First-time homebuyers face overly restrictive mortgage market
American Dream remains an illusion for so many taxpayers
Housing experts descended on Dallas for the Bipartisan Policy Center’s Housing America’s Future conference Tuesday, addressing the appetite many taxpayers have for homeownership, but the various roadblocks that remain.
President Barack Obama reaffirmed the American Dream of homeownership last week, as he pointed out that one of the main principals of the middle class is to bring back equal chances of homeownership. In planning to offer a single application for the 30-year mortgage, the administration appears to tacitly support the product. The private market, has it turns out, isn't all-in on the 30-year mortgage as is the President.
While the vast majority of American households want to own a home in the future, but with a shifting market dynamic, the key is to find a product that can fulfill the function of providing someone a home and also maintain homeownership, explained Michael Lea of San Diego State University.
The group of taxpayers facing the biggest challenges is first-time homebuyers due to tight credit standards, student loan debt and limited inventory.
For instance, first-time homebuyers accounted for 29% of units in June, down from 32% a year earlier, according to Leslie Smith of the National Association of Realtors.
"First-time buyers have suffered under an overly restrictive lending environment. More than 90% of new homebuyers had to use a mortgage to purchase their first home," Smith said.
While the 30-year, fixed-rate mortgage is the product currently in place for the majority of Americans to have access to homeownership, the majority of the panelists agreed that it’s not a prerequisite for homeownership and other products could and should be introduced into the market.
From an investor standpoint, the 30-year FRM is a difficult instrument to fund and hedge, Lea stated.
Furthermore, as policymakers continue to roll out various options for a new structure to the mortgage finance system, one of the main changes is the need for a healthy secondary market that uses government guarantees.
As a result, various policymakers on Capitol Hill are aware of the needed government guarantees and have worked such a product into propped legislation — the Housing Finance Reform and Taxpayer Protection Act of 2013.
Thus, it’s inevitable that a higher degree of private sector participation will lead to an increase in the cost of mortgages and as a result, many are hopeful the government will price accordingly, noted Ronald Rosenfeld of the Federal Housing Finance Board.
Overall, access to affordable housing is critical for equal opportunities and while the 30-year, FRM was a tool kept in the government’s toolbox to provide homeownership; many market experts are open to the introduction of new mortgage products.