5 Questions with Ellen Seidman of the Urban Institute
Ellen Seidman is a senior fellow in the Housing Finance Policy Center at the Urban Institute. She chairs the boards of Coastal Enterprises Inc. and Aeris Insight and sits on the board of the National Community Advisory Council of Bank of America and City First Bank of DC. She cofounded and sat on the board of the Center for Financial Services Innovation and served on the inaugural Consumer Advisory Board of the Consumer Financial Protection Bureau. We are grateful for her contribution to this month’s newsletter.
While Government Sponsored Enterprise (GSE) reform seems to be off the front burner, it’s still percolating. What are the most important elements of any reform scheme?
A government backstop is essential for the existence of a broad and liquid mortgage market and the availability in all interest rate environments of the long-term fixed rate mortgage at affordable prices. But providing a backstop only makes sense from a taxpayer-risk perspective if the backstop is used to support both broad availability of affordable home mortgage credit for those who are credit-worthy but who the market would otherwise choose not to serve, and the preservation and construction of naturally affordable rental housing. Given the ever-increasing portion of the population whose incomes and employment patterns are volatile, the homeownership challenge is both more difficult and more important than ever before to support the health of the whole economy. In addition, we need government-backed housing finance to preserve and increase the supply of affordable rental housing, especially rental housing that does not need operating subsidies to be affordable to working Americans.
Is the concern over whether Millennials will want to become first-time home buyers overplayed, or do you think this will continue to be a significant challenge?
There are three issues intertwined here: do Millennials still want to become homeowners, when do they want to become homeowners, and can they afford to? That they’re being delayed in their homeownership is becoming increasingly clearer. Polls so far suggest they want to become homeowners eventually. But with both rents and house prices continuing to rise in communities in which good jobs are available, exactly how they’re eventually going to break into homeownership is unclear. I think we need to pay attention to the “how,” especially because if we don’t repair the frayed social safety net and figure out additional strategies to encourage consistent saving and investment, home equity will continue to be an important element of wealth in this country. Finding the solution may take some creativity in the forms of housing, ownership, and mortgage instruments.
What policy changes can be made to increase access to mortgage credit in the short-to-medium-term?
The costs and risks of servicing any mortgage that has any chance of defaulting have gotten out of line with likely returns from making such mortgages at affordable prices—even at current low interest rates. So, fixing that is important. There are some short term FHA fixes that my colleague Laurie Goodman has written about, which revolve around providing greater certainty about when the False Claims Act will be invoked and conforming FHA servicing and reimbursement standards to those of the GSEs. For the medium term, our center at the Urban Institute is convening a Mortgage Servicing Collaborative to bring together disparate parties interested in and knowledgeable about servicing to attempt to better understand the problems with servicing more broadly, and hopefully to suggest some consensus fixes.
At the same time, we need to extend the work the GSEs have been doing on better underwriting for families with the ever-more-common pattern of volatile incomes, multiple jobs, and changing households. That includes, but is not limited to, enabling lenders to screen potential borrowers by using more accurate credit scores. And we need to turn the investment the country has made in foreclosure counseling into effective financial capability counseling and coaching that will prepare new homeowners to buy an affordable house, in good condition, with the right mortgage instrument, when they can afford to do so.
In addition to access to mortgage credit, what do you see as the most critical issues for housing Americans over the next 10 years?
Affordable rentals and housing seniors. Without a doubt. We are in a major rental affordability crisis, and there’s no end in sight. According to Harvard’s Joint Center, more than 49 percent of renters pay more than 30 percent of their incomefor housing, including an astonishing 26 percent who pay more than half their income for housing. That doesn’t leave room for food, transportation or health care, let alone clothes or a phone. And we are continuing not only to lose affordable supply (to demolition, obsolescence, and gentrification) without adding enough new affordable housing—we’re not even adding enough housing in total. We estimate there is a gap of approximately 330,000 units annually between the number of net new households and net new housing units. So, building more—and in the right places, near jobs and transit, and at the right prices, not all luxury—is essential.
The other big problem over the next 10 years is housing seniors. Contrary to images of happy 90-year olds on the golf course, the housing future is bleak for upcoming seniors, including many who lost both homes and jobs in the recession and haven’t been able to recover either. More seniors are renters than in the past—which means they do not have either the cushion of home equity savings or the ability to largely control the amount they spend on housing, and more senior homeowners have mortgages. In addition, remarkably few seniors live in housing that can accommodate them when they begin to have physical problems, and the problem is worse for homeowners (whose houses often have stairs) than for renters. This is the great hidden housing need of our time, and it’s going to hit not only seniors very hard but also their children and grandchildren.
What advice would you give to Dr. Ben Carson to improve access to affordable housing in this country?
Protect HUD’s budget (including transfers by the GSEs to the National Housing Trust Fund). And fight in the tax reform debate to move some of the subsidy now provided well-off homeowners through the mortgage interest deduction to support modest-income homebuyers and renters. Beyond that, there is definitely work to be done modernizing the FHA’s antiquated systems, making section 8 vouchers go farther (in both numbers served and where people are living), preserving public housing, and making sure non-bank servicers are financially and operationally strong.