A Recipe for Retro Housing Policy
The Trump administration's first official act was to restore some mortgage fees that had just been eliminated by the Obama administration. The Democratic response to it suggests that nearly a decade after the housing bust, the nation may finally be ready to look at housing policy again with fresh eyes.
Ordinarily, the fees charged by the Federal Housing Administration to insure mortgages don't get a lot of media or political attention. But when the Trump administration, within hours of the inauguration, reversed an FHA fee cut, the blowback was immediate. Democratic Senator Elizabeth Warren tweeted out that the Trump administration's first move was to make getting a mortgage harder for working families.
But there's more to the story than an incoming administration reversing a move by an outgoing administration. The FHA has had a challenging past decade. It insures around 15 percent of mortgages today, nearly quadruple the market share it had in 2007. What caused that growth? From 2007 to 2009, as private mortgage capital evaporated, the FHA insured many bad mortgages.
As the FHA's financial position deteriorated it jacked up its fees. While this stabilized the FHA's finances, it made it much more expensive for FHA borrowers to get mortgages. Even with the higher fees, the FHA required its first-ever taxpayer assistance in 2013. As the FHA's finances improved, the Obama administration cut FHA fees in early 2015. And then cut them one more time this month, which the Trump administration just reversed. It hardly seems extreme for a new administration to want some time to evaluate a program that needed taxpayer assistance less than four years ago; it's reasonable to keep the fees at the level that was working last year.
In the early part of this decade, tweaks to housing policy weren't at the top of the public's mind, because there was still such a stigma attached to homeownership in the wake of the financial crisis. Democrats, particularly Warren, were still angry at Wall Street for the actions leading up to and during the financial crisis. Republicans were angry about bank bailouts, the extraordinary monetary policy undertaken by the Federal Reserve and regulatory policy in general. The homeownership rate in the U.S. was rapidly falling, and reversing that trend was nobody's top priority.
Now, perhaps, things are changing. There are signs that the homeownership rate, at least for certain demographics, may have hit bottom. The homeownership rate for households headed by someone 35 to 44 has increased on a year-over-year basis for four quarters in a row. The homeownership rate for Hispanic households is at a three-year high. Owners' equity in their homes is at its highest level in a decade.
And there's nothing like becoming the out-of-power party to give you a new perspective on policy. Perhaps Warren's tweet is a sign that rather than raging against Wall Street for its behavior last decade, she's going to focus her efforts on helping working families become homeowners. Many parts of the Democratic coalition -- the young, urban dwellers, minorities and lower-income families -- either disproportionately lost their homes in the foreclosure crisis, or are aging into their prime household-forming years and are ready to buy a home, and they'll want their representatives in Washington to assist them in doing so.
The financial crisis was almost a decade ago, and just as terrorism faded in the public's mind in the decade after Sept. 11, perhaps the same is happening with the financial crisis and the skepticism about homeownership.
Republicans, too, may be having a change of heart. Now that their party controls Congress and the White House, they'll likely become less critical of financial regulations and federal policy. It would shock no one if the Trump administration, full of billionaires and ex-employees of Goldman Sachs, starts to roll back financial regulations in the name of creating jobs, expanding the economy and supporting the housing market.
The future of housing policy might end up looking a lot like the past.
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