Lenders struggle with affordability issues, too
If you have the feeling that it’s getting more difficult to afford the roof over your head, whether it’s a home of your own or a rented apartment, you’re right.
It’s not just that house prices are rising quickly in many parts of the country. It’s that some lenders who got burned in the previous decade’s market crash are still gun-shy about extending credit. And even when lenders are ready and willing to jump back into the market, their federal regulators are telling them to rein in potentially risky loans.
The tight hold regulators have on lenders may or may not be comforting to a general public worried that another crash is possible — or even probable. Either way, the lending business is fretting, loudly, about the affordability squeeze being placed on potential customers.
At the Mortgage Bankers Association’s recent conference in Boston, both the chairman and the president of the group said that making housing more affordable — for all types of buyers — is a top priority.
MBA chair Rodrigo Lopez said that although “the economy has regained its footing,” homeownership remains “at its lowest levels in 50 years.”
Lopez, who is an executive with a commercial mortgage lender, promised that affordable housing and access to credit will be among his first priorities during his year at the MBA helm.
The affordability squeeze extends to rentals as well.
“Although we are constructing nearly 400,000 new rental units per year, only a small subset of these units will be affordable to lower-income households,” Lopez said. “The combination of stagnant incomes and rising rents has resulted in an almost 40 percent increase in renter households who spend more than one-third of their incomes on housing. For some, rent approaches nearly half of their incomes — an unacceptable statistic under any circumstance.”
The squeeze is greatest on low-income, working-class families. But Lopez thinks the mortgage business could walk that tightrope between extending more credit and doing risky lending.
“We have an opportunity to improve access to credit, being mindful of the need to balance new regulations with innovation and responsible adjustments to the housing finance system,” he told the meeting.
David Stevens, the MBA president, pointed to “the millennial gap” as the perfect illustration of housing unaffordability.
“Homeownership rates among Americans between 18 and 35 are only 34 percent, or just over half the national rate,” he pointed out. “But it’s more than the fact that they’re not buying. It’s that they’re not renting, either.”
According to Pew Research, one in three 18- to 34-year-olds lives with their parents. This marks the first time since 1880 that more people in that age cohort live with parents than elsewhere.
Another telling statistic: According to the Institute for Research on Poverty at the University of Wisconsin-Madison, over the last 20 years, the percentage of Americans dedicating at least half their income to housing has risen from 42 percent to 52 percent. Over 1 million families now put more than 70 percent of their incomes toward rent and keeping the lights on.
“Whether the reason for the delay (in buying) is tight credit, student loan debt, the lack of affordable housing stock, average wages for young people, or just that millennials are taking their time before making big decisions like getting married or buying a home, it is causing an unusual and unsustainable rise in rental costs, particularly in urban areas,” Stevens said.
Stevens said the MBA can be an effective advocate to negate the effects of the credit squeeze. But, he added, his members are being discouraged from lending to some first-time buyers because they worry a mistake might expose them to the wrath of regulators.
What’s causing lender dread? Stevens said it’s caused by “overly aggressive, and sometimes inappropriate, enforcement actions by some key government agencies.”
He notes that the regulatory framework is too often redundant, with “state regulations piled on top of federal regulations, piled on top of international rules, often conflicting with each other.”
“No wonder (lenders) have no choice but (to take) the most conservative lending posture in order to meet the lowest common regulatory denominator,” he said.
Steven called on MBA members, which include banks, mortgage companies and other financial institutions, to “create and promote affordable housing through incentives like the mortgage interest deduction, down payment savings and matching plans, as well as other means.”
He also said his commercial members should encourage the financing and building of affordable rental units near offices and transit stops.