People in the news

Raphael Bostic

Assistant HUD Secretary for Policy Development and Research

(HUD)

Why He Matters

Bostic is no psychic, but a sentence he uttered in 2007 seems improbably prescient. "The subprime market is due for some larger institutional attention," he told an interviewer almost a year before the housing bubble popped, bringing the economy down with it.

Bostic has been following real estate and housing markets his entire career, predicting and explaining real-estate trends before they happen. As a professor at the University of Southern California, he studies how credit markets, financing and government policy impact families' access to homes.

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Background

At a Glance

Career History: Professor, University at Southern California (since 2000); special assistant to the assistant secretary of Policy Development and Research, HUD (2000); Staff member, Federal Reserve Board of Governors (1996 to 2000)
Hometown: New York City
Alma Mater: Harvard University, B.A. (psychology and economics), 1987; Stanford, ph.D. (economics), 1995

Office: Ralph and Goldy Lewis Hall 326Los Angeles, CA; 1-213-740-1220
Web site

Path to Power

In 1987, Bostic received his undergraduate degree from Harvard University, where he studied psychology and economics. He went on to earn his Ph.D. in economics from Stanford in 1995.

After leaving school, Bostic joined the staff of the Federal Reserve Board of Governors. In that position, he studied the way institutions were utilizing the Community Reinvestment Act, a 1977 law that encouraged banks and savings associations to work with borrowers in all segments of the community. In 2000, he was tapped to serve as HUD's special assistant to the assistant secretary of Policy Development and Research.

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The Issues

Bostic literally wrote the book on how to improve HUD's research capacity - or at least, he helped, as a member of the congressionally-appointed team that in 2006 evaluated the department's research capabilities. The year-long study of HUD's research arm charged that it should be providing independent, research-based expertise that will shape policy and HUD budgets. However, the report found that HUD's research staff was understaffed and underfunded.

To improve, the report called on HUD's research arm to provide more rigorous evaluation of HUD's programs; more engagement with policy makers; a more systematic in-house research agenda and a stronger communications plan to disseminate its work to the public. However, it warned that without increased funding and staff, this would be impossible to achieve. "With limited financial and human resources, PD&R cannot achieve its potential, leaving policy makers and the public uninformed -or misinformed -about critical policy questions," writers contended in the book's introduction.

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The Housing Crisis

Bostic believes the 2008-2009 drop in home prices is one of the biggest threats to the U.S. economy. In a three-year study he undertook, Bostic analyzed the spending habits of homeowners based on their property values and investment portfolios. Their research showed that consumers cut spending most dramatically when their housing values changed.

Bostic supported legislation to help financially-troubled homeowners avoid foreclosure through loan modifications that reduced payments to a percentage of income. "Without doing more to control the wave of foreclosures, we could have a continuous flow of distressed mortgages, which would create problems for the economy as a whole," he told the San Diego Union-Tribune.

But in 2007, Bostic supported Fannie Mae and Freddie Mac's decision to increase the amount of money borrowers could receive for their mortgage, because Bostic believed that the government-sponsored enterprises (GSEs) imposed safeguards that ensured only secure buyers would receive loans. "Lower mortgage prices will make housing more affordable for a lot of Californians," he said in a 2007 interview. "Qualifying for a conforming loan could translate into increased demand for homes," he said at the time.

Subprime Mortgages

Bostic compared subprime mortgages to the Wild West. "There are a lot of small players. You have brokers running around doing these things there are people who will be taken advantage of," he said in 2007.

Bostic believes that the subprime crisis was caused in part by lenders who took advantage of borrowers, and that GSEs can fix this by buying loans in markets that have traditionally been targets. This would crowd out predatory lender, he argues. The GSEs could charge a higher rate to clients with spottier credit records, but these rates would have to be standardized so they are not predatory.

Low-Income Borrowers

Bostic has focused much of his research on proposing programs that would help borrowers improve their credit quality. He has suggested more programs to help low-income individuals raise their credit scores, financial counseling, and a money- management curriculum for high-school students. "We need to break the cycle of poor credit in low-income, minority neighborhoods," he said.

He has also proposed that banks develop alternate underwriting models that take into account good credit among diverse populations. "A smaller down payment is not always a red flag for lower-income applicants," he said. "They often make sacrifices to stay in the home - curtailing spending so they can make the house payment. In fact, low-income borrowers prepay less frequently and don't refinance as often, providing steady streams of income for banks."

California

California has some of the highest home prices in the country, and Bostic has worked to find ways to make home ownership more affordable. He was one of the first experts to declare that the region was in recession because of the housing market's decline, causing job loss, rapid inflation and a drop in consumer confidence and development.

The Network

When Bostic began his HUD career in the early 1990s, he worked for former Assistant Secretary Margery A. Turner, now a vice president at the Urban Institute.

At HUD, he will work for Secretary Shaun Donovan and Deputy Secretary Ron Sims .

Additional Resources