The top U.S. housing regulator said Friday that factors such as high student debt and the lingering effects of the 2008 crisis on household finances are holding back the housing market.
Mel Watt, the director of the Federal Housing Finance Agency, said Friday at a National Association of Realtors conference in New Orleans that “demand factors,” not just problems among lenders, are inhibiting homeownership. The focus on demand-side factors marked a new talking point for Watt, who in his first year on the job has focused on ways to promote credit through the bailed-out companies Fannie Mae and Freddie Mac that his agency supervises.
Among the “troubling headwinds” cited by Watt was rising student loan debt, which has eclipsed $1 trillion in the U.S. “[M]any individuals with student loans are struggling with high debt levels and impaired ability to save for a down payment — both of which make it more difficult to qualify for a mortgage,” said Watt, according to prepared text for his speech.
Watt also noted that many minorities hit hardest by the recession were having difficulty accumulating the savings necessary for a home purchase, in addition to those who were unable to keep up with their mortgage payments during the crisis. He raised the possibility that the psychology of homeownership has shifted. “Many people watched their friends or loved ones lose their homes or suffer financial hardship in the housing crisis, and this has deterred them from entering the homeownership market,” he suggested.
While he acknowledged that those factors were beyond his control, Watt highlight his efforts to extend loans to creditworthy borrowers through Fannie and Freddie.
In recent months, the FHFA under Watt’s direction has tried to reduce lenders’ fears about the repercussions of selling loans with marginally defective paperwork to the two government-sponsored enterprises. Fannie and Freddie buy mortgages from home lenders, package them into securities, and sell them to investors with a guarantee to make the investors whole if the loans go bad.
Watt also has announced that Fannie and Freddie will seek to back loans with down payments as low as 3 percent.
His efforts to broaden credit access have drawn criticism from analysts who fear a return to the risky lending practices that led to the subprime mortgage crisis. But Watt sought to quiet those worries Friday.
“We now have in place a robust set of mortgage lending protections that could well have prevented the abusive lending boom we experienced,” he said, referring to consumer regulations written by the Consumer Financial Protection Bureau and investor protections written by the new banking regulations.
“No one wants to return to the excesses and abuses of the past and FHFA is taking steps to ensure that this does not occur,” Watt said. “But the message we have tried to send is that we need to find a way back to responsible lending to creditworthy borrowers across all market segments.”
