There are solutions to the affordable housing crisis, but telling lenders to finance homes for borrowers who aren’t ready isn’t one of them.
President Biden has made it clear that providing affordable housing options for Americans is a top concern for his administration, the Administration pointed out that: In a fact sheet the White House published last September:
“The large and long-standing gap between the supply and demand of affordable homes for both renters and homeowners makes it harder for families to buy their first home and drives up the cost of rent. Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home.”
The CFPB has been busy working toward the goal of affordable lending, issuing an advisory opinion on May 9 informing lenders that the Equal Credit Opportunity Act applies to all aspects of the loan cycle.
Our own industry has not been deaf to this call to arms. The Mortgage Bankers Association’s Convergence team and its participating partners are working to create greater homeownership and affordable rental opportunities to more Americans. This group is leading the charge in the search for solutions for affordable housing.
But what will it really take to solve this problem?
As a former lender and current technologist, I would love to tell you that technology can solve this problem, but it can’t. What I can tell you is that sometimes problems seem more manageable when viewed from a new perspective.
Everyone seems to be saying that there is a housing shortage, but that’s not technically true. If you look for homes in the $500,000+ range, you’ll find plenty of them. If you’re looking for a four or five bedroom home with three-plus bathrooms, you have a lot of options.
It’s homes for first time buyers that’s the problem. There is a shortage of affordable housing, to be sure, because that’s where the demand is currently strongest. But we don’t have a national housing shortage.
Given all of this, I see two possible solutions for affordable housing, options that might make this problem more manageable. The first of these has to do with the way we choose to use the real estate sitting in our urban centers as more people take advantage of work from home trends to move out into the suburbs.
If we can figure out how to use the excess commercial real estate in our cities, and empty malls in our suburbs, and turn it into affordable housing we could solve the housing problem and bring our young people back to the cities, where they have more opportunities to meet, mingle and enjoy their lives. That’s where so many of them want to be anyway.
The second thing that could happen is the government could find ways to provide incentives to builders to build more affordable housing. The margins there are much smaller, so virtually no builders are specializing in these smaller homes, but if some percentage of their business was devoted to serving first time buyers, it could make this problem much more manageable.
While some may feel it’s unfair for the federal government to tell a business how to run their company, these people probably don’t know about the Community Reinvestment Act. If something similar existed for the nation’s largest builders, this problem might start to go away.
What we probably should not do in response to the Affordable Housing problem is mandate that lenders put people into homes when they are not yet ready to take on that financial burden. Anyone who lived through the subprime lending crisis knows that we do a disservice to homebuyers when we make it possible for them to take out a loan that it is beyond their ability to repay.
By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence
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