There is a strange coalition of mortgage industry groups, consumer groups, and minorities advocates that are banding together to make sure the housing sector remains full of as many subsidies as possible. In particular, the proposed definition of a qualified residential mortgage (as required from regulators by Dodd-Frank) have caused quite the uproar.
Groups that supported Dodd-Frank at the time of passage—including the Mortgage Bankers Association and the NAACP—are now shocked that the regulatory process could do something they don't like. As I write in a new article at Reason.com,
"consumer groups have criticized the regulation as being too strict, since banks would have to hold more capital against any loans that are riskier than qualified residential mortgages, meaning that financial institutions would charge more for mortgages with lower down payments."
AmericanBanker quoted John Taylor, president of the National Community Reinvestment Coalition, saying, "What has been proposed essentially creates a separate and unequal system of finance for people of color and for blue-collar, working-class people where regardless of your creditworthiness, of whether you're someone who has a great credit score and pays your bills on time and plays by all the rules, if you're not well-heeled enough to come up with 20% or if you're household debt to income ratios are high … you're going to go into a separate and unequal category of financing where you're going to have to pay more."
Yes, homeownership is now a civil rights issue.
But, when did affordable mortgage access become affordable housing. The first means cheap access to debt, the second means being able to buy a home within one's means. They are not the same.
Consumer groups should want houses to be priced lower so that low-income households can afford them. Artificially lowering mortgage prices with federal subsidies might mean cheaper mortgages, but that extra demand also pushes up housing prices. Great for homeowners. Not great for homebuyers.
So it is confusing that Janis Bowdler, a research project director at Latino advocacy group National Council of La Raza, still argues that the new Dodd-Frank authorized regulations will “so significantly deter the ability of first-time buyers to break into the market that we will see a real decline in home ownership.” Didn't we already learn that pushing people into homeownership before they are ready is a bad thing?
I write in my column, "It's not that Washington should force prices to go lower, it's that La Raza and other consumer organizations should be clamoring for the government to get out of the way to let prices finish their fall back to natural levels. That would help first-time homebuyers since housing would become more affordable. Plus the households would have less mortgage debt with less needed to borrow."
Also, see the rest of this AmericanBanker piece for a good summary of the details on the nuts and bolts of what is going on.