How housing experts attempt to address affordability challenges

Obstacles to home affordability, including inflation, look set to remain a thorn in the side of the housing market, heightening the importance of cost cutting and engagement efforts, industry experts said this week. 

"Rising home prices, rising interest rates have made the cost of homeownership rise more quickly than people's incomes. And that just creates a simple math problem that we as an industry have to solve," said David Battany, executive vice president, capital markets at Guild Mortgage, at the Mortgage Bankers Association Secondary and Capital Markets conference in New York.

"We should look at every every line item and look for ways to direct those efficiencies and lower the costs for all consumers."

Relief measures introduced during the COVID-19 pandemic pumped about $6 trillion of additional liquidity in consumers' hands, he said. "That much cash in the system is driving inflation. Until that burns through, that'll be a constant inflationary pressure."

Still, some aspiring buyers are finding opportunities, according to Michael Lima, managing director of correspondent lending at Click n' Close, who said the number of borrowers locking in rates was five times higher than a month ago. Lima's company specializes in down payment assistance programs and similar products aimed at first-time buyers offered by housing agencies. Lowering rates for borrowers participating in those and other agency programs would be "the number one thing that we could do to help," he said. 

The sale of mortgage-backed securities tied to those types of loans will play a large part in achieving that goal, Lima said. One of the key priorities in his role was to show investors the opportunity those bonds presented due to their slower prepayment speeds compared to other types of MBS. "So we're out selling the duration story," he said.

But the many down payment assistance programs on the market remain underutilized, largely due to limited awareness. In an attempt to help match eligible buyers to available programs and increase homeownership opportunities, Freddie Mac announced the rollout of a new technology tool for lenders called DPA One that would assist loan officers or housing counselors in identifying the programs their clients may be eligible for and make it simple for them to apply.

"We're trying to enable the industry to better navigate these programs so that they are more widely used and more efficiently used at the point of origination," said Pamela Perry, vice president – single-family equitable housing at Freddie Mac. 

No program, though, can solve the problem of scarce inventory, an issue that is severely limiting affordable options and will take several years to properly address, according to Battany. But new types of manufactured housing might be able to alleviate some problems. 

While factory-built homes are dogged by their past reputation as cheap and shoddy, newer units created in module form could be a game changer, Battany said. 

"These CrossMod homes — if you walked through them with a building engineer, you cannot tell the difference to a site-built home. The quality of design and quality of materials and workmanship are incredible." The construction of the modules also results in minimal waste, he added. 

But apart from providing opportunities for more consumers to attain homeownership and make their first payments, ensuring homeownership sustainability is sometimes overlooked when addressing affordability challenges, Battany said. The first five years is a critical window for a first-time buyer, as it is the period when default risk is highest, according to GSE credit-risk models. 

"It's perfectly logical why that's the case because a huge amount of their income is going towards their housing costs, and their ability to create monthly savings is diminished. They're in a very thin capital position," he said. 

Helping new homeowners build higher cash reserves, so they have the financial means to withstand unexpected expenses, such as broken appliances, would create stable financial health. 

"By the time they get past the five years, hopefully they've had steady increases in their income, their mortgage payments are static, their disposable incomes are improving, and they start creating that cushion," Battany said.