What are the most pressing issues in housing policy today?
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The past decade was noted for federal strategies to increase homeownership. However, since the “Great Recession,” governmental policies have shifted focus from increasing homeownership to home retention by owners. The following offers some insights into this policy shift and to better understand the need to place more emphasis on the human aspect of homeownership and need for improved, consistent national home retention strategies.
The unemployment effect on housing foreclosures, short sales and delinquencies is quick, direct, and very negative and well- documented. According to The Wall Street Journal (Nov. 18, 2011) and the Mortgage Bankers Association., delinquencies are falling, but they are still captive to employment. As employment increases, delinquencies decrease. While banks, mortgage lenders, FHA, Fannie Mae and Freddie Mac, hold the majority of paper on foreclosures, the process of resolution and disposition is extremely slow. Recent lawsuits by the State Attorneys –General have slowed the process even more. Moreover, since there is no congressionally supported national employment strategy, the prospect for any immediate unemployment fix remains dim; and, therefore, the foreclosure and delinquency problem remains unchecked.
The need for stability in the value of housing assets of the middle class is another key issue in today’s housing environment. Home prices have dropped to record lows preventing many homeowners from refinancing because home appraisals are lower than the balances on their mortgages, thus preventing access to lower rate refinancing. Families find themselves cash strapped and not able to use anticipated equity from their homes to put into another more desirable home. This also creates a ripple effect where new home buyers are not provided decent, affordable selections thereby keeping housing inventories at record highs.
Exacerbating this issue is the lack of consistent federal governmental policy regarding the government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac; and, slow and incompatible polices regarding assistance to homeowners who need or desire refinancing. Congress recently raised loan limits for FHA but not for the GSE’s. This signals a lack of support for the GSE’s and a perceived support for FHA, especially in high cost areas. However, the effect of this change will increase FHA‘s risk at a time when it’s default rate is high and its reserves low, setting up a possible bailout scenario if things go south.
Additionally, the Obama administration has announced new efforts to provide relief for “underwater” homeowners by assisting them, thru FHA regulations, to gain access to lower mortgage funding. This still does not touch the non-FHA and private sector markets, which still has the majority of the “toxic housing assets.” However, this plan is perceived as being too little too late and too focused on FHA.
While the Federal Reserve has greatly assisted the housing finance industry by keeping interest rates low for the near future, many homeowners and new homebuyers are prevented from taking advantage of this window due to increased and cumbersome guidelines on loan qualifications and down payments. The pendulum has swung back to more stringent lending practices because of the “open for all” lending in the recent past. A middle ground needs to be found where verifications of home buyers’ information can be reasonably obtained, and competent consistent home appraisals conducted.
Therefore, in the formulation of any new comprehensive housing strategy during these difficult and changing times, national housing policy should address the following: the direct and negative impact of unemployment on housing acquisition, retention and resale; the lack of value and equity stability in the housing market; the problematic refinancing process of home mortgages; the high supply of foreclosures; and, the lack of consistent housing policies by the national government.
Frank J. Vaccarella is President of Vaccarella & Associates, Consulting, LLP
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