Federal Housing Leaders: Congress Must Address Four Barriers to Increase Supply of Affordable Housing

By Anneliese Lederer, Senior Policy Counsel at the Center for Responsible Lending

Leaders of two federal housing agencies told lawmakers that millions more Americans could purchase or keep a home if Congress addressed four barriers to affordable, equitable and accessible housing.

In an April 2024 oversight hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Acting Secretary of HUD Adrienne Todman and Federal Housing Finance Agency Secretary Sandra L. Thompson said these four measures could help address the critical shortage of affordable housing in the United States.

The housing agency officials said congressional action is urgently needed because home prices have increased nearly 50 percent over the past four years, according to the FHFA House Price Index , making it especially difficult for low- and moderate-income Americans to purchase a home. Couple that with mortgage interest rates that have surged since the COVID-19 pandemic, and prospective homebuyers face an uphill battle to gain their slice of the American dream.

Their recommendations include:

1. Increase FHLBanks’ Affordable Housing Contributions

Federal Home Loan Banks are critical in supporting the housing finance system and were created to serve the public interest. However, as Sen. Elizabeth Warren (D-MA) noted at the hearing, in 2023 FHLBanks spent 8.5 times as much on dividends to their members – $3.4 billion dollars – as they did on affordable housing programs – $390 million dollars.

Regulators urged lawmakers to amend the Federal Home Loan Bank Act (Bank Act) to raise the FHLBanks’ required minimum Affordable Housing Program (AHP) contributions. The extra increase in contributions would bolster affordable housing initiatives across the nation.

The FHFA recommended in its report, FHLBank System at 100: Focusing on the Future, that FHLBs contribute at least 20 percent of their profits to promote affordable housing finance, double the current 10 percent minimum contribution requirement.

2. Increase Number of Community Development Financial Institutions (CDFIs)

As mission-driven financial institutions, CFDIs aid underserved communities, provide capital and technical assistance and promote economic development and financial inclusion in underserved communities in a manner that traditional banks do not.

FHFA recommends that Congress amend the Bank Act to broaden the scope of member institutions so that more CDFI’s can more easily join and enjoy membership benefits. Many CDFIs are banned from membership because the Federal Deposit Insurance Corporation does not insure their deposits. If additional resources were allocated to support these institutions, CDFIs could scale their impact and reach more needy individuals and families.

3. Keep HUD Rents Affordable So Borrowers Can Save for Homeownership

Affordable rental properties aid renters in being able to save for a mortgage down payment. The lack of a down payment is one of the most significant barriers to homeownership.

Sen. Jon Tester (D-MT) highlighted that the Fair Market Rents (FMR) set by HUD are not in line with local housing costs, especially in rural communities. In communities experiencing rapid rental rate increases, the annual update of FMRs can lag behind actual housing costs, leaving borrowers paying more than the recommended 30 percent of income for housing and making it very difficult for these consumers to save money for a down payment on a home.

4. Incentivize More Insurance Companies to Participate in the Marketplace, Offer Affordable Premiums

Driven by an increasing number of severe weather events and rising rebuilding costs, many home insurers have dramatically increased premiums for insurance required on federally guaranteed mortgages. Insurers have stopped providing coverage altogether in some markets. Sen. Laphonza Butler (D-CA) highlighted that in April, 30,000 homeowners and renters in California were informed, after severe flooding, that a major insurance company would not renew their coverage.

This leaves homeowners with few options and an increased likelihood of default on their mortgage because they can’t afford the higher rates offered by the remaining insurance companies. If homeowners don't have home insurance coverage because they can't find an affordable policy, they risk losing their home to foreclosure, which can eliminate the opportunity to pass on their real estate asset to future generations. For prospective homebuyers, unaffordable insurance rates result in these buyers not being able to buy a home because they can't afford the mortgage payments. Congress must find ways to incentivize insurance companies to participate in different marketplaces and offer affordable insurance rates.

The Center for Responsible Lending (CRL) believes these are welcome, although minimal, steps to address the affordable housing shortage that keeps millions of potential consumers, particularly low- and moderate-income borrowers, from buying an affordable home.