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Politics, Not Economics, Keeping Affordable Housing Down

MAY 9, 2014 4:15pm ET
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Affordable housing is one of the sticking points keeping the secondary mortgage market reform bill from advancing in Congress.

Opponents to any mandates being included in a reform law are beating the drums, screaming that subsidization of affordable housing caused the mortgage crisis.

The truth is not so clear cut. Yes, plenty of low and moderate income borrowers ran into problems during the bust. However, so did borrowers of most demographic groups. The common denominator seems to be that these borrowers were put into inappropriate mortgage products.

But when borrowers were put into the right product in the years before the boom, affordable housing worked. Countrywide had a very successful affordable housing program. It was greed that eventually did the one-time industry leader in.

Homeowners from all walks of life ended up in trouble during the bust because the mortgage industry was more focused on making a buck rather than doing the right thing.

With the right product and the right tools in place, many low and moderate income families are and will be successful homeowners.

The creation and rehabilitation of rental housing is another way affordable housing goals can be advanced. Not every person is cut out to be a homeowner. They are entitled to have a safe environment to live in as well.

Fannie Mae and Freddie Mac's multifamily lending programs remain successful providers of capital to help meet these needs. Any reform must include the continuation of these programs.

L.A. Clippers owner Donald Sterling's reprehensible comments about race could have been a starting point for an honest discussion about affordable housing needs and goals, especially given his troubles when it came to fair housing.

Instead, political rhetoric is obscuring the need to create sustainable affordable housing program will remain obscured.

Brad Finkelstein is the originations editor for National Mortgage News. The views expressed are his own.

Comments (5)
Brad: you forgot to mention that there are low to moderate income programs already out there, FHA/VA/CDA and USDA Rural housing programs. These are all government loan program already blessed by HUD. I don't think there is a need for additional government programs. All that is needed is sesible marketing of those programs already established. I am also a big proponent of financial literacy in our high schools! By teaching our young people how to manage money, the importance of good credit and smart borrowing practices this type of education would go a long way to shoring up and sustaining the real estate market for years to come. Throwing another government program or subsidy at the problem will not and does not work for long term survival of a very important industry.
Posted by Maureen B | Monday, May 12 2014 at 9:30AM ET
Thanks for your comments. We actually need to start teaching financial literacy earlier, while kids are in elementary school. I had a savings account done through my school when I was in elementary school in the 70s. Learned all about savings and interest, etc. As for the government affordable housing programs, we need a private alternative to support and grow the market. Those are great programs, especially VA, but they should not be overused as they were during the crisis.
Posted by Bradley F | Monday, May 12 2014 at 11:44AM ET
The issue with Affordable Housing today is the restrictive underwriting environment facing minorities. The product are there like FHA, VA and USDA. But minorities can't obtain financing because of the tight lending standards and the lack of access to credit. This is the effect of Dodd-Frank and the QM regulations implemented in January 2014. When you make it impossible or not profitable for small minority mortgage companies to lend in their own communities the result is limited choices for access to credit for borrowers and home ownerships for minorities declines.
Posted by Ed S | Monday, May 12 2014 at 1:51PM ET
Brad: Having been in the mortgage industry since 1971 I can tell you that the congress, the regulators, Fannie Mae and Freddie Mac were responsible for the market meltdown. Pushing regulated financial institutions into loans with no down payment and poor credit "or else" we will stop you from branching, we will do this and that... and then they told the banks don't worry you can sell this garbage to Fannie Mae and Freddie Mac because we are going to tell them (political appointees) to lower their lending standards. As Maureen wrote there is FHA, VA, CDA and USDA. Why corrupt the whole mortgage system to accommodate the low income borrower? Sounds like the same stupid fix for health care. Destroy what works for 85% of the citizens so we can give health care to the other 15%. What we need is to close down Fannie and Freddie and get the government out of the mortgage market. Let private capital go to work again.
Posted by kayman d | Monday, May 12 2014 at 2:42PM ET
Thanks for the comments. If it only were as easy as having the government out. Much of what happens, good and bad, is because at the end of the chain there is some sort of government guarantee. The need is to reduce the risk to the taxpayer and to put all affordable housing lending into government programs will only increase the risk. Lenders take the path of least resistance in getting loans approved; during the boom that was putting any loan they could into non-prime products. The next path of least resistance was FHA (admittedly spurred by the government). If we want a working private mortgage market, it is going to have to be a market that covers all, not just A+++ borrower.
Posted by Bradley F | Monday, May 12 2014 at 3:00PM ET
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