bears discussion and the issue is captured here in a slide prepared by Dr. Andre Perry, a fellow in the metropolitan policy program at Brookings Institution. It relates to the struggles people of color – and particularly Black residents – have in achieving their full economic potential as well as building intergenerational wealth. All other factors being equal, homes and businesses in majority Black neighborhoods are devalued by appraisers and banks. In the greater Milwaukee area, this devaluation in housing results in an absolute price difference of more than $36,000 per home. We had the honor of having Dr. Perry speak to us at WHEDA during an all-staff meeting recently. He explained that this cumulative devaluation in housing alone totals $156 billion across all markets nationwide. It affects upward mobility and limits economic opportunity. https://www.brookings.edu/experts/andre-m-perry/

CULTIVATING AN ECOSYSTEM OF OPPORTUNITY

As our own understanding of these racial gaps deepens – and I want to emphasize that we all still have much to learn – it’s clear that no single institution, no matter the scope, mission or market share, can tackle these issues alone. That’s why at WHEDA we are focused on cultivating an ecosystem of people, partnerships, policies and practices to support greater equity in affordable housing and economic opportunity. I mentioned Dr. Perry’s presentation at a WHEDA all-staff meeting. As you can see from the graphic above, our efforts to cultivate this ecosystem of opportunity start internally with our WHEDA staff and extend outward to encompass our partners, programs and our broader sphere of influence with policies and practices. Next, I’d like to introduce WHEDA’s Assistant Deputy Director May yer Thao, who will speak about some of these efforts.

May yer Thao

Thank you Joaquin. I’m May yer Thao, WHEDA’s assistant deputy director. The work of your task force is both inspiring and necessary if we are to achieve our potential here in Wisconsin. As Joaquin mentioned, at WHEDA we are working on multiple levels to cultivate an ecosystem that increases equity in housing and economic opportunity. Our employee-led Culture Steering Committee recognizes that we all play a role in creating an inviting, inclusive and diverse workplace. In addition to our own people, WHEDA supports greater equity across all communities through our programs and partnerships.

Even as we are working to build greater awareness and capacity among our own staff, we are working on the external ecosystem. Our next sphere of influence covers our programs, including procurement efforts with vendors. We are:

  • Improving procurement practices;
  • Strengthening vendor relationships;
  • Extending our network of business partners; and
  • Working with our business partners to encourage best practices;
  • This photo of Amanda Evans is a good example of what we are doing. Amanda has her own photography business in Milwaukee. She is now a WHEDA vendor for some of our local photography needs. WHEDA staff worked with Amanda to help her gain certification as a Minority-owned Business Enterprise.

WHEDA’s administration of highly competitive federal and state housing tax credit programs represents another way in which our programs are evolving to drive equity. Key QAP changes for 2021-22 include:

  • Increased scoring for projects that include diverse developers;
  • A set-aside of 25% of state housing tax credits for rural projects;
  • Greater flexibility to encourage supportive services; and
  • Increased scoring for sustainability features.

Finally, WHEDA aims to cultivate an ecosystem of opportunity through policies and practices that support equity and build capacity in communities throughout Wisconsin. These efforts include:

  • A bold research project involving Community Development Financial Institutions in urban and rural settings to understand their challenges and opportunities;
  • New efforts to engage with national experts on supportive services to learn more about putting policies and practices in place that link housing with health care and jobs for the most vulnerable in our communities;
  • Our rural affordable workforce housing initiative; and
  • Greater engagement than ever before with policy makers as well as experts and practitioners to identify and advocate for effective solutions.

We are also deploying new and innovative public outreach strategies to inform and engage new customers and audiences so that our programs achieve even greater effectiveness.

By working together – through our people, partners, programs, policies and practices – we intend to cultivate an ecosystem of greater equity in housing and economic opportunity. We appreciate the work of the Speaker’s task force in creating greater awareness of the issues we face today and laying the groundwork for good ideas to grow so that all in our communities can look forward to a brighter future. On behalf of WHEDA, thank you. We would welcome any questions. Thank you very much.

Click here to view the PowerPoint presentation for this article.