Housing Finance at a Glance: Monthly Chartbooks
The November 2016 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes updated figures describing first-time homebuyer share, mortgage delinquency rates, the composition of the mortgage insurance market and a special quarterly feature on GSE loan composition, repurchase rates, defaults, and loss severity.
Could the new administration be positive for housing?
Despite most of the post-election media focus being centered on high profile legislative issues such as housing finance reform, structure of the CFPB and the future of Dodd-Frank, the issues that may have more immediate consequences for the mortgage market may be the ones that have received far less attention. And if the new administration pays adequate attention to these “tier 2” issues, the outcome could be positive for housing.
The mortgage market currently faces two fundamental issues: Shortage of credit and shortage of housing supply. These two issues in turn are a byproduct of various developments that have discouraged lenders from lending at the lower end of the credit spectrum and builders from building enough starter homes.
The tightness of credit for low- and moderate-income borrowers can be attributed to a variety of factors. These include lender worries about put back risk, legal and reputational risk, high cost of servicing, higher capital requirements for mortgage assets, and in the case of FHA specifically, the DOJ’s heavy handed enforcement under the False Claims Act.
The issue of housing shortage is also the result of a combination several factors. These include rising costs and delays in obtaining zoning approvals and changes to building and development codes. Both these have increased the fixed cost of construction, giving builders little incentive to build lower cost starter homes. In addition, fewer homeowners are trading up to bigger homes because many purchased their homes during the bubble and haven’t yet accumulated enough equity to finance the trade up.
Repeat buying activity may also be affected by the fact that many geographies have still not fully recovered from the housing bust and many homes in these geographies are still underwater. Such homeowners are unlikely to sell at a loss. This lack of repeat buying is effectively keeping many starter homes from coming to the market thus constraining supply.
So how might the new administration benefit the mortgage market? When it comes to access to credit, many large lenders have pulled back from FHA, currently the only source of LMI lending, because they are worried about treble damages under FCA. It is possible that the next Attorney General of the United States, especially if s/he is more business friendly, could take a different approach. And if lenders feel confident that they won’t be subject to unreasonable penalties, we could witness an uptick in FHA lending. Similarly, if the new administration appoints more business friendly regulators, the industry could witness some softening of the regulatory environment, perhaps reduced capital requirements, to encourage lenders to lend more freely.
But increasing the supply of homes may prove to be a more uphill task. Even though the new administration is expected to be more business friendly, there is not much room to intervene at the Federal level as zoning restrictions and codes are set locally. However, actions like using transportation funding to incentivize higher density housing near transportation hubs could have a positive impact. The administration could also elevate the issue of supply constraints, and work with the housing industry and state and local governments to simplify development and zoning standards and speed up the approval processes