WASHINGTON – The mortgage industry is welcoming the Obama administration's possibly final word on housing finance reform, hoping it will serve as guidepost for the future.
The Treasury Department released a paper this week that said reform efforts should focus on providing access to credit and affordable rental housing.
"We're drawing on our experience as the Administration enters its final months. We conclude that any future system should meet a simple test: does it provide fair, sustainable access to all Americans?" Antonio Weiss, assistant to Treasury Secretary Jack Lew, said in a statement emailed to American Banker.
The Mortgage Bankers Association noted that the paper, by Weiss Karen Dynan, a Treasury assistant secretary, emphasizes affordability.
"It is probably the one issue that needs the most attention in order for reform to move forward successfully," said David Stevens, the MBA's president and chief executive. "On a larger level, though, the paper further signals the near-unanimity among stakeholders that conservatorship is something that needs to end as we look for a more sustainable, accessible, transparent, and safe model for the future."
The Treasury co-authors note that borrowers with FICO credit scores below 665 are underserved in the market currently.
The minimum credit score on loans guaranteed by Fannie Mae and Freddie Mac is 620, "but only 10% of all new mortgages originated across the industry are to borrowers with FICO scores below 665," according to the paper, which is titled "Housing Finance Reform: Access and Affordability in Focus."
"When a large number of first-time homebuyers cannot buy a home, established homeowners may face a harder time relocating or moving up in the market," the paper says.
Tight mortgage credit also puts pressure on the supply of rental housing. To reach more borrowers in a future system, the Treasury officials want to move toward the cross-subsidization of loans via average-cost pricing.
"The pooling of a large amount of borrower risk allows for cross subsidization between borrowers and more even pricing," said Jim Parrott, a senior fellow at the Urban Institute and a former White House economic adviser.
While historically the two government-sponsored enterprises have used average pricing, recently they have done more risk-based pricing, which increases the cost of credit for borrowers with low credit scores.
The Treasury report recognizes that "affordability is the really the key issue facing housing finance right now," said Mike Calhoun, president of the Center for Responsible Lending,
The costs associated with risk-based pricing along with the repricing of mortgage insurance have suppressed credit access.
"This report is an inflection point in the framing what is the pressing issue in the housing finance market," Calhoun said.
It is important to return to average-pricing, he added.
As Election Day nears, neither Donald Trump nor Hillary Clinton has issued a paper on housing policy. "Housing is not at the top of their agenda," said Anne Canfield, executive director of the Consumer Mortgage Coalition.
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Corrected October 31, 2016 at 3:04PM: An earlier version of this story mistakenly attributed the quote in paragraph 3 to Antonio Weiss and Karen Dynan; it was from Weiss only. Also, due to an error in the initial version of the Treasury report, an incorrect figure was cited for the share of mortgages made to borrowers with FICO scores below 665; it is 10%.