New housing regulator could make American dream more accessible to millions of people
Homeownership is the most common way for Americans to build wealth during their lifetime.
Updated September 18, 2021 at 10:52 a.m. ET
The Biden administration is set to announce the appointment of a key regulator with broad powers to change the $ 11 trillion mortgage market and reshape the American dream of homeownership, sources told NPR.
The administration has restricted the number of candidates to head the Federal Housing Finance Agency, or FHFA, according to sources familiar with the matter but who are not authorized to speak publicly.
Although not known, the agency has enormous power as it controls Fannie Mae and Freddie Mac, the two entities at the heart of the mortgage market. They largely decide who is eligible for a home loan and at what price.
And because of the rules put in place after the Great Recession, the FHFA chief has almost one-sided control to order Fannie and Freddie to change policies or launch new initiatives.
You never know how the appointments will unfold. But for now, the two main candidates for the job are Sandra Thompson, now interim director of the FHFA, and Mike Calhoun, president of the nonprofit Center for Responsible Lending.
Prior to joining the FHFA, Thompson spent decades in government, most notably as a banking regulator with the Federal Deposit Insurance Corp. She worked there on risk management and consumer protection.
Calhoun also has decades of experience, but more as an outside watchdog pushing for change and has focused on expanding homeownership opportunities through Fannie and Freddie.
NPR asked the two for comment, but neither would, as is often the case with potential candidates.
Restructure mortgages and make it easier for tenants to become homeowners
Anyone who gets the job of director of the FHFA will have powerful levers to reshape homeownership, which is the most common way for Americans to build wealth in their lifetimes.
Many housing economists would like the agency to pave the way for more alternatives to the 30-year mortgage. It’s a holdover from a time when people stayed in their homes much longer and could build up equity and wealth with a 30-year loan.
These days people tend to move and sell their homes more often. A 15- or 20-year loan allows homeowners to pay less interest and build up a lot more equity and wealth in their home before they sell it.
However, 15 and 20 year loans have higher payments. But Fannie and Freddie might be asked to cut those costs in order to help people take out some type of loan that helps them build wealth faster.
Many advocates also want the FHFA to tackle racial disparities in homeownership, which are as severe as they have been for decades.
“The homeownership rate of African Americans is really where we were in the 1960s when the Fair Housing Act was put in place,” says Andre Perry, a senior researcher at the Brookings Institution who studies assets in cities across the country. majority black.
He says the homeownership rate for blacks is around 46%, compared to around 76% for white homeowners. “Why you see this kind of discrepancy is because historical discrimination has prevented black people from accumulating wealth. “
On Saturday, Fannie and Freddie began to view one-time payments from a tenant to their landlord as a way to establish their creditworthiness.
Perry says the government could do a lot more, like offering money to help with down payments for qualified first-time home buyers.
Both of these programs would help many people, but especially black and Latino homebuyers, who tend to have less family wealth.
The new director could tackle many other issues, even tackling climate change. Homeowners who have installed solar panels on their roofs or made other improvements to reduce their carbon footprint may be eligible for lower mortgage rates.
Fannie and Freddie might be brought in to help out some of the more modest owners. Families living in mobile or manufactured home parks could access lower cost loans, which would make home ownership more affordable and sustainable for them.
Plus, Fannie and Freddie could access billions of dollars for these and other initiatives without an act of Congress. That is, if the new manager pushes for it.
“I’m excited,” Perry says. “This is an administrative problem, so if Biden is serious about closing these racial wealth gaps, improving homeownership rates, he will find a leader who will make the necessary changes.”
Conservative housing expert: Easier loans are not the answer to the problem of supply and demand
Of course, whoever is appointed will face confirmation from the Senate. And some of the power the new FHFA director will wield is baffling for the Tories.
“It might help or hurt, right?” It could go both ways, ”says Ed Pinto, director of the Housing Center at the American Enterprise Institute. He was a loan officer with Fannie Mae.
Currently, there are not enough homes available for sale in the United States to meet demand, so prices have increased significantly. Pinto says the new manager could make mistakes here, even as he tries to help homebuyers.
Making it easier for buyers to get loans in today’s market “would only increase demand without increasing supply,” he says. “It just pushes the prices up.”
Fannie and Freddie, however, could help increase the supply of housing by doing things like providing low-cost loans to builders to buy land and build low-cost starter homes for first-time homebuyers.