There's Still a Crisis in Homeownership
December 23, 2019
As 2019 draws to a close, let’s take a moment to remember that while there has been significant economic good news reported this year, the housing/homeownership crisis continues. In spite of random headlines that tout improvements from time to time, the underlying homeownership issues remain mostly unabated. It will take innovation and courage to solve these homeownership issues. We’ve made this a critical goal for 2020, because at Your AHA, our mission is: to protect and promote sustainable homeownership for all segments of America.
Here is a list of some of the key lingering issues hindering homeownership opportunity:
A lack of single family homes for sale (inventory) drives up prices in many markets. Not only are homebuilders about seven million units behind demand of the past eight years, but many affordable homes have been purchased by institutional investors – forcing more potential homebuyers to remain “involuntary renters”. A new approach to regulation for owner occupied homes is needed at the local, state and federal levels. Additionally, lenders must help level the playing field for buyers needing financing so they can compete with cash offers from absentee landlords buying these properties for rental.
These “involuntary renters” are likely facing escalating rent costs, making it even more challenging to save the downpayment required for most to become a homeowner. In addition to reducing the costs of home construction by reducing unnecessary regulation and punitive trade tariffs, new programs to reduce downpayment requirements for qualified and credit worthy borrowers are needed now.
Credit constraints (or the affordability of mortgage loans) remains a critical problem, especially for first time homebuyers. Most notable among these is the reliance on “old” credit scoring models that exclude up to 40 million people who could be provided a credit score using more modern credit scoring models.
Adding to mortgage woes are the costs of financing that have skyrocketed in the past few years from about $4.000 to over $10.000/loan. These increased costs are largely related to new regulations on lenders that followed the financial crisis. And these costs are passed along to borrowers as higher fees and/or interest rates. Regulations that protect consumers are important but need to meet a cost/benefit test to ensure that they do not force consumers out of the market due to prohibitive costs that don’t produce measurable material benefit.
Also impacting mortgage costs are duplicative charges for credit risks that Fannie Mae and Freddie Mac (the GSEs) levy on consumers even when private mortgage insurance is already in place to mitigate these risks. These excess fees are called Loan Level Price Adjustments (LLPAs). We’re advocating for these duplicative costs (LLPAs) to be removed. This, among many other issues, brings into question the regulation of these GSEs and the direction of GSE reform that is expected to be a major topic in 2020.
Existing homeowners are finding it harder and harder to access the equity in their homes. Whether it is the deductibility of interest paid on Home Equity Loans from taxes, moving “goalposts” for minimum equity requirements established by the GSEs or the complete shutoff of certain FHA products, housing policy decisions are making it harder and harder on current and aspiring homeowners.
Lack of government investment in infrastructure is creating a new generation of “super commuters” (people for whom the commute takes more than an hour each day). Owning the home of your dreams should not require an expanding suburban sprawl that many times is ignored by lawmakers trying to decide how to spend your tax dollars. Smart growth is imperative and affordable housing plans in every community and city are essential to meet the growing consumer need.
The $10,000 cap on the deductibility of state and local taxes from federal obligations is unwelcome federal intrusion on decisions homeowners make about the communities they want to live. The cap seems unfairly punitive to existing homeowners. Tax policy should not be picking winners and losers among homeowners, communities – or for any reason.
Natural disasters threaten our very existence. We deserve a federal response that is timely and fair to assist in rebuilding. We also deserve better disaster mitigation planning.
Finally, institutional investors almost always make cash offers to purchase, making it very difficult for individual buyers who make an offer to purchase a home contingent on mortgage approval to complete. New approaches and programs are needed that give individual buyers the tools to compete with these institutions.
Your AHA is the loudest voice on these issues and will continue to be as the 2020 dialogue continues in the coming months. It is important to homebuyers that these problems be solved and it is also important to our communities and families that the realization of homeownership remains the cornerstone of our American way of life. Help us maintain this important mission by asking your family, friends and neighbors to join the AHA today.