Protecting students in an anti-regulatory environment

December 21, 2016

It’s not easy to predict exactly what federal higher education policy will look like under the Trump administration.

The idea that student loans should revert to the private sector would likely face an uphill battle, given the costs involved. Reducing the amount of time before unpaid balances are forgiven under income-driven repayment from 20 or 25 years to 15 years, as the president-elect proposed in a campaign speech, seems unlikely in light of the recent Government Accountability Office report indicating that forgiveness under the current, less generous provisions will be much more expensive than anticipated.

But the oversight of the for-profit sector of higher education into which the Obama administration put so much energy appears likely to be undone. The statements of the president-elect and his spokespeople, as well as his cabinet appointments, point to a world in which business interests prevail over consumer protection.

It is hard to argue that the gainful employment regulations or the debt relief for students who borrowed to attend colleges that went out of business are perfect. But the evidence about the number of students whose lives have been damaged by unscrupulous for-profit colleges and about the impact of the for-profit sector on excessive student borrowing and student loan defaults is compelling. If the administration does away with these efforts at consumer protection, it is imperative that they be replaced with effective alternative policies.

The for-profit sector of higher education does not represent the free market. The vast majority of revenues in the sector come from federal student aid programs. Middle-income families are not sending their 18-year-olds off to for-profit institutions. The sector is populated by low-income adults, disproportionately African American, who have limited information and limited options. More than one-third of the defaulters on federal student loans in fiscal year 2013 were from the for-profit sector, which enrolled about 10 percent of students.

There are high-quality and low-quality institutions in every sector of higher education. But the for-profit sector has much more than its share of the latter. This is not surprising, since unregulated markets do not operate well when consumers cannot reliably evaluate the quality of what they are buying. The difficulty students face in making judgments based on the effectiveness of education they have not yet experienced invites institutions to appeal to them through marketing ploys rather than through the quality of what they offer.

Consumers rely on the government to ensure that the meat they buy is not tainted, that their cars are safe, and that the drugs they take will not harm them. They also depend on the government to protect them from “colleges” that collect tuition revenues without delivering educational services that meet students’ needs.

Picking a college is not easy. No matter how sophisticated the websites with information about the graduation rates, student debt, and earnings associated with individual institutions, too many students—particularly those without a support system of family and friends who have graduated from college—will end up enrolling in institutions that focus on advertising and false promises. They will waste their valuable time and energy, have their dreams shattered, and accrue unmanageable debt unless the federal government—which is providing the funds they need to enroll—does a good job of protecting them from fraud and guiding them into productive pathways.

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To the next HUD secretary: Two steps to strengthen the FHA

December 5, 2016

If confirmed as the new Department of Housing and Urban Development (HUD) secretary, Ben Carson should take two immediate steps to improve lending through the Federal Housing Administration (FHA),  the HUD agency created to support lending to borrowers the market doesn’t otherwise well serve.

Currently, many banks and other well-capitalized lenders are reticent to make FHA-insured loans because of the risk of being sued for small mistakes under the False Claims Act and the extremely high costs involved in servicing delinquent FHA loans.

As a result, the share of FHA lending done by banks has fallen by nearly two-thirds in only three years (from 60 percent to 22 percent), undermining FHA’s ability to reach underserved borrowers and increasing the risk to the taxpayer. The new HUD secretary can address both of these problems effectively and expeditiously.

Remove the cloud of uncertainty created by the False Claims Act

The FHA provides lenders with insurance to cover the cost of defaulting loans. Today, if a lender submits a claim on a loan that is found to have any sort of underwriting defect, the lender can be sued by the Department of Justice for submitting a “false claim.” The applicable statute, the False Claims Act, provides for a penalty of three times the size of the loan. Thus, any mistakes whatsoever, however small or immaterial to the risk of the loan, can lead to a penalty that dwarfs the value of the loan to the lender. Because lenders are unable to eliminate all mistakes through improved underwriting, they are unable to eliminate the risk of these penalties.

Not surprisingly, well-capitalized lenders are increasingly deciding this risk isn’t worth taking and have pulled back dramatically from their FHA lending. That reduction has constrained FHA lending and increased the exposure of the taxpayer, since the FHA lending that remains falls to less well-capitalized lenders that may not weather the next economic storm. 

Fortunately, the pieces of the solution are already in place. FHA has developed a thoughtful defect taxonomy to parse the types of lender errors according to their significance. To address this problem, therefore, the HUD secretary can direct his team to develop a hierarchy of penalties that matches this hierarchy of mistakes, so that smaller mistakes get smaller penalties and the heavy hammer of the False Claims Act is used only for the significant mistakes that actually deserve it. Under this new system, lenders would finally be able to use improved underwriting to guard against the risk of heavy penalty and thus would no longer need to flee the FHA.

Reduce the costs and complexities of servicing troubled loans

FHA also maintains a host of requirements for servicing the loans they insure, requirements which are designed to protect FHA’s and the taxpayers’ interest in the loans. The problem is that FHA rules are so burdensome when a loan goes into default that the costs of servicing a portfolio of FHA loans have become uneconomical. Once again, this is increasingly pushing well-capitalized lenders away from doing FHA business, to the detriment of underserved borrowers and the taxpayer alike. The HUD secretary can address this problem by directing his team to improve the most burdensome rules, including:

  • The conveyance process. FHA properties are held in the name of the borrower until foreclosure, after which they are transferred to the servicer. Servicers must keep properties in their name until they are conveyed to the FHA for sale, which is on average 12 months later. In the meantime, the servicer must bear the considerable cost of managing the post-foreclosure process and maintaining often deteriorating properties. FHA eventually reimburses them for some of this cost, but that left to the servicer is typically a multiple of whatever revenue they would have made on the loan. The solution is to transfer the property from servicer to FHA immediately upon foreclosure, allowing the foreclosed property to be re-sold more quickly, reducing the cost to both the servicers and the FHA.
  • Repair budgets. Prior to conveyance to the FHA, the servicer must put the home into conveyable condition. While the FHA provides for a budget for what they deem reasonable repairs, the sums are typically well short of what is needed for badly damaged homes, leaving servicers out of pocket for the difference. The solution is to raise these budgets to levels consistent with what is needed to repair badly damaged homes to the levels required for conveyance.
  • Foreclosure timelines. The FHA has a tight timeline for each stage of the loss mitigation process. Servicers are often unable to comply with it without unnecessarily harming the borrower or running afoul of the mitigation requirements of the Consumer Financial Protection Bureau or state laws. To avoid penalty for delays, though, servicers must receive special dispensation on a loan by loan basis, a cumbersome and expensive process. The solution is to allow for more servicer discretion and an expanded timeline, where slowdowns in one part of the process can be offset by more speedy action on anther.

The bottom line

The nation’s well-capitalized lenders are in retreat from FHA, to the detriment of those families that most need it and to the taxpayers who support it. If the new secretary takes the steps outlined above it will help give lenders the confidence they need to bring them back to this critical institution. Doing so will require additional funding, however, as FHA will need to overhaul its outdated systems to take many of these steps. But it is well past time to welcome FHA to the modern era, so that it can finally become a counterparty upon which both the market and the many families it was created to serve can rely.

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America can't be great if our kids don't have decent housing

December 5, 2016

President-Elect Trump has named Ben Carson as his Department of Housing and Urban Development (HUD) secretary. With his lack of experience—or a public record—we don’t know what he will do. But as a physician who has cared for children, I hope he will recognize the critical role that safe, stable housing plays in supporting health and well-being, especially for children.  

Millions of families depend on federal programs like public housing and vouchers, but there is not enough assistance to go around and only one in four are lucky enough to get the subsidies. These housing programs are often reviled and blamed for social ills, but the evidence shows that growing up in public housing can lead to better outcomes for kids and vouchers are the most effective way to prevent homelessness.

HUD plays an important oversight and management role in maintaining the nation’s stock of public housing, ensuring that local housing agencies properly manage their properties and administer the voucher program. History tells us when HUD fails in that role, the costs can be devastating for families and communities.

In my new book, No Simple Solutions, I tell the story of the Chicago housing Authority’s (CHA) journey from the most dysfunctional public housing agency in the country to the well-managed agency it is today. By the 1980s, the CHA’s high-rise projects were emblematic of the failures of federal social welfare policy.

But it wasn’t just a Chicago story; HUD’s neglect, especially during the Reagan administration of the 1980s, contributed to the decline of public housing in Chicago and across the country.

In Chicago, lack of oversight and inadequate funds for maintenance and management left the housing agency caught in a downward spiral. Tenants with the resources to move fled, leaving behind an increasingly vulnerable resident population. Those residents endured constant violence and housing that was becoming nearly uninhabitable; too many children paid the price in trauma, injury, poor health—and even death.

But the CHA’s experiences in the 1990s demonstrated what HUD could do with enough resources and political will. In 1995, with an administration committed to improving and strengthening housing programs, HUD took control of the struggling agency, spending four years cleaning up the CHA’s books, bringing in new management, and breaking the logjam that had prevented the demolition of some of the CHA’s most notorious properties. 

HUD returned the CHA to local control in 1999, approving the city’s Plan for Transformation that would lead to all of the agency’s high-rise projects being replaced with new, mixed-income housing. HUD has remained involved, approving the agency’s plans as they’ve evolved, and providing the federal resources needed to support the transformation. As I document in my book, most of the families who lived in those terrible places now are living in decent housing in communities that are less poor, less violent, and offer a better quality of life for their children.

The CHA’s story is a story of success—but also a cautionary tale. If under a new administration, HUD loses resources and pulls back its oversight role, or if Congress slashes funding for housing programs and local housing agencies, or if tax reform undermines the funding for the new mixed-income developments that have replaced the high rises, then the gains for the CHA and other public housing agencies could easily be lost.

That would be a tragedy, undermining a precious resource—decent, safe affordable housing—and leaving another generation of children at risk for growing up with the kinds of trauma that stunted their parents’ life chances.

As my colleagues wrote a few weeks ago, America can’t be great if we abandon our commitment to fair housing. I would add that it can’t be great if we abandon our commitment to poor children. 

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Trump’s child care plan: Poorly directed with lots of unanswered questions

November 29, 2016

Child care costs can present significant barriers to employment, particularly for low- and moderate-income families. In response, President-Elect Donald Trump offered a multi-pronged approach to subsidizing child care, which would tilt benefits to high-income families—those least likely to need help.

While the plan is clear on its intent to subsidize families who care for children but do not incur out-of-pocket costs, how large those subsidies will be and whether low-income families could benefit remain unclear. The plan also relies on the tax code, a system ill-suited for providing subsidies at the time child care bills are due.

Under current law, working parents can use two tax benefits to offset these costs: the child and dependent care tax credit and the exclusion for employer-provided child care. The Treasury estimates that these provisions saved 6.9 million families almost $5.3 billion on their 2015 taxes (a relatively small amount by tax standards). More current law benefits accrue to high-income families than to lower-income families.

Trump would add three more benefits: a child care savings account, a new deduction, and a separate credit for some low-income families. Besides making an already confusing system even more complicated, the new benefits would tilt even more toward high-income families.

For example, the child care savings account would allow parents to deposit up to $2,000 annually on behalf of children. The government would match half of the first $1,000 deposited each year by lower-income parents (though the plan doesn’t define “low income”). Parents could contribute pretax dollars to the accounts, which would be allowed to grow tax-free as well.

For tax folks, that’s like getting the benefits of a traditional IRA and Roth IRA tied up in one package—an unprecedented tax benefit. The money could be spent on child care, tuition, and after-school programs. It’s not clear what would happen if the funds weren’t used for these purposes (would there be a penalty?), or even how much low-income parents could use them. In contrast, many wealthy parents would already save this money and would already be paying for some or all of these items.

The main benefit of the savings accounts is reducing taxable income and thus paying less (marginal) income tax. Because tax savings would be proportional to income tax rates, the highest earners would benefit the most. For example, a family in the 39.6 percent top tax bracket would save $396 in tax for every $1,000 they deposit (plus the additional benefit of not paying tax on interest earned in the account).

In contrast, a family in the 10 percent bottom tax bracket would save just $100 on the same $1,000 deposit.

But of course, many low-income families don’t earn enough to owe federal income tax, so they wouldn’t benefit from these accounts. Some low-income families might benefit from the government match, but the plan does not describe how  the match would work. Would parents have to keep the money in the account for a certain amount of time?  Would the match be available for each child, or would there be just one match per family?

The new deduction would allow parents earning less than $250,000 per year ($500,000 if married) to deduct the cost of child care up to their state average. The plan spells out that even stay-at-home parents would receive a benefit, so unlike the current child care tax subsidies, parents could collect the tax savings without spending anything.

As with the plan’s savings accounts, families who pay the highest tax rates would benefit most and low-income families would benefit little or not at all. The plan doesn’t specify how large the deduction would be for stay-at-home parents, whether the deduction would vary by the age of the child, or and how the state average would be calculated.

Finally, Trump’s plan would aim to help low-income parents by offering a “child care spending rebate” though the existing earned income tax credit. Trump’s  campaign website says that “this boost would be half of the payroll taxes paid by the lower earning parent, and would be subject to an income limitation of $31,200.” That’s significant—low-income married couples would benefit only if both spouses work. In contrast, high-income couples with one worker would benefit from other provisions.

Finally, as with all tax benefits, families wouldn’t get financial assistance until they file their tax return in the spring, many months after child care bills were due. For low-income families struggling to pay for child care, benefits from Trump’s plan would not only be too little—they’d also come too late.

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Children: the unseen casualties of the hatred unleashed by the election

November 27, 2016

Since the election, the Southern Poverty Law Center (SPLC) has documented hundreds of in-person incidents of hate speech and actions aimed at minorities, immigrants, Muslims, women, and people with disabilities, with hundreds more online.

This especially worries me for the country’s future when I think about children from the targeted communities. Our recent work on the effects of instability on children sheds eye-opening light on what our children’s future may look like in an era of normalized hatred toward people like them. Children are, in some ways, the civilian casualties of this conflict.

Scientific research from across disciplines shows how important safe and stable environments are for children’s learning and growth. Research on toxic stress shows that ongoing fear and stress are not only emotionally challenging but also take a physical toll. For children, it can literally affect their brain development and future health and well-being.

Unfortunately, we are already hearing about the rise in hate incidents affecting children, and about the stress and fear they are experiencing from the hatred directed towards their families and communities. Children can be especially vulnerable to online abuse in the digital age and suffer from threats to their parents: for example, living in fear of their parents being deported.

Having strong layers of support—parents, schools, social networks, communities—can help children overcome these challenges and build resilience. But these support systems are vulnerable too. For example, parents provide kids’ primary buffer from instability and insecurity. But the current climate of hatred must make it harder for parents to be strong for their children. How difficult to be patient, thoughtful, and reassuring if you are desperately worried about your child’s safety, your own safety, your ability to earn a living or practice your religion, or whether you will be deported.

 And to make it worse, the SPLC report and media have documented threats and bullying in schools and playgrounds, in communities, at churches and mosques, key places of refuge and support that in normal times can help buffer children (and parents) who feel under threat.

The potential scope of the damage is frightening. About 16 million (or almost a quarter) of our children are Latino, 10 million (or 14 percent) of our kids are black, 17.5 million are children of immigrants, and over 6 million have some form of disability. Our country is home to 3.3 million Muslims, some proportion of whom are children. These children are our future workers, leaders, taxpayers, and parents and their healthy development is important for all of us.

These actions don’t reflect who we are as a nation. I doubt that most of the 62 million people who voted for Donald Trump support or engage in hate speech and actions.  And I hope that understanding the consequences of attacks on vulnerable children and families spurs us all, no matter for whom we voted, to work together to help build a stabilizing web of support for children and particularly for those children who are under threat. That web could bring us together and help counteract the damage of the divisiveness we see today, and could have important effects on the future of our country.

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To the next HUD secretary: America can’t be great if we abandon fair housing

November 22, 2016

For many people, the American Dream means having an affordable place to live, in a safe community with good schools and access to decent jobs. But for too many African Americans, Hispanics, and Asians, that dream has been blocked. We hope that, if confirmed, Ben Carson will join a long line of Department of Housing and Urban Development (HUD) secretaries in trying to meet the national housing goal that “every American family should be able to afford a decent home in a suitable environment,” regardless of the color of their skin.

Racial segregation isn’t just an unfortunate accident or the natural outcome of an unfettered housing market. It has resulted from government policies.

A century ago, many cities adopted explicit zoning laws designating white and black neighborhoods, a practice that continued for at least a generation after it was first found unconstitutional by the Supreme Court. Private developers and real estate brokers then placed racial restrictive covenants in deeds that accomplished the same purpose.

New institutions designed to help America recover from the Depression, especially Federal Housing Administration insurance, promoted racially restrictive covenants, creating patterns of segregation that persist today.

Federal programs allowed states and cities to target predominantly black and Hispanic neighborhoods for demolition to make room for highways and urban renewal, relocating former residents to segregated public housing projects. Today, neighborhoods in cities and suburbs across the United States remain much more segregated than they would have been without government involvement.

And the consequences have been disastrous, not just for people of color, but also for the vitality of major American cities and for the country’s long-term prosperity. The segregation of neighborhoods along racial lines has fueled the geographic concentration of poverty and the severe distress of very high-poverty neighborhoods. Living in profoundly poor neighborhoods seriously undermines people’s well-being and long-term life chances.

Mountains of scholarly evidence convincingly show that the persistence of residential segregation sustains racial and ethnic inequality by stunting house price appreciation and hence, wealth accumulation among minority homeowners; undermining school quality and minority educational attainment; limiting employment opportunities and earnings for minority workers; and damaging the health of children and adults. 

These disparities ultimately hurt all of us by depressing property tax revenues, raising the costs of delivering public services, and undermining the competitiveness of the nation’s workforce, and constrain the vitality and economic performance of urban regions.

In recent decades, HUD has begun to encourage and support local efforts to right these wrongs. These efforts advance two critical objectives at the same time. They invest to restore opportunities in distressed neighborhoods: great schools, safe places to play, and convenient access to jobs.

But at the same time, they help communities break down barriers that exclude those of modest means from neighborhoods rich with opportunities, using data, guidance, and planning tools. HUD has also changed the way it administers its own programs to improve housing choice and make it easier for low-income families to move to opportunity-rich neighborhoods.

It would be a tragedy to turn back the clock now. We know that every year a child lives in a distressed neighborhood reduces their earnings as adults. Our country cannot be great if we squander the potential of any of our children.

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Six Bipartisan Opportunities for President-Elect Trump

November 21, 2016

This post originally appeared on TaxVox. 

I have never believed that candidates should lay out detailed policy agendas in their campaigns. While broad outlines are helpful, the specifics are too complex for the stump and often unappealing to voters. So to move beyond campaign promises that seldom add up for any candidate, here is how President-elect Trump could move forward in six policy areas even while facing extraordinary budget constraints. Each issue has a framing that gives it a better chance of garnering bipartisan support.

Workers. Many workers made it clear in this election that they feel forgotten by government. While the left and right disagree over how well our government promotes opportunity for workers, they generally agree it could do better. Trump tapped into workers’ frustrations but hasn’t yet identified how to significantly help them. How about this as a start? Simply ask agencies to assess the extent to which their programs could better promote work, even when that is not their primary mission. This applies to a wide range of programs, from wage, housing, health, and food supports to how well the military helps veterans get a job.

Budget Reform. Even if some adviser tells the President-elect that there is magic money to be had through extraordinary economic growth, tackling budget shortfalls will soon become unavoidable. Never before have so many promises been made for the future, both for unsustainable rates of spending growth and lower taxes. Indeed, all future revenue growth and then some have already been committed for health, retirement, and the interest costs alone. Engaging in more giveaways only exacerbates this problem. One way to cut the Gordian knot and convince the public to buy into longer-run budget goals is to show how interest savings generated by long-run fiscal prudence eventually allows both more program spending and lower taxes than do big deficits.

International Tax Reform. If the US is going to collect tax revenue from US-based multinationals, it will need to get a handle on this issue. It makes no sense administratively to tax these firms based on the geographical location of headquarters, researchers, patents, borrowing, or salespeople. The solution involves taxing corporations less but individual shareholders more, while still engaging corporations to withhold those taxes. Any reform must limit the firms’ ability to shift income and deductions to the most tax-advantageous locations. 

Individual Tax Reform. Trump could accomplish some individual tax reform by focusing less on reducing the existing $1 trillion-plus level of tax subsidies and more on limiting their automatically-increasing growth rates. He could use the revenue to either reform the tax code or better target the subsidies. For example, he could redesign housing-related tax preferences so they truly promote homeownership.

Health Reform. Conservative and progressive health experts agree that the Affordable Care Act suffers from at least two problems: It did not sufficiently tackle the issue of rising medical costs, and many people remain uninsured. Trump could generate more bipartisan support if he aims to reform the system to cover more people while generating enough cost saving to make that goal attainable in a fiscally sustainable way.

Retirement and Social Security. President-elect Trump promised to not cut Social Security benefits while Secretary Clinton said she would raise them. But raised or cut relative to what? An average-income millennial couple is scheduled to receive about $2 million in Social Security and Medicare benefits versus $1 million for a typical couple retiring today. Younger people, who often expect no Social Security benefits, seem willing to accept changes that would slow the program’s rate of growth. That’s an opening for Trump to sell the reform as a long-term effort that opens up the budget to some of their needs, such as reducing student debt, while still protecting the current elderly. For many elderly, benefits can even be enhanced through private pension reform to increase individual retirement savings and enhancing Social Security benefits for low-income retirees.

Paraphrasing Herb Stein, who was President Nixon’s chief economic adviser, “what can’t continue won’t.”  And that’s true with the nation’s unsustainable fiscal path. Eventually, we will need to take the types of steps that I’ve outlined. With some creative thinking about how to newly frame important issues, President Trump could advance some real possibilities of reform despite a season of ugly campaigning.

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What President-Elect Trump’s immigration promises might mean

November 17, 2016

In his “Contract with the American Voter,” President-Elect Donald Trump lists the steps he wants his administration to take and the legislative measures he will work with Congress to introduce during his first 100 days in office. Four of these steps and two legislative measures are related to immigrants, refugees, and immigration.

What has Trump promised, and what is likely to happen?

 

Immigration promise 1: “Cancel every unconstitutional executive action, memorandum and order issued by President Obama.”

Trump has pledged to end Deferred Action for Childhood Arrivals (DACA), a 2012 executive action that has provided work authorization and temporary protection from deportation to approximately 750,000 youth who arrived to the United States as children and have lived in the country since 2007. This group has every reason to fear that they will lose their opportunities for work, driver’s licenses (in many states), and protection from deportation, leaving them vulnerable to removal. However, Trump has not said that he will prioritize DACA youth for deportation, focusing instead on “criminals.”

In his first television interview since winning the election, Trump’s message on deportations and the future legalization of undocumented immigrants was mixed. When asked about his pledge to deport millions of undocumented immigrants, he said, “After the border is secured and after everything gets normalized, we’re going to make a determination on the people that you’re talking about who are terrific people.” This could refer to—in part or in whole—the group of youth who have DACA. But what metrics would be used to determine that the border is secure and when would people opposed to legalizing undocumented immigrants be convinced that the border is secure enough?

 

Immigration promise 2: “Cancel all federal funding to sanctuary cities.”

Though sanctuary city has no formal definition, it normally refers to places that limit their cooperation with federal immigration enforcement agents. Nearly 300 jurisdictions in the country could be considered sanctuaries, including New York City, Los Angeles, Chicago, and Miami-Dade County. It is unclear how Trump would define “sanctuary cities” or which funds would be withheld, but a 2015 bill sponsored by Senator Pat Toomey would have blocked sanctuary jurisdictions from receiving Community Development Block Grants and Economic Development Administration Grants. Mayors of New York, Los Angeles, Austin, Washington, DC, and other cities have pledged to continue being sanctuaries.

 

Immigration promise 3: “Begin removing the more than 2 million criminal illegal immigrants from the country and cancel visas to foreign countries that won't take them back.”

Fact checkers have refuted the claim that there are two million undocumented immigrants who are convicted criminals. Some estimates say that there are only 820,000 undocumented immigrants with criminal records in the country, including 690,000 with a felony or serious misdemeanor conviction. Moreover, felony under immigration law can mean something different than under criminal law. Some of these estimated 690,000 have likely committed relatively minor crimes. For example, theft and simple battery are felonies under immigration law.

An estimated 45 percent of undocumented immigrants in the United States have (mostly US-born) children, so these deportations will affect many US-citizen children as well. The harmful consequences of deportations for children have been well documented.

Additionally, current funding for immigration enforcement under the Obama administration supports processing, detaining, and deporting about 400,000 immigrants a year, so additional appropriations would be needed to increase this pace.

Trump’s promise to cancel visas to countries that do not take US deportees is a response to countries, (e.g., India, China, and Haiti) that do not always accept deportees with criminal records from the United States. The United States cannot return immigrants to their home countries without that country’s cooperation. To compel these countries to accept deportees, Trump is proposing denying travel visas to these countries’ residents. No one knows how countries would respond to such a policy. Notably, India and China are two of the country’s largest sources of temporary workers, international students, and permanent immigrants.

 

Immigration promise 4: “Suspend immigration from terror-prone regions where vetting cannot safely occur. All vetting of people coming into our country will be considered extreme vetting.” 

Though the United States already has a highly structured procedure for screening refugees and an ongoing vetting process to assess whether refugees pose a security risk, Trump’s policy shift could have a big impact on the US refugee program. The United States offers protection to people who have a well-founded fear of persecution, often as a result of war or violence. Refugees are escaping many countries and areas that could be considered terror-prone regions, such as Syria, Afghanistan, and Somalia. Could these places be “areas where vetting cannot safely occur?”

During his campaign, Trump promised to bar all Muslims from entering the country, linking refugees and other immigrants of that faith to terrorism. Trump has overstated the number of Syrians who have entered the United States and has called them “a great Trojan horse” that will lead to future terror attacks. Media outlets are reporting that Trump’s advisers are considering a new special register of immigrants from Muslim-majority countries. A registry for men from certain predominantly Muslim countries was implemented shortly after the September 11 attacks, but was effectively ended in 2011 because of allegations of discriminatory profiling and its lack of effectiveness in rooting out terrorists.

 

Immigration promise 5: The End Illegal Immigration Act.

This proposed legislation, which would require Congress to act, “fully funds the construction of a wall on our southern border with the full understanding that the country of Mexico will be reimbursing the United States for the full cost of such wall.” It has other provisions, such as mandatory prison sentences for reentering the United States after deportation and ensuring that “open jobs are offered to American workers first.” Trump has emphasized the border wall (or fence) from early in his campaign and seems unlikely to abandon the effort. Prior attempts to expand border fencing beyond the current 650 miles, such as those following passage of the 2006 Secure Fence Act, have stalled because of lawsuits by environmental groups, because of construction difficulties on mountainous terrain, and because stretches of the border are privately held.

 

Immigration promise 6: The Restoring National Security Act.

This legislation focuses largely on US military capacity and investments and “establishes new screening procedures for immigration to ensure those who are admitted to our country support our people and our values.” While few details are available, Trump offered some clues in his August speech on immigration in Phoenix, when he emphasized that “not everyone who seeks to join our country will be able to successfully assimilate. It is our right as a sovereign nation to choose immigrants that we think are the likeliest to thrive and flourish here.” He also spoke about the US refugee program, saying, “applicants will be asked for their views about honor killings, about respect for women and gays and minorities, attitudes on Radical Islam, and many other topics as part of the vetting procedure.”

These new screening procedures may signal a shift from a system that prioritizes family ties to one that focuses on immigrants with language and professional skills likely to contribute most to the US economy. It may be similar to Canada’s points system, which bases admissions on high human-capital characteristics, including skills, education, work experience, and language ability. There may also be some type of ideological test to ensure that US entrants are willing to endorse certain values, resembling a 10-year-old policy in the Netherlands.

 

What’s next?

Details remain to be filled in for all these promises made in the Contract with the American Voter. Some of them may face an uphill battle in Congress. Meanwhile, the proposals have activated the fears and hopes of immigrants and refugees and of those who provide services to, advocate for, and govern the places they live. However these plans unfold, there will be ramifications for immigrants, their families, and communities across the country.

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Two ways in which a business perspective could help the housing market

November 10, 2016

While President-elect Donald Trump has been largely silent on housing and housing finance issues, the perspective of someone with a business background could actually be helpful in confronting two of the biggest issues in housing finance today: the supply shortage and credit availability.

There is an acute shortage of housing, both for owners and for renters: New supply, as measured by new single family completions plus new multifamily completions plus new manufactured homes minus obsolescence, translates into a 430,000 unit per year shortfall for the roughly 1.1 million new households that will be formed. This severe shortage will put continued upward pressure on both rents and home prices. This will increase the already acute affordability issues, particularly for renters. Forty-nine percent of renter households are already cost burdened (paying over 30 percent of their income on rent) and 26 percent of renter households are severely cost burdened (paying over 50 percent of their income on rent)—and the numbers have been climbing.

With his business background, Trump will presumably understand that supply issues need to be addressed. The tools for addressing these at the Federal level are limited, as supply constraints are heavily at the local level, including zoning restrictions and building codes. However, at the Federal level actions can be taken like targeting transportation funding in exchange for higher density near transportation hubs and recognizing the positive impact of density on environmental concerns, including clean water. It may also be time to think about Federal actions that would allow an override of local zoning laws if a clear public benefit can be established.

Mortgage credit availability is an issue we have repeatedly written about. We have shown that the market is taking less than half the credit risk it was taking during 2001, a period of reasonable credit standards. And we have shown that this tight credit has resulted in close to one million missing loans per year since 2009. There are many reasons for this including the fact that lenders often put overlays on top of the FHA and GSE credit boxes, due to fears about put-backs due to reps and warrants, the high and uncertain costs of servicing non-performing loans, and fears about being sued for treble damages under the False Claims Act. The FHFA and the GSEs have gone a long way toward making lenders comfortable that they are only responsible for manufacturing defects, not subsequent performance. By contrast, the FHA (whose flexibility has been limited by the Justice Department) has not taken the necessary steps to give lenders comfort; the False Claims Act is the single largest deterrent for lenders to eliminate overlays.

Trump should understand the need to clarify the rules under which the False Claims Act should be invoked. Fortunately, the perfect tool with which to do that is already in place. The FHA has established a defect taxonomy in which errors are classified into four severity buckets. The only item left to do is to tie this to remediation, for the less severe errors, in which the loan would have been made on the same terms and the cost of remediation low. Fraud, the most severe error, would trigger automatic indemnification. If only the most severe, or two most severe, buckets of errors were subject to the False Claims Act, lenders would have substantially more certainly, allowing them to eliminate some of the credit overlays they have imposed on FHA lending.

In short, if he channels his experience as a businessman, President-elect Trump should understand both the supply and credit availability issues facing the housing market and take steps to address each.

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Evidence can help us heal divisions and build trust

November 9, 2016

This post was originally published on Urban Wire.

The election’s outcomes stunned some, but also reinforced what we already knew: we live in a nation profoundly divided. Many Americans feel left out or left behind, but for very different reasons. And they have starkly different beliefs about what ails our society and the right path forward.

Founded in the 1960s, the Urban Institute has consistently explored America’s divisions, the conditions that deepen them, and the paths to narrowing and closing these chasms, which today loom so large. As investigators of public policy and social impact, we now redouble our efforts to address why so many Americans feel their government has failed them and our institutions— from Wall Street to the police—cannot be trusted.   

We know some cities have enjoyed a robust recovery while residents of small towns and rural areas fall further behind. Some regions are thriving beyond prerecession levels while others have seen little recovery. Within cities, affordable housing is more rhetoric than reality, and families are feeling pushed out of the communities they have known for generations. Some highly skilled workers have rising prospects while others have less stable income and declining home values. Longevity doesn’t mean better living for many, and improving wellness is not assured. The chance that your children will achieve the American Dream may be higher in Canada than in many US communities. Instability, volatility, uncertainty, and fear are found across lines of income, education, class, place, and race.

Which policies will reverse stagnant mobility and expand opportunity? How can families at every income level feel more secure that they can manage whatever life will bring them? What will bring jobs where they are needed and train workers to meet employer needs? What will ensure that new-economy employment allows parents to make a decent living to support their family? What allocation of tax burdens and spending will achieve real and perceived fairness and equity? How can we not waste the bipartisan commitment to criminal justice reform that will save both money and lives? What old remedies should we abandon in favor of a new more effective path? What roles can public-private partnerships and social enterprises assume to disrupt old systems and do more of what works? Better answers to these questions might help us to heal our divisions and build trust in our institutions.

No one has all the answers, but my colleagues and I believe that new and more-accessible data, evidence, and quality research can help point the way toward solutions to what drive these divisions.  Policymakers on both sides of the aisle have embraced evidence-based policymaking in recent years, with a shared understanding that rigorous evaluation and thoughtful analysis can help identify the policies that work and the ones that should be reconsidered. Both parties agree that an efficient, effective public sector serves everyone better.

Urban has won trust over almost five decades with independence, honesty, integrity, and quality data-driven policy analysis amid changing political landscapes.  Whatever our nation’s problems, the Urban Institute has risen to the challenge, providing evidence and insight to support better decisionmaking. It has been nearly 50 years since Urban was founded with the charge by President Lyndon B. Johnson "to help solve the problem[s] that weigh heavily on the hearts and minds of all of us.”  

Today, even as we are saddened by our divisions, our commitment to answer that charge is renewed.

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