Home mortgage hurdles hurt the market
For many responsible borrowers, credit is still out of reach
The financial crash of 2008 took the housing market down with it, especially here in the Northeast. As a Realtor and president of the National Association of Realtors in 2011, I witnessed the lingering effects up close. In 2011, home sales in the Northeast plummeted to their lowest level since 1984, which was less than half of all homes sold in 2007.
Though the market has recovered as job growth and home equity have risen, the housing market in the Northeast has not fully returned to the healthy level before the housing boom. One reason is that challenges still remain for many qualified buyers seeking financing. Too often, policies restricting credit create unnecessary costs and hurdles for people who otherwise could afford a mortgage.
It is no surprise that regulators tightened restrictions in response to the lax standards that existed before the financial crisis. However, the pendulum has swung too far in the other direction, leading to the situation facing prospective buyers today.
In addition to financing restrictions, buyers also face low inventory levels, investor competition, rising prices and high mortgage insurance premiums. That’s tough enough, but when combined with tight credit policy, an environment emerges that can make obtaining a mortgage difficult for even the most qualified buyers.
To help, the Federal Housing Administration and government-sponsored enterprises Fannie Mae and Freddie Mac are tasked with injecting mortgage liquidity into the marketplace to help qualified buyers. That includes middle- and low-income families as well as people purchasing homes for the first time. The mission of FHA and the GSEs, however, is being hampered by needlessly high fees and credit restrictions. Thankfully, there are some responsible fixes that can put us back on track.
As the NAR urged in testimony earlier this year, Congress can change the FHA’s restrictive condominium polices. These policies make it harder for buyers to purchase condos, which are often a good opportunity for a first-time buyer to enter the market.
NAR has also pushed the Consumer Financial Protection Bureau to encourage more flexibility for lending in smaller markets, like rural and under-served communities. In addition, we encouraged steps to promote greater lending from responsible community banks to broaden the options available to potential borrowers.
Leaders in Washington are recognizing the need and taking steps to alleviate overly restrictive credit policies. For example, FHA recently reduced annual premiums charged to borrowers, making FHA mortgage products more affordable. Similarly, the agency announced the possibility for alternative credit scoring models for borrowers with so-called “thin” credit histories or extenuating circumstances – like medical debt – which may be holding them back from buying a home.
Both Fannie Mae and Freddie Mac now offer a mortgage product that allows borrowers to put down as little as 3 percent when purchasing a home, an important consideration in particular for millennials who may be ready to buy but have struggled to save for a down payment because of rising rents, under-employment or student debt.
More needs to be done, but these are steps in the right direction.
Fixing policies that create the existing credit squeeze is important. Qualified buyers can’t buy without access to credit. Homeowners can’t refinance without access to credit. And America’s housing market can’t continue taking healthy steps forward without access to credit.
What we have today is akin to letting good players sit on the sidelines when there aren’t enough players on the field. It’s time to get everyone who’s ready off the bench, so to speak, and responsible credit policy can take us there.
Ron Phipps, a Realtor licensed in Rhode Island and Massachusetts, was president of the National Association of Realtors in 2011.