Today marks the first anniversary of the release of the Commission’s report, Housing America’s Future: New Directions for National Policy. As readers of this blog know, our report highlights what we consider the most urgent housing challenges facing our country.
What are these challenges? They include a housing market that, while on the mend, still blocks too many creditworthy families from the opportunity to become homeowners; a government-dominated housing finance system that limits consumer choice and exposes the taxpayers to excessive risk; the growing ranks of America’s seniors many of whom will seek to “age in place” in their own homes and communities; and the continued problems of housing affordability and housing quality in rural America.
Perhaps our greatest challenge is the increasing unaffordability of rental homes, particularly for our nation’s lowest-income families. The percentage of low-income families facing “moderate” and “severe” rental housing cost burdens has reached crisis levels. Unfortunately, affordability conditions may deteriorate even further as rental demand is likely to remain strong for the foreseeable future.
On each of these issues, the commission has offered a set of recommendations for reform. It is time to take stock and assess what progress has occurred over the past year.
The Housing Market Recovery and Access to Homeownership
While the housing market has begun to recover, overly strict underwriting requirements and regulatory uncertainty continue to make it difficult for qualified borrowers to obtain a mortgage. This situation is particularly unfortunate since owning a home has rarely been more affordable, in part because of historically low interest rates.
As explained in our report, the goal should be to return to the appropriately conservative underwriting standards in place before the housing-market bubble with their focus on the overall creditworthiness of the borrower. Pre-purchase housing counseling, particularly for first-time homebuyers, is essential to a new, more sustainable approach to homeownership and can function as a “credit overlay” giving lenders greater security that their loans will be repaid. Recent evidence shows that pre-purchase counseling can significantly reduce mortgage delinquencies for both first-time and repeat homebuyers.
Greater certainty about the regulatory “rules of the road” will also encourage more mortgage lending. While the final “qualified mortgage (QM)” rule issued last year helped provide some certainty, concerns linger about the rule’s impact on access to mortgage credit. For a mortgage to fall within the QM box, the ratio of borrower debt-to-income cannot exceed 43 percent. Some observers contend that many young adults seeking to buy a home for the first time will be unable to meet this requirement because they are saddled with large amounts of student loan obligations. Regulators should closely monitor the impact of the QM rule on mortgage lending and be prepared to show flexibility when appropriate.
The revised “qualified residential mortgage” or “QRM” rule, released last September, was a marked improvement over the original draft of the rule issued in 2011. The draft rule had required a twenty-percent down payment for a mortgage to obtain QRM status. The purpose of the QRM standard is laudable: to help ensure that securitizers retain some of the risk associated with the mortgages they sell into the secondary market. But after years of consideration, it is time for federal regulators to propose a final QRM rule. To avoid causing confusion in the mortgage market, it’s critical for the final rule to align the QM and QRM standards.
Housing Finance Reform
A major source of concern is the uncertain future of our nation’s housing finance system, which today is overwhelmingly dominated by the federal government. We are pleased that the commission’s plan for a new system in which risk-bearing private capital plays a central role has been very well received by policymakers from across the political spectrum. The plan demonstrates it is possible to develop a forward-looking, bipartisan approach to this complex subject and has sparked renewed interest on Capitol Hill in advancing reform legislation.
There are now serious reform proposals pending in both the Senate and House of Representatives. These initiatives share many of the same elements of the commission’s plan — a desire to introduce more risk-bearing private capital into the mortgage system; the gradual wind down of Fannie Mae and Freddie Mac over a multiyear transition period; and support for the critical role played by community banks in meeting America’s mortgage needs. Other proposals, including bipartisan legislation sponsored by Senators Tim Johnson (D-SD) and Mike Crapo (R-ID), are also likely to be unveiled soon.
With the legislative clock ticking, the Congressional leadership should make housing finance reform one of its top legislative priorities for the remainder of the year. Enactment of reform legislation could be a signature achievement of this Congress and a major boost to the housing market and our nation’s economic recovery. It is time to get the job done.
Aging in Place
In our report, the commission highlighted what we believe is one of the most important emerging issues in housing: the aging of the Baby Boomers and the increasing numbers of seniors who will seek to age in place. With many of our homes and communities ill-equipped to make independent living into old age a safe and viable option, accommodating the desire to age in place will require considerable resources and creative thinking.
As part of this effort, the federal government should strengthen the partnerships between housing and health care providers. Understanding how service-enriched housing can benefit the health care system by lowering costs and enhancing the delivery of care is critical.
Each year there seems to be increased public awareness of the aging-in-place challenge. Communities across the country are responding with innovative strategies. Numerous private-sector organizations like the American Association of Retired Persons and the National Association of Home Builders have sponsored educational programs to make homes more safe and livable for the elderly. At the federal level, the U.S. Department of Housing and Urban Development continues to examine proposals to retrofit homes so they are “senior friendly” as well as explore ways to better integrate aging-in-place priorities into existing federal programs.
While the aging-in-place challenge is a daunting one, I am confident that, over time, we can develop affordable and effective solutions.
I am grateful to my commission co-chair, former Senator Kit Bond, for faithfully reminding us about the housing needs that exist in rural America. Too many rural families are burdened with excessive housing costs and housing quality remains poor in many rural communities.
Over the years, the homeownership and rental assistance programs of the U.S. Department of Agriculture have helped millions of rural families. Until the recent passage of the farm bill, those families living in some 900 rural communities were at risk of losing access to these programs as a result of a technical change to the definition of what constitutes a “rural area.” By grandfathering these communities through 2020, the farm bill at least temporarily preserves this access, just as the commission recommended in its report. We commend the Congress for taking this important step.
The Affordable Rental Housing Crisis
About one-third of our nation’s families rent their homes. Yet many of these families are faced with staggering housing cost burdens. According to the Harvard Joint Center for Housing Studies, about half of all renter households – 21.1 million – spend more than 30 percent of their income on rent (the traditional standard for affordability). The percentage of renter households that are “severely cost-burdened,” paying 50 percent or more of their income on rent, now stands at 27 percent.
Those families with the lowest incomes suffer the most: in 2011, 83 percent of renters with incomes of less than $15,000 were cost burdened, including 71 percent whose housing costs consumed more than 50 percent of their budgets.
For our lowest-income families, a major factor contributing to these housing-cost burdens is the severe shortage of affordable rental homes. According to the Joint Center, in 2011, for every 100 extremely low-income renters (those making less than 30 percent of area median income), only 36 units are affordable and available.
This situation is unacceptable and should not be tolerated. Yes, federal rental assistance provides help, but fewer than one in four families eligible for such assistance actually receives it. In many communities, Housing Choice vouchers are distributed through long waiting lists and even lotteries.
In response to these problems, the commission has put forward a bold plan that would target federal rental assistance to our most vulnerable households, those with incomes at or below 30 percent of the area median. Under the plan, households at this income level would be assured access to rental assistance if they need it. For those families with slightly higher incomes, the commission recommends federal funding to support short-term emergency housing assistance to help those who may have suffered a temporary setback such as a job loss or illness.
To increase the supply of affordable rentals, the commission recommends a 50 percent increase in federal support for the Low-Income Housing Tax Credit.
At a time of severe budget pressures, we appreciate the efforts of Congressional appropriators to maximize funding for the key federal rental assistance programs. Initiatives like the Department of Housing and Urban Development’s Rental Assistance Demonstration also hold promise for helping stabilize the number of units in the affordable rental housing stock. But a much more comprehensive response is needed in light of the complexity and scope of the challenge we face. The commission will continue to raise awareness about the rental affordability crisis and its impact on our nation’s lower-income families. We will also continue our advocacy on behalf of the commission’s reform plan that seeks to respond to both the “demand side” and “supply side” dimensions of the crisis.
The National Housing Summit
The Commission hopes to shine the spotlight on all these critical issues at the New Directions for National Policy: 2014 Housing Summit, scheduled to take place on September 15-16 in Washington, DC. By bringing together top administration officials, members of Congress, leaders in real estate and finance, and hundreds of housing practitioners and experts from across the country, our goal is to elevate housing to the top of the national policy agenda and effect change. We hope you will be able to join us in September at this groundbreaking conference.
KEYWORDS: FANNIE MAE, FREDDIE MAC, TIM JOHNSON, MIKE CRAPO, DEPARTMENT OF AGRICULTURE, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, KIT BOND, BOOMERS, QUALIFIED RESIDENTIAL MORTGAGE, QUALIFIED MORTGAGE RULE, AMERICAN ASSOCIATION OF RETIRED PEOPLES, NATIONAL ASSOCIATION OF HOMEBUILDERS, HARVARD UNIVERSITY