Where Is Housing Policy Leadership?

American housing and lending policy leaders have been talking about “gaps” in housing for far too long. There are gaps in homeownership rates between minorities and whites, gaps in available and affordable rental housing, gaps in credit scores and credit outcomes between whites and non whites, gaps in wages, education, and more. When it comes to housing, unfortunately, too much of the focus on gaps to access to homeownership has been focused on credit access.

Recently the FHFA pushed the GSE’s to modify their LLPA pricing to create a stronger cross subsidy that lowered fees for high loan to value (ltv) and lower “FICO” borrowers while raising costs on better credit worthy consumers. This was an intentional disruption to traditional risk based pricing in order to subsidize the lower rates now offered to these higher risk borrowers. Why was this done? The answer is simple, it was to try to narrow the gap in access to credit especially for minority home buyers who often have lower down payments and lower credit scores. As the chart above from Harvards “State of the Nations Housing” shows, wealth across all ethnicities comes from housing but minorities have less of it do to access limitations.

The gap in homeownership opportunity is real. America is facing a severe shortage of affordable homes for sales combined with excessive demand causing an imbalance. But convoluting pricing and credit is not the way to solve this problem. Certainly programs like down payment assistance and these minor pricing cuts at both the GSE’s and FHA help, but it won’t change a decades old paradigm.

Dr. Mark Zandi, the renowned Chief Economist at Moodys Analytics, states that there is a current shortage of 1.6 million homes in this country. He states that the nation is short 700,000 homes for sale and 900,000 homes for rent. With household formation on the rise, it’s hard to see how we dig our way out of this.

The question is, who is in charge? Years ago I used my position as the head of the Mortgage Bankers Association (MBA) in Washington DC to call for the President to create a new role responsible for housing policy . The rationale, in my mind, was elementary. We cannot solve the housing shortage through credit availability. Once the Fed is done with QT, which is very close, mortgage rates will begin to decline. Demand for homes will begin to rise and the same challenges for first time homebuyers will return.

So, Who is in charge? Decades back, before the failure of the GSE’s and the subsequent HERA legislation as well as the subsequent creation of the CFPB, the role of HUD Secretary was much broader. Back then the Secretary was responsible for regulating the GSE’s, overseeing the FHA, and managing the office of regulatory affairs, along with the other roles it oversees today. Today the role of the HUD Secretary is so diminished that I often wonder why it deserves a cabinet role at all. After all, shouldn’t the one cabinet member working for the president heading the “Department of Housing” be pushing the President and Congress to deal with the broader housing challenge? Truth be told, the role simply does not have the teeth to be taken seriously enough to play this role.

Today, while we nibble around the edges on little price changes and attempts to add a new credit engine, etc., we are simply not seeing the forest through the trees. In 2015 I called this out as highlighted in this article .

We are in a housing crisis and it will require a “new deal” like attack plan to address. With no priority from the White House nor any leader in Washington to forcefully drive federal and state policy objectives it is likely that the nation will continue to wobble along tactically adding housing units when in fact this needs a far higher priority set to it.

The mistakes began when we started shifting regulatory authority out of HUD to far too many agencies. The CFPB oversees fair lending and lending policy, the FHFA oversees the GSE’s and the FHLB system, VA does loans for military members and veterans, the department of agriculture provides rural housing policy. And beyond this massive spaghetti string mess of regulatory confusion, there is no single person responsible for housing on a macro level.

Without a role that reports directly to the President responsible for driving federal policy on housing and likewise responsible for coordinating housing and mortgage policy amongst the web of agencies in Washington DC, there is little to be done but tinker with risk based pricing and other ineffective steps. Just like the Secretary of Defense or the Secretary of Treasury, housing right now needs to be elevated as an issue of substance worthy of a leader with clout like these roles.

When it comes to housing in America, “Nero fiddles while Rome burns” is the appropriate analogy. Unless this becomes a priority we will continue to have a housing crisis equal to or worse than it currently is. Industry leaders at the state level in real estate, mortgage, and more need to start making it clear that this is a priority to have any hope for things to begin to meaningfully change.