The U.S. housing market has faced periods of high interest rates, home price appreciation and lack of inventory before. But these forces all happening at once makes the current landscape especially volatile and challenging, according to Sandra Thompson, the Director of the Federal Housing Finance Agency. 

“If you put things in perspective, we have dealt with high interest rates, we have dealt with increasing home prices, and we’ve also been dealing with supply issues,” Thompson said Wednesday at HousingWire Annual, held in Scottsdale, Arizona. “These are all things that we have seen before. We just got to see them all at the same time.”  

The main challenge at present is affordability, Thompson told attendees. 

Fannie Mae and Freddie Mac are working to provide more loss mitigation options to borrowers, studying ways to address appraisal bias and encouraging lending for manufactured homes, she said. The housing regulator also wants to encourage lenders to offer special purpose credit programs and to serve communities where English is not the first language. 

Here’s what else Thompson said during her Q&A at the conference.

On the current landscape

“We have seen some very challenging and volatile times. It’s not like we haven’t dealt with high interest rates before. But, if we put it in perspective, the interest rates six months ago were probably about 200 basis points less than they are today. And we certainly are coming off a period of the lowest interest rates in history ­– I certainly took the opportunity to refi. If you put things in perspective, we have dealt with high interest rates, we have dealt with increasing home prices, and we’ve also been dealing with supply issues. There are just not enough single-family properties out there to meet the demand. These are all things that we have seen before. We just got to see them all at the same time.”  

On affordability challenges 

“The main challenge now is affordability. That’s true on the residential side as well as the multifamily rental [side]. Last year this time in Washington D.C., and probably other places, if you put your house on the market, you’d have literally multiple offers over the list price and sometimes cash buyers. Now, home prices are still increasing, but not at the rate we were seeing last year. When we look year over year, it was like an 18.5% increase in prices. This year, it is probably slowing down to about 13.5%. It’s still an increase. So, we are concerned about affordability, especially for first-time homebuyers. We’re also concerned about the increase in rents – we’re seeing some rental payments that are well beyond what people pay for their mortgages.”

Risk facing the GSEs

“We’ve asked Fannie Mae and Freddie Mac to make sure that they have their loss mitigation toolkit in place so that when people get in trouble, they can call their servicer, and they have options. When we look at the Fannie and Freddie books, from a credit risk perspective, you’re getting mortgages with 2%, 2.5%, maybe even 3%. It is really good that people lower their monthly payments. But, when you’re looking at this rising interest rate environment that we have today, people are not able to buy the same house that they could have bought six months or a year ago. And many people – and I will be one of them – don’t want to refi or buy another house, in this interest rate environment. So a lot of people are staying put. That kind of exacerbates the supply issue, and the supply certainly impacts affordability.”  

How to serve diverse communities 

“There are a number of borrowers that English isn’t necessarily their first language. We’ve been working since 2018 to create a mortgage translation database. The predominance is Spanish. We picked the top five languages. We have taken the Word documents and translated them so that people can look at those translated documents and make some decisions. The house is probably the largest asset and the most money most people are going to spend. But we think it’s only fair, given that there are different populations, that servicers be able to respond to their borrowers in an appropriate way, especially when you’re making these huge financial decisions.” 

Jump-starting special purpose credit programs

“We’ve been focusing on the enterprises providing liquidity in areas that are hard to serve, such as rural areas or manufactured housing. And we also have affordable housing goals that focus on low to moderate-income individuals across the country. There’s a huge equity gap between Black, white, Hispanic populations. We’ve asked the enterprises to take a look at areas that had previously been redlined and identified barriers, but we’ve also asked them to come up with some solutions to address those barriers. Special purpose credit programs have been around for years, and lenders have been reluctant to use them. There’s a movement to try to explain to lenders as best we can that the regulatory environment is supportive of the nature of the special purpose credit programs. For example, one thing that we do know is many people struggle with down payment assistance. So you could have a special purpose credit program that focuses on down payments. We do have a number of pilot programs that the enterprises are working with.”  

Appraisal bias 

“Racial bias is very real. The valuation in certain communities is a lot lower than even the asked price. That’s true, generally speaking. What we’ve done is we’ve tried to automate the appraisal process, and I’ll tell you that the pandemic was really where we got a lot of lessons learned – appraisers didn’t want to go into homes, we had to figure out ways to keep the mortgage pipeline moving, and we introduced desktop appraisals. We made it a permanent part of the enterprise’s policy. We’re also looking at hybrid appraisals and other alternatives so that we can really try to address some of the bias and also make the process more efficient and cheaper.”

Manufacturing houses 

“We have statutory requirements about a desirable program to facilitate liquidity for manufactured housing. And if you look at the enterprises’ duty to serve plans for 2022, you’ll see that they have really made a lot of progress. When I think of manufactured housing, my thoughts versus reality are quite different. In fact, this past June, I went off to the National Mall during National Fair Housing Month. [They are] certainly equivalent to stick building. And so the enterprises have manufactured housing programs where they will purchase manufactured houses based on certain codes. They also are purchasing Manufactured Housing Communities. One of the things that we introduced is the tenant protections for renters, with basic things like 30-day notice to raise the rent.”