Ending the lost decade of housing

Has America just gone through a lost decade of housing opportunity?  The numbers would suggest so.  Since the financial crisis, access to homeownership has shrunk for many.  When President Obama began his term in 2009, most Americans hoped that his administration would stop the bleeding, catch the falling knife, and enact the necessary policies and regulatory oversight to restore robust access to mortgage credit to deserving middle-class and working class borrowers.  Hence, optimism abounded about invigorating the American dream of the 30-year mortgage. Sadly, today in 2017 the statistics do not reflect these aspirations.

The hallmark of the Obama administration was its purported support for private capital.  In reality, its practical contempt for investors, the providers of that capital, led to a severe constriction of available mortgage credit. More private capital for mortgages is good for the public, especially first time home buyers and the underserved members of our citizenry. 

{mosads}Regrettably today, housing opportunities are shrinking for too many.  And in an era of rising interest rates, the “housing gap” between the haves and have-nots will only widen as access to mortgage credit is further constricted. The Urban Institute Housing Policy Center has documented that an estimated 5.2 million loans were not made in recent years due to lack of available mortgage credit.

Moreover, U.S. government Home Mortgage Disclosure Act (HMDA) data shows that in 2015 African-American and Latino communities have been particularly harmed.  For example, these statistics reveal that in 2014, African Americans received only 5.2 percent of all new mortgages, despite comprising 13 percent of the population.

To counteract this reality, the Trump administration can ignite U.S. economic growth by expanding access to mortgage credit.  This can be done while keeping strong regulations in place.  Since its formation in the depths of the financial crisis, our organization, the Association of Mortgage Investors (AMI) has advocated for policies to advance housing opportunities by having the government support rather than discourage private capital in the mortgage space.  To this end, the incoming administration should take the following steps:

1.  End punitive litigation against lenders and loan owners.

2.  Fix mortgage loan origination rules to eliminate government penalties for making and selling loans that are unable to be repaid.  In the ordinary course of the mortgage loan business some portion of loans originated will inevitably go delinquent and default, and this is not something that should be penalized.

3.  Overhaul and streamline servicing rules to be fair to both loan owners and borrowers. When loans default, it cannot be economically and logistically infeasible for servicers to foreclose on collateral so those loans can be repaid.

4.  Bring back the dormant market for private mortgage securities by breaking the logjam between big bank sponsors and investors in those securities.  Investors need to have appropriate legal protections to ensure they are getting the mortgage quality the banks are offering them, and to ensure that assets are well managed by servicers.  Sponsors of mortgage securities have to be required to give MBS investors such protections, the way issuers of corporate bonds were required to give bondholders following the 1929 market crash.

5.  End the excessively long conservatorships of Fannie Mae and Freddie Mac so they can be run as counter-cyclical public utilities with private ownership under close safety-and-soundness supervision by regulators.

6.  Expand the credit box. Provide appropriate incentives to lenders and loan owners to reduce credit overlays, incentives to first-time homebuyers, and safe harbors where loans are fully and properly underwritten on credit scores below 720 to encourage mortgage lending to middle-class and working-class Americans.

At his confirmation hearing to serve as HUD Secretary, Dr. Ben Carson urged hope.  The American Dream of a 30-year fixed mortgage for a new generation is not merely be a function of hope, however.  Restoration of the dream will require enacting policies that the former Administration and Washington housing industrial complex have too long ignored. 

Chris Katopis is executive director of the Association of Mortgage Investors (AMI).

The views expressed by this author are their own and are not the views of The Hill.


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