Nation needs more than jobs to cure housing's ills
Housing is not nearly the battleground in the presidential election it should be. Republican candidates so far have focused on employment as a way to aid the ailing economic recovery. This narrow focus on the ailing recovery reinforces the notion that jobs is the best income barometer for repairing the health of the housing industry economic. An article in HousingWire today explains the erroneous thinking: "Yet, while fewer than one in 10 Americans are unemployed, two-thirds own a house so it could be argued that more Americans are affected by home values than by the unemployment rate, according to a new report from the Progressive Policy Institute," the article states. I would like to take the thinking one step further. For one, using the unemployment rate as a de facto standard for measuring borrower resiliency needs to end. When it comes to housing solutions, unemployment is simply too broad a brush for determining default risk. Furthermore, basing a mass refinancing on loan-to-value requirements also make the potential solution flawed from the start. The problem is that employment does not totally encompasses the income stream (or lack thereof) and valuations do not reflect the total debt a homeowner is facing. We've seen cases where the preference is not to pay the mortgage first. Many rely on credit cards for expenditures, in a growing trend. Americans in 2012 expect to reverse the deleveraging trend of the last few years and begin taking on more debt. Therefore, a correct assessment of debt-to-income ratios is a more accurate predictor of ability-to-repay. Lowering the LTV in many cases will not make the mortgage refinance more affordable. In November, housing consultant John Burns and I had a similar conversation. What started as a debate on principal writedowns turned to a discussion on debt-to-income. Burns and I agree DTI is a more accurate predictor of default for any debt. He even emailed a slide to me with the following message: "If you took the housing costs DTI to 20% of income, these defaulted borrowers would still be struggling!" DTI can also be used to determine the rent cap. Unemployment only indicates whether the borrower can afford the rent, and does not determine how much they can or cannot pay. Therefore, measuring DTI would be vital in a REO to rental government-sponsored program. Those who satisfy HARP 2.0 DTI requirements will be the only ones who benefit from a lower-interest mortgage rate. The presidential candidate who comes forward and offers solutions such as these will get my vote, as well as those of other members of the mortgage finance industry. Write to Jacob Gaffney. Follow him on Twitter @jacobgaffney.