Housing Recovery: An Opportunity for Long-Term Real Estate Finance Reform

The following article was written by David H. Stevens, President and CEO at Mortgage Bankers Association.

Our nation’s real estate market is growing and the housing recovery finally began to take hold in 2012, according to Harvard’s Joint Center for Housing Studies 2013 State of the Nation’s Housing report, which was released today. Amidst concerns of rising interest rates, recently stirred debates over real estate finance reform, and considerations for the long-term future of the housing industry, this is very welcome news.

Existing home sales increased 9.4 percent and new home sales posted their first year-over-year increase in seven years, up nearly 20 percent. Ninety-one of the top 100 metropolitan areas reported increases in single-family building and multifamily starts jumped 37.7 percent.

However, the report also confirms that current mortgage market conditions disproportionately favor the wealthy and are preventing first-time and moderate to lower-income families from buying homes.“Tight credit is limiting the ability of would-be homebuyers to take advantage of today’s affordable conditions and likely discouraging many from even trying,” says Chris Herbert, Director of Research at the Joint Center for Housing Studies. “At issue is whether, and at what cost, mortgage financing will be available to borrowers across a broad spectrum of incomes, wealth, and credit histories moving forward.”

With record affordability, and studies showing that the majority of people still want to buy a home, this is further evidence that the housing recovery should be growing faster than it is. And it would be, if only credit were available to the full range of qualified borrowers. Two major obstacles are holding back access to credit – complex, uncoordinated federal regulations and the government dominance in the real estate market.

So, what can be done?

First, we need to get the Dodd-Frank rules done, and done right. The CFPB is due credit for using a deliberative and inclusive approach in making many of their rules, but concerns remain that certain aspects of the rules will be prohibitive to otherwise qualified consumers. These rules must be aligned, with each other and with existing state regulations, government agencies and other federal regulators.

For example, the Ability to Repay/Qualified Mortgage rule has significantly changed the landscape of homeownership. And while it successfully eliminates the risky products and features that once plagued our industry, it could make credit less available and unintentionally harm the very consumers it was designed to protect. In its current form, the rule will force lenders to exclude many qualified borrowers from obtaining a loan and will continue the trend of only the wealthiest obtaining a loan. Additionally, the Risk Retention/QRM rule is still being finalized by six federal agencies. The credit standards in the QRM should mirror the QM definition so that lenders and consumers aren’t forced to comply with two separate, and often conflicting, standards. Each of these complications has a direct impact on qualified borrows access to credit and continued liquidity in the market. QM/QRM is just one example. There are dozens more.

Second, we need to right size the role of the government in housing finance. The overall goal of housing finance reform should be to increase private capital and protect taxpayers from public losses. Just yesterday, Senators Mark Warner (D-VA) and Bob Corker (R-TN) introduced a bipartisan bill that creates a blueprint for reforming the real estate finance system by reducing the government footprint and aiming to increase private liquidity in the marketplace for continued housing recovery. The introduction of this bill represents an important step in redefining the government role in housing finance and is a positive framework on which to begin this crucial debate.

The recent rise in interest rates may cause some borrowers to reconsider their home options, but this is not going to stifle the current market recovery.The Harvard study clearly shows the much-awaited market recovery has begun. It is critical for our leaders in Washington to work now on creating affordable financing solutions and a responsible, successful and sustainable real estate finance system for the long-term.