How the city’s new credit history guidelines affect affordable housing applicants
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If you’ve ever applied for affordable housing in New York City, you already know that the process can feel more like an IRS audit than a typical housing application. While owners and management companies are empowered to ask for a lot of paperwork, to qualify for an affordable housing unit, you’ll need to do more than provide recent pay stubs, tax returns, and bank statements. You’ll need to share several years of financial, housing, and employment information, and if the developer doesn’t think you’ve provided enough evidence to quality, they can always ask for more evidence as the selection process unfolds. Fortunately, as of July 1st, the process of applying for affordable housing and the baseline credit criteria needed to qualify just got a bit easier for applicants.
Reducing the impact of credit scores and debt-to-income ratios
Prior to the recently implemented changes, a bad or mediocre credit history did not necessarily prohibit one from qualifying for affordable housing, but credit histories could be taken into account when determining eligibility. A 2017 study published by the Department of Housing Preservation and Development discovered that even this flexible standard had several notable problems and inconsistencies.
As stated in the report, credit was just one criterion being used to evaluate eligibility for affordable housing, but discussions with financial counselors revealed that 30 percent of people applying had limited or no credit history. Moreover, both young people and recent immigrants—both groups who have a high need for affordable housing—were most likely to not have the established credit history needed to qualify. The report also found other problems related to relying on applicant’s credit histories. For example, one pilot program that matched applicants with credit counselors discovered that 25 percent of participants had errors on their credit reports that may be impacting their eligibility for affordable housing.
While few applicants to affordable housing units marketed on Housing Connect were actually disqualified on the basis of credit alone, the 2017 report nevertheless concluded that there were notable inconsistencies in how some stakeholders were relying on financial histories to determine potential tenants’ eligibility. Specifically, the report found that the maximum debt-to-income ratios that would disqualify an affordable housing applicant varied across developers and sites. In response, several changes have now been implemented to make the process fairer and less onerous.
Updated housing lottery guidelines implemented on July 1, 2018
On June 19, the New York City Department of Housing Preservation and Development (HPD) Commissioner Maria Torres-Springer and New York City Housing Development Corporation (HDC) President Eric Enderlin announced updates to the affordable housing Marketing Handbook—a guide used by marketing agents to select eligible tenants. Among the key changes is stronger language regarding how and when credit histories can be used to determine eligibility.
The updated July 2018 Marketing Handbook now states, “The Marketing Agent may not reject applicants based solely on credit score…Credit score may be used only as an indicator of financial stability.” Specifically, the handbook states that a marketing agent can choose from one of two approaches. First, they can simply accept applicants with a credit score of 580 on a FICO scoring system without further review of their financial stability. However, if this approach is used, even if an applicant’s credit score is below 580, the applicant can’t be rejected unless they also fail to meet one of the other criteria detailed in the handbook: 1.) an eviction that was the responsibility of the tenant, or 2.) A bankruptcy or delinquency with a collections agency. The second option available to marketing agents is to disregard credit scores and only select tenants based on their history of evictions and bankruptcies and delinquencies with collection agencies. The new guidelines also state that the credit score cut off for people who are currently homeless is 500 rather than 580 and that bankruptcy consideration must be limited to a 12-month look-back period and landlord-tenant actions can only be considered if they took place over the past 24 months.
In addition to these changes, the revised Marketing Handbook prohibits some forms of evidence that were previously taken into account by some developers when screening tenants for affordable housing units. These forms of evidence include debt to income ratios. Previously tenants could be rejected if their debt to income ratio was above 30%. In addition, agents can no longer disqualify people based on a lack of credit history or rental history, evidence gathered during a home visit, personal references, and outreach to previous landlords (with the exception of rent receipts). If an applicant is rejected based on their credit and housing history, they must be given a clear explanation for the rejection and if they resolve the problem within 10 days, they must be reconsidered for the available unit.
Other welcome changes to NYC Housing Connect Marketing Handbook
In addition to clarifying how and when credit histories are used and prohibiting the use of income to debt ratios, as well as other controversial and intrusive practices (e.g., home visits, which were generally only used only when screening very low-income but not middle-income applicants), the new marketing handbook includes several other welcome changes.
To begin, the new handbook eliminates the mandatory employment history requirement for self-employment and freelance income. More importantly, the new handbook puts Enacting Violence Against Women Act (VAWA) provisions into place to ensure that women who have left violent relationships are not penalized when applying for affordable housing by ensuring applicants cannot be denied housing for factors (e.g., a negative debt payment history) if those factors were a direct result of domestic violence, dating violence, sexual assault, or stalking.
While applying for affordable housing will remain a time-consuming affair, there is hope that the July 1 changes to the Marketing Handbook will at least streamline the process and ensure that some New Yorkers who previously failed to qualify will have a higher chance of qualifying for one of the city’s new affordable housing units. As Commissioner Torres-Springer emphasized at the time of the June 19th announcement, “These updated marketing guidelines will further level the playing field for low-income New Yorkers applying for affordable housing opportunities; make sure victims of domestic violence get the protections they need; and reduce the documentation requirements to increase efficiencies.”