Tag Archives: homeownership

Trump & Pulte’s 50-Year Mortgage

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Politico quoted me in ‘Band-Aid,’ ‘Distraction’: Experts Slam Pulte, Trump 50-Year Mortgage Idea. It opens,

The Trump administration is entertaining a potential plan for the government to back 50-year mortgages to address a housing affordability crisis.

But, in a housing market defined by low supply, industry experts warn that changes in financing are likely to be little more than a “band-aid” and a “gimmick,” while posing bigger risks to homebuyers.

“As a country, the mortgage term is not what we should be worried about. We should be focused on building more supply,” said Troy Ludtka, senior U.S. economist at SMBC Nikko Securities America.

Federal Housing Finance Agency Director Bill Pulte posted on X Saturday that the Trump administration is working on directing government-owned housing finance companies Fannie Mae and Freddie Mac to support 50-year home mortgages, calling the move ”a complete game changer.” President Donald Trump also posted on his social media platform, Truth Social, supporting the idea.

The proposal comes after Trump directed Pulte to leverage Fannie and Freddie to ramp up the country’s stalled housing production to bring down costs and address the estimated shortage of 4.7 million homes. But the new proposal is raising concerns about whether such a major change to the two giant mortgage financiers’ buying rules could destabilize a central strength of homeownership — the opportunity to build wealth over time.

In a series of follow-up posts over the weekend, Pulte wrote that “a 50 Year Mortgage is simply a potential weapon in a WIDE arsenal of solutions that we are developing right now. STAY TUNED!” He sounded off about other possible ideas like supporting portable mortgages, which can transfer to a new property, and assumable mortgages, which can be transferred to a property’s new buyer.

An FHFA spokesperson told POLITICO, “We continue to evaluate all options to address housing affordability, including studying how to make mortgages assumable or portable.”

And a White House spokesperson said in a statement, “President Trump is always exploring new ways to improve housing affordability for everyday Americans. Any official policy changes will be announced by the White House.”

Experts expect that extending the potential length of Fannie- and Freddie-supported home loans would require congressional support.

Fannie and Freddie don’t offer loans directly to potential homebuyers; instead, they purchase mortgages from lenders to package and sell on the secondary market. This frees up resources for lenders to issue new mortgages.

By purchasing 50-year mortgages, Fannie and Freddie could make the longer-term loans more appealing for lenders to offer. With a longer loan, monthly payments could come down, but it also comes at a cost to homebuyers.

“It would lead to buyers building equity in their homes more slowly. At the beginning of the mortgage, more of those payments tend to be interest… This is more of a stopgap band-aid to address affordability,” said Gennadiy Goldberg, head of US rates strategy at TD Securities.

Sharon Cornelissen, director of housing at the Consumer Federation of America, called the proposal “a distraction” and warned that although expanding the accessibility of 50-year mortgages could lower monthly payments, “the cost of that is that people won’t be able to build wealth through homeownership.”

And as first-time homebuyers get older, the 50-year mortgage appears less manageable, Cornelissen said. Last week, the National Association of Realtors shared findings that the median age of first-time homebuyers had risen to an all-time high of 40.

“So you’ll be 90,” Cornelissen said, adding that finishing payment on a 30-year mortgage is a “stabilizing force” for people going into retirement.

David Reiss, a Cornell Law School professor and real estate finance researcher, said a move toward 50-year mortgages would require homebuyers to rethink how they save for retirement.

“We often hear financial advice that you want to try to pay off your mortgage before the time that you retire,” Reiss said. “So that’s a problem.”

Federal Home Loan Banks’ Liquidity Role During Financial Crises

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The historic Federal Home Loan Bank Board Building            AgnosticPreachersKid CC BY-SA 4.0

The U.S. Government Accountability Office (GAO) has invited me to participate in a review of the Federal Home Loan Banks’ Liquidity Role During Financial Crises. I have previously written about the FHLBs here. The invite reads in part,

GAO is an independent, nonpartisan federal agency that supports Congress by evaluating federal programs and activities. In response to a request from the House Committee on Financial Services, our team is conducting a review of the Federal Home Loan Banks’ (FHLBank) liquidity role during financial crises.

As part of our work, we plan to provide Congress and the public more information on the strengths, limitations, and feasibility of certain changes that academics, interest groups, and others have suggested to address perceived issues with FHLBank lending during crises. We identified the changes through a review of academic, trade, and grey (dissertations, blog posts, etc.) literature since 2007. We then narrowed the list down to a shorter list of changes for further discussion. While we recognize there is currently substantial discussion around the FHLBanks’ housing mission and membership, we are focusing on FHLBanks’ lending to banks. Please note that the changes to be discussed are not GAO recommendations.

The GAO is seeking input “from individuals, organizations, federal agencies, and FHLBanks on the list of changes to address concerns with FHLBank lending during crises.” I had previously written that while the FHLBank System

was originally designed to support homeownership, it has morphed into a provider of liquidity for large financial institutions.

Banks like JPMorgan Chase & Co., Bank of America Corp., Citibank NA and Wells Fargo & Co. are among its biggest beneficiaries and homeownership is only incidentally supported by their involvement with it.

As part of the comprehensive review of the system, we should give thought to at least changing the name of the system so that it cannot trade on its history as a supporter of affordable homeownership. But we should go even farther and give some thought to spinning off its functions into other parts of the federal financial infrastructure as its functions are redundant with theirs.

This GAO review is a good start to subjecting the System to such a comprehensive review!

Social Housing, Federal Style

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U.S. Senator Tina Smith (D-MN) and Representative Ocasio-Cortez (D-NY) recently introduced the Homes Act which would establish a Housing Development Authority. The HDA is based on the Social Housing Development Authority bill introduced in New York earlier this year.

I was on a panel that discussed the pros and cons of the New York bill. The recording of the panel can be found here.

More specifically the federal bill would

  • Establish a national Housing Development Authority to acquire and develop real estate to create and maintain a stock of permanent, sustainable, affordable housing, including single- and multi-family housing, with robust tenant protections.
  • Empower local communities to address their specific housing needs by financing real estate acquisition or conveying property to public housing authorities, mission-driven nonprofits, tenant- or resident-owned cooperatives, state or local governments, and community land trusts.
  • Require the housing development authority to maintain portfolio-wide affordability by setting aside 40% of units for extremely-low income households and 30% of units for low-income households.
  • Cap rents for units financed under the Act at 25% of a household’s adjusted gross income and cannot increase more than 3% per year.
  • Support homeownership by allowing residents to purchase homes under shared equity models and providing relief to mortgage borrowers at risk of foreclosure due to market instability or economic distress.
  • Provide workers with strong labor protections building this new housing.
  • ​​Provide tenants with opportunities to come together to purchase their buildings prior to large, for-profit developers buying them.
  • Provide funding to rehabilitate and address the backlog of necessary improvements for public housing and repeal the Faircloth Amendment to allow new public housing.
  • Authorize $30 billion in annual appropriations, combined with a revolving loan fund to recoup and reinvest funds back into housing. Annual appropriations include a 5% minimum set aside for Tribal communities and a 10% minimum set aside for rural communities.

(This is from AOC’s press release, linked to above.)

The Wayward Mission of the Federal Home Loan Bank System

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Adam Fagen CC BY-NC-SA 2.0

I recently submitted this comment to the Federal Housing Finance Agency in response to its request for input about the mission of the Federal Home Loan Bank System. It opens,

The Federal Housing Finance Agency (the “FHFA”) has requested Input regarding the regulatory statement of the Federal Home Loan Bank System’s (the “System”) mission to better reflect its appropriate role in the housing finance system. I commend the FHFA for being realistic about the System in its Request for Input; it acknowledges that there is a mismatch between its mission and its current operations.

The System’s operations do not do nearly enough to support the System’s stated mission of supporting the financing of housing. The System should recommit to that goal in measurable ways or its name and/or mission should be changed to better reflect its current operations.

While the System was originally designed to support homeownership, it has morphed into a provider of liquidity for large financial institutions. Banks like JPMorgan Chase & Co., Bank of America Corp., Citibank NA and Wells Fargo & Co. are among its biggest beneficiaries and homeownership is only incidentally supported by their involvement with it.

As part of the comprehensive review of the System, we should give thought to at least changing the name of the System so that it cannot trade on its history as a supporter of affordable homeownership. Or we should go even farther and give some thought to spinning off its functions into other parts of the federal financial infrastructure as its functions are redundant with theirs. But best of all would be a recommitment by the System to the measurable support of financing for housing.

This comment draws from a column (paywall) I had published when the FHFA first embarked on its reevaluation of the FLBLS.

Improving Minority and Low-Income Homeownership Experiences

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By ajay_suresh - Federal Reserve Bank of Chicago, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=110893107

The Federal Reserve Bank of Chicago

I participated in a very interesting event at the Chicago Fed last week: Risk and Racial bias: Workshop improving Minority and Low-Income Homeownership Experiences. The Community Development and Policy Studies (CDPS) team at the Chicago Fed sponsored the workshop. CDPS is specifically focused on the risks of homeownership, bias in housing and financial markets, how risk and bias interact to affect homeownership experiences for minority or low-income families, and how risks are shared among market participants.

The workshop featured papers from “researchers in the social sciences and law using a range of methodological approaches on questions related to homeownership as a means of wealth accumulation and the experiences of minority and low-income families.”

I was a discussant for an interesting paper, Strategically Staying Small: Regulatory Avoidance and the CRA by Jacelly Cespedes et al. (she presented the paper). The abstract reads

Using the introduction of an asset based two-tiered evaluation scheme in the 1995 CRA reform, we examine the consequences of regulatory avoidance. Banks exploit the attribute-based regulation by strategically slowing asset growth, bunching below the $250M threshold. The regulatory avoidance also produces real effects. Banks near the threshold experience an increase in the rejection rate of LMI loans, while areas they serve experience a decline in county-level small establishment shares and independent innovation. These results highlight a bank’s willingness to take costly actions to avoid regulatory oversight and subsequent credit reduction for individuals whom the CRA is designed to benefit.

The most recent version of the paper does not seem to be publicly available, but an earlier draft can be found here.

 

Rethinking The Federal Home Loan Bank System

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photo by Tony Webster

Law360 published my column, Time To Rethink The Federal Home Loan Bank System. It opens,

The Federal Housing Finance Agency is commencing a comprehensive review of an esoteric but important part of our financial infrastructure this month. The review is called “Federal Home Loan Bank System at 100: Focusing on the Future.”

It is a bit of misnomer, as the system is only 90 years old. Congress brought it into existence in 1932 as one of the first major legislative responses to the Great Depression. But the name of the review also signals that the next 10 years should be a period of reflection regarding the proper role of the system in our broader financial infrastructure.

Just as the name of the review process is a bit misleading, so is the name of the Federal Home Loan Bank system itself. While it was originally designed to support homeownership, it has morphed into a provider of liquidity for large financial institutions.

Banks like JPMorgan Chase & Co., Bank of America Corp., Citibank NA and Wells Fargo & Co. are among its biggest beneficiaries and homeownership is only incidentally supported by their involvement with it.

As part of the comprehensive review of the system, we should give thought to at least changing the name of the system so that it cannot trade on its history as a supporter of affordable homeownership. But we should go even farther and give some thought to spinning off its functions into other parts of the federal financial infrastructure as its functions are redundant with theirs.