Velázquez to Treasury: Release Housing Assistance for Puerto Rico
Washington, DC –According to Rep. Nydia M. Velázquez (D-NY), a federal program to assist homeowners facing foreclosure is not being fully utilized. In a letter to the Treasury Department, Velázquez is urging Secretary Mnuchin to tap into the “Hardest Hit Fund,” and to allow Puerto Rico to apply. Established in 2010, the Hardest Hit Fund contains federal funding for local housing agencies to carry out foreclosure prevention and relief solutions.
One year after devastation from Hurricane Maria compounded an already dire housing crisis in Puerto Rico, Velázquez is arguing that additional federal assistance is necessary to help families afford their homes. In her letter, Velázquez argues that the unique circumstances of Puerto Rico’s housing crisis, namely: a decline in home value and ownership; high unemployment rates; and a prevalence of vacant or abandoned homes, mirror criteria established to give states access to the program in the past.
“Before been hit by Hurricane Maria’s wrath, Puerto Rico was facing another type of hurricane, an economic one,” said Velázquez. “At the time of Maria’s landfall, many homeowners were already struggling to make their mortgage payments, while many others were priced out of the market altogether. Tragically, Maria compounded their challenges, making landfall as one of the destructive Hurricanes in American history. As we now approach one year since Maria, the federal government has a moral responsibility to help our fellow Americans. Deploying funding under the Hardest Hit Fund would be a step in the right direction towards helping families afford to stay in their homes and rebuilding a more resilient Puerto Rico.”
The full text of the letter is below. For a PDF, click here.
September 17, 2018
The Honorable Steven Mnuchin
United States Department of the Treasury
1500 Pennsylvania Ave., N.W.
Washington, D.C. 20220
Dear Secretary Mnuchin:
I am writing to urge you to initiate a new round of funding from the Treasury Department’s Hardest Hit Fund (HHF) and to permit the Commonwealth of Puerto Rico to apply in order to help its residents currently struggling to repay their mortgages following the devastating 2017 hurricane season.
As you know, the HHF is designed to provide funding to state housing agencies so they may design and implement locally-tailored foreclosure prevention and relief solutions. Currently, Puerto Rico is facing a housing crisis that began with the housing market downturn and Great Recession of 2007-08 and was exacerbated by Hurricanes Irma and Maria in 2017. In Puerto Rico, nearly 272,000 housing units, or more than 17 percent of the total housing inventory, is estimated to have sustained moderate or major damage or was destroyed from the hurricanes. Overall, home values and home ownership are down on the Island. The risk of foreclosures is up, and with that, the possibility of thousands of homeowners being forced into a rental market that will absorb an unacceptably large portion of their incomes. Continued out-migration due to Hurricane Maria will only continue to depress the labor market, and there is no concrete plan in place either at the federal or Commonwealth level to seriously address the 300,000 vacant homes across the Island. It is thus imperative that Treasury respond to these catastrophic disasters by allocating a new round of HHF funding and allow Puerto Rico to apply.
The nature of this crisis – prolonged stagnation in the housing market, combined with widespread devastation from two major hurricanes – demand locally-designed solutions, and accordingly, merit access by Puerto Rico to the funds in the HHF. In the immediate aftermath of Hurricane Maria, the federal agencies—the Federal Housing Administration, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the U.S. Department of Agriculture, and the U.S. Department of Veterans Affairs—that back mortgages in Puerto Rico instituted moratoria on foreclosures, enabling at-risk homeowners to focus their scarce financial and other resources on disaster recovery. However, beginning this summer, some of those same agencies began foreclosing on delinquent borrowers, creating a sense of uncertainty regarding homeownership on the Island that will only worsen as more agencies restart foreclosure proceedings.
Since its creation in 2010, the HHF has allocated funding through five rounds using the Treasury Secretary’s broad authority to identify eligible states. Notably, through the very first round of funding, Treasury made a total of $1.5 billion available to the five states that experienced the greatest declines in home prices as of December 2009. On this key housing metric, the data for Puerto Rico is comparable to those of the states that received funding in that Puerto Rico has similarly experienced a precipitous decline in home values, making Puerto Rico a strong candidate for eligibility for the HHF. Since 2005, Puerto Rico’s median home value has declined across the Island by at least 10 percent. Further, the Federal Housing Finance Agency’s quarterly, purchase-only, non-seasonally adjusted housing price index, which measures home sales prices for Puerto Rico, shows a significant decline in home prices, which would be appropriately addressed by allocating a new round of HHF funding to the Island. In this index, 1995 is the base year with a value of 100. During the second quarter of 2017, this index was 141.91, which was a decline of more than 10 percent from the second quarter of 2016. The index is currently nearly 2 percent below the level of 144.36 recorded during the fourth quarter of 2000 and more than 29 percent below the peak in the fourth quarter of 2007.
Homeownership in Puerto Rico is also trending downward. As of September 1, 2017, the owner vacancy rate was estimated at 3.4 percent, up from 2.8 percent in 2010 and 1.7 percent in 2000. The decline in the homeownership rate is partly the result of an elevated rate of seriously delinquent (90 or more days delinquent or in foreclosure) and real estate-owned (REO) properties compared with the mainland United States, caused by the local economic downturn combined with the Great Recession and the national housing crisis. As of August 2017, 12 percent of all home loans were seriously delinquent or had transitioned into REO status, down from 15.7 percent one year earlier and 16.5 percent in August 2015. By comparison, seriously delinquent loans and REO properties in the United States during August 2017 averaged 2.7 percent, down from 3.4 percent in August 2016 and 4.2 percent during the same time in 2015. This comparison demonstrates homeownership has been, and remains, significantly depressed in Puerto Rico vis-à-vis the rest of the nation.
Presumably, when a homeowner is foreclosed on and loses their home, they turn to the rental market to meet their housing needs. Unfortunately, Puerto Rican renters face similar troubles as homeowners, and the data regarding the rental market helps paint a fuller picture of the depressed state of Puerto Rico’s housing market. Of the renter households that pay rent, the median gross rent in Puerto Rico during 2016 was $463, which was up an average of more than 1 percent annually from $429 in 2010. Housing affordability for renters is also a serious issue plaguing Puerto Rico’s housing sector. For households in occupied rental units paying rent in 2016, more than 52 percent of all renter households in Puerto Rico are “cost-burdened,” which is defined as a household contributing more than 30 percent of its monthly income towards rent, with nearly 45 percent paying more than 35 percent. A second study demonstrates that an estimated 17 percent of all households in San Juan are cost-burdened, and an additional 21 percent are severely cost-burdened, defined as a household contributing 50 percent or more of its monthly income towards rent. The significant rent burden faced by many Puerto Rican renters highlights that foreclosed home owners who are forced to enter the rental market will still be required to allocate a substantial portion of their monthly income to their housing costs.
Additionally, the second and third rounds of HHF funding made a total of $2.6 billion available to states with high unemployment rates. Particularly, the third round of funding was designated for states at or above the national average unemployment rate. Puerto Rico meets that standard. The Commonwealth’s unemployment rate during the 12 months ending in August 2017 averaged 11.3 percent, down from the average of 11.8 percent during the previous 12 months. The decline in the unemployment rate is attributable to a decline in the labor force of 13,500 workers or job seekers, or 1.2 percent, during the 12 months ending in August 2017. Puerto Rico’s unemployment rate peaked at 16.0 percent in 2010, and has slowly decreased since then as the Labor Force Participation Rate continued to simultaneously decrease. This decline is likely the result of out-migration from Puerto Rico going back to 2010. Since 2010, Puerto Rico’s population has declined by an average of 54,050 people, or 1.5 percent, annually, with net out-migration averaging 60,900 people annually. Unfortunately, Hurricane Maria has only accelerated this out-migration, which means the state of employment on the Island will only continue to deteriorate. By comparison, for the same 12-month period ending August 2017, the unemployment rate on the mainland averaged 4.6 percent, down from the average of 4.9 percent during the previous 12 months. For the most recent 12-month period, covering August 2017 through July 2018, Puerto Rico’s unemployment rate averaged 10.3 percent. This data is comparable to the unemployment rates experienced in the states that participated in the second and third HHF rounds in that, like those states, Puerto Rico’s unemployment rate has consistently been above the national average.
Finally, one of the most common ways state housing agencies use HHF funds is blight elimination, by which states provide funds to demolish or otherwise address vacant or abandoned homes. Here too, the data for Puerto Rico is compelling, supporting the notion that Puerto Rico would be a strong candidate to apply for the HHF. The number of vacant homes in Puerto Rico increased from 11 percent in 2006 to 18 percent in 2016, a 64 percent increase. In 2016, at least 273,093 homes in Puerto Rico were vacant, compared to 153,493 in 2006. The Department of Housing and Urban Development Office of Policy Development and Research’s Comprehensive Housing Market Analysis for Puerto Rico, which is current as of September 1, 2017, corroborates this, placing its estimate at 300,000 vacant homes on the Island. Accordingly, Puerto Rico would significantly benefit from accessing and using HHF funds because it would enable the Island to begin addressing the serious blight problem it currently faces.
Taken in isolation, any one of these metrics establish a strong case for allowing Puerto Rico to apply for the HHF funds. However, in combination they paint a bleak picture of the state of Puerto Rico’s housing sector that, when viewed jointly with the Island’s ongoing long-term recovery from Hurricanes Irma and Maria, compels the federal government to respond accordingly. Puerto Rico stands at a critical crossroads in its history, and the way the recovery from the hurricanes is handled could determine the economic well-being of Puerto Rico for decades to come. As affordable housing is central to the health of an economy, I implore you to allocate a new round of HHF funding and allow Puerto Rico to apply.
Nydia M. Velázquez
Member of Congress