Sandra Thompson Talks Volatility, Affordability Issues, Valuation Bias and More
The US real estate market has already seen periods of high interest rates, appreciating home prices and shortages of inventory. But these forces all happening at the same time make the current landscape particularly unstable and challenging, according to Sandra Thompson, director of the Federal Housing Finance Agency.
“If you put it in perspective, we’ve faced high interest rates, we’ve faced rising house prices and we’ve also faced supply issues,” Thompson said. Wednesday at HousingWire Annual, held in Scottsdale, Arizona. “These are all things we have seen before. We just have to see them all at the same time.
The main challenge right now is affordability, Thompson told attendees.
Fannie Mae and Freddie Mac are working to provide more loss-mitigation options to borrowers, exploring ways to address valuation biases and encouraging lending for manufactured homes, she said. The housing regulator also wants to encourage lenders to offer special purpose credit programs and serve communities where English is not the first language.
Here’s what else Thompson said during his Q&A at the conference.
On the current landscape
“We have been through very difficult and volatile times. It’s not like we haven’t faced high interest rates before. But, if we put things into perspective, six months ago interest rates were probably about 200 basis points lower than they are today. And we’re certainly coming out of a period of the lowest interest rates in history – I certainly took the opportunity to refi. If you put it in perspective, we’ve had to deal with high interest rates, we’ve had to deal with rising house prices, and we’ve also had to deal with supply issues. There simply aren’t enough single-family properties to meet demand. These are all things we’ve seen before. We just have to see them all at the same time.
On the challenges of affordability
“The main challenge now is affordability. This is true on the residential side as well as multi-family rental [side]. Last year, this time in Washington DC, and probably elsewhere, if you put your home on the market, you would literally have multiple offers over list price and sometimes cash buyers. Today, house prices continue to rise, but not at the pace seen last year. When you look year over year, it was like an 18.5% price increase. This year, it’s probably slowing down to around 13.5%. It’s still an increase. So we’re concerned about affordability, especially for first-time home buyers. We’re also concerned about rising rents – we’re seeing some rental payments are well above what people are paying on their mortgages.
Risk for GSEs
“We asked Fannie Mae and Freddie Mac to make sure they have their loss mitigation toolkit in place so that when people have problems they can call their repairman and have options. When we look at the books of Fannie and Freddie, from a credit risk perspective, you get mortgages at 2%, 2.5%, maybe even 3%. It’s really good that people lower their monthly payments. But, given the rise in interest rates we are experiencing today, people are not able to buy the same house they could have bought six months or a year ago. And a lot of people – and I’ll be one of them – don’t want to refi or buy another home, in this interest rate environment. So many people stay put. This exacerbates the problem of supply, and supply certainly impacts affordability.
How to Serve Diverse Communities
“There are a number of borrowers for whom English is not necessarily their first language. We have been working since 2018 to create a mortgage translation database. The predominance is Spanish. We have selected the five main languages. We took the Word documents and translated them so that people could consult these translated documents and make decisions. The house is probably the most important asset and the most money that most people will spend. But we think it’s only fair, given that there are different populations, that services should be able to cater to their borrowers appropriately, especially when you’re making these huge financial decisions.
Initiate special purpose credit programs
“We focused on businesses providing cash in hard-to-serve areas, such as rural areas or manufactured homes. And we also have affordable housing goals that target low to middle income people across the country. There is a huge equity gap between black, white, and Hispanic populations. We asked companies to consider the areas that had already been highlighted and the obstacles identified, but we also asked them to offer solutions to overcome these obstacles. Special purpose credit programs have been around for years and lenders are hesitant to use them. There is a movement to try to explain as best we can to lenders that the regulatory environment supports the nature of special purpose credit programs. For example, one thing we know is that many people struggle to get down payment assistance. So you could have a special purpose credit program that focuses on down payments. We have a number of pilot programs that companies are working with.
“Racial prejudice is very real. The appraisal in some communities is much lower than even the asking price. That’s true, in general. What we did was we tried to automate the appraisal process, and I’ll tell you the pandemic was really where we learned a lot of lessons – appraisers didn’t want to come into homes , we had to figure out ways to keep the mortgage pipeline moving, and we introduced computer-based valuations. We have made it a permanent part of company policy. We are also looking at hybrid assessments and other alternatives so that we can really try to address some biases and make the process more efficient and less expensive.
“We have legal requirements for a desirable program to facilitate liquidity for manufactured homes. And if you look at the companies’ service obligation plans for 2022, you’ll see that they’ve really come a long way. When I think of the prefabricated house, my thoughts compared to reality are very different. In fact, last June I went to the National Mall during National Fair Housing Month. [They are] certainly equivalent to stick construction. And so companies have manufactured home programs where they will purchase manufactured homes based on certain codes. They also buy prefab housing communities. One of the things we’ve introduced is tenant protection for tenants, with basic things like 30 days notice to raise the rent.