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Moving the Homeownership Needle

As someone who has long believed in the power of homeownership both as a wealth-building tool for families and as a way to strengthen our nation’s communities, the latest homeownership figures from the U.S. Census Bureau were a bit of a jolt.

According to the Census, the national homeownership rate now stands at 64.4 percent, the lowest level in more than 19 years. Continuing to fall were the homeownership rates for African-American and Hispanic households (now at 42.9 percent and 45.6 percent, respectively) as well as the rate (now at just 59.1 percent) for those households headed by someone between the ages of 35 and 44.

More unsettling news came when the National Association of Realtors reported that, in 2014, the share of total home purchases by first-time homebuyers fell to 33 percent, the lowest level since 1987. The Realtors cited student loan debt, tight credit conditions, high mortgage insurance premiums, and lack of affordable inventory as obstacles facing those entering the ownership market for the first time.

Some observers speculate the homeownership rate will continue to decline for the foreseeable future and reach a “new normal” — perhaps as low as 60 percent. Others insist the decline will bottom out shortly.

For me, the most important question is not whether and when the homeownership rate will find its equilibrium, but rather what steps are necessary to make sustainable homeownership more broadly available.

Of course, the most effective way to support homeownership is with a strong economy that produces plenty of good-paying jobs. Greater employment opportunities and rising incomes will allow would-be homeowners to more easily accumulate cash for a down payment and meet today’s tougher underwriting standards.

With the elections now over, it is critical that Congress and the administration work together to implement pro-growth economic policies. Reform of the federal tax code would be a good place to start, and it appears there is bipartisan interest in Congress to take on this challenging task.

Fortunately, there are other, perhaps more easily achievable, steps available to help move the homeownership needle.

First, the Federal Housing Administration (FHA) should assess whether to reduce its up-front and monthly mortgage insurance premiums. Understandably, these premiums were raised several times from 2008 to 2013 in response to the precarious financial condition of the FHA single-family insurance fund. For the typical mortgage, however, these actions have resulted in thousands of dollars in additional fees that have priced many creditworthy families out of homeownership. In addition, HUD has extended the insurance premium requirements to the entire life of an FHA-insured loan, even when the loan-to-value ratio has dropped significantly. In light of the latest actuarial report showing an improvement in the insurance fund’s financial condition, the FHA should evaluate its current premium requirements to see whether any changes are in order.

Second, as explained in a previous post by my BPC colleague Henry Cisneros, the Federal Housing Finance Agency has recently proposed new reforms to the Representation and Warranty Framework governing mortgage “put backs” by the GSEs. The FHA is also in the process of clarifying the circumstances under which it will pursue indemnification claims. Concern about the meaning and application of these rules has encouraged many lenders to impose “credit overlays” that have made it tougher to qualify for a mortgage. The actions by the two federal agencies have real credit-easing potential. The key will be to ensure that the momentum continues.

Third, we need a better understanding of the impact of student loan debt on the homeownership prospects of younger adults. From 2005 to 2013, the average student loan debt carried by those under age 30 rose by 60 percent. During this same period, the homeownership rate among younger adults dropped significantly. What is the correlation between these two trends and what corrective actions can be taken?

Fourth, in communities throughout the country, “hybrid” homeownership models, including shared equity approaches involving the use of land trusts, have safely opened the door to homeownership for lower-income Americans. Greater attention should be given to these success stories with an eye to replicating them elsewhere.

Fifth, a growing body of research, most recently a study by the Federal Reserve Bank of Philadelphia, shows that pre-purchase housing counseling can help improve borrower creditworthiness and reduce delinquencies. While housing counseling alone will not solve the access problem, it does enhance the sustainability of homeownership, benefiting borrowers and lenders alike.

And, finally, let’s not forget that regulatory uncertainty continues to plague the mortgage market. While federal regulators took a step in the right direction by aligning the “qualified residential mortgage” rule with the “qualified mortgage” rule, many unanswered questions remain – most notably, the status of the GSEs and the future architecture of our nation’s housing finance system.

As generations of Americans can attest, homeownership, when responsibly undertaken, can be a powerful wealth-building and community-strengthening tool. As we move from recession to recovery, supporting the homeownership aspirations of the American people should be an important objective of our nation’s public policy.

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