In one of his first speeches as secretary of Housing and Urban Development, Julian Castro joined other members of the Obama administration in warning that it now is too difficult to qualify for a home loan.
“A few years ago, bad loans and risky secondary market products prompted a housing crisis. There was plenty of blame to go around. Some believe it was too easy to get a home loan. Today it’s too hard,” Castro said at a housing event hosted by the Bipartisan Policy Center Tuesday. “The pendulum has swung too far in the other direction,” Castro added.
Castro’s remarks echo those of other top housing and economic regulators who say that tighter mortgage standards in the wake of the collapse have prevented families who normally would be considered creditworthy from buying houses, slowing the economic recovery.
Federal Reserve Chairwoman Janet Yellen said in congressional testimony in June that “it is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage.”
Housing industry leaders also have blamed new rules regulating mortgages and federal lawsuits over faulty mortgages for locking eligible borrowers out of the market.
In his speech, Castro noted that the average credit score for loans sold to Fannie and Freddie in 2014 is roughly 750, and that there are 13 million people with credit scores ranging from 580 to 680 — presumably people who might be home buyers if credit standards were eased.
Castro also plugged a bipartisan measure to unwind the bailed-out government-sponsored enterprises Fannie Mae and Freddie Mac that was passed by the Senate Banking Committee earlier this year but failed to gain support to pass the full chamber. That bill would have replaced Fannie and Freddie with a system of private insurance for mortgages backed by a government guarantee.
Castro warned that “a government-dominated market is unsustainable,” and praised the bill sponsored by Senate Banking Committee Chairman Tim Johnson, D-S.D., and ranking member Mike Crapo, R-Ida., as a “huge step forward.”
Currently, the federal government guarantees nearly three-quarters of new home loans, according to the Urban Institute. The Federal Housing Administration, the low-income housing agency under the direction of Castro’s HUD, accounts for nearly a quarter.
The Obama administration, for the most part, has stood on the sidelines as members of Congress have sought to wind down Fannie and Freddie and overhaul the housing finance system. As legislative efforts to overhaul the failed mortgage businesses have faltered, the new Obama-appointed housing finance regulator Mel Watt has sought to move the companies in the direction of expanding access to more families. Obama’s economic advisers have praised the shift in strategy.
In the absence of housing finance reform, Castro said that “we must do all we can to get capital flowing again,” and promoted new efforts to expand not just homeownership, but also affordable rental housing through the FHA.
Castro, who rose to national prominence with a keynote address at the 2012 Democratic National Convention, is thought of as a rising star in the Democratic Party. His twin brother, Joaquin, is a freshman U.S. representative from Texas.
