Industry Groups Call on Feds to Take Action to Tame Mortgage Rates
Written By: Joel Palmer, Op-Ed Writer
The housing and mortgage industries expressed the immediate need to deal with housing affordability in a pair of letters sent to federal officials last week.
Both letters addressed the need to reduce mortgage rates to ease the burden for mortgage borrowers and hopefully increase demand.
In one letter, the Community Home Lenders of America (CHLA), the Independent Community Bankers of America (ICBA) and the National Association of Realtors (NAR) proposed a way to reduce the spread between 30-year mortgage rates and 10-year Treasuries.
The letter was sent to Lael Brainard, director of the National Economic Council, and Treasury Secretary Janet Yellen.
The groups maintain their plan could reduce the 30-year rate by 100 to 150 basis points. The 30-year mortgage is averaging 7.57 percent, according to Freddie Mac’s latest survey. It includes two specific actions:
The Federal Reserve shifting its policy to maintain its stock of mortgage-backed securities (MBS) and suspend runoff until liquidity and the spread between the 30-year fixed rate mortgage and 10-year Treasury stabilizes.
The Treasury Department amending the Fannie Mae and Freddie Mac Preferred Stock Purchase Agreements (PSPA) to enable the enterprises to temporarily purchase their own and Ginnie Mae’s mortgage-backed securities.
The groups noted in their letter that the spread between the 30-year mortgage and the 10-year Treasury is currently 300 basis points, double the historic norm of 150 points.
In addition to housing affordability issues and a dearth of new housing construction, the groups argued that the higher rate trend has caused:
Banks to be saddled with low-coupon MBS, which weighs on lending decisions since they require additional capital.
A costly endeavor for mortgage services to pull older low-interest loans out of mortgage pools in order to execute loss mitigation actions like partial claims to keep defaulted homeowners in their homes.
In a separate letter to the Federal Reserve, NAR, along with the National Association of Home Builders (NAHB), and the Mortgage Bankers Association (MBA) wrote that the Fed should also put the brakes on any future rate hikes. They also “strongly urged” the Fed to hold off on selling its MBS holdings until the housing finance market has stabilized and the mortgage-to-Treasury spread has eased.
“These steps will provide the market greater certainty about the Fed’s rate path and its plans for the MBS portfolio and reduce volatility for traders and investors,” the groups wrote.
Both letters acknowledged that increasing interest rates by the Fed is largely done to tame inflation. However, both letters also argued that working to lower mortgage rates would more effectively address inflation than increasing overall interest rates.
“Low levels of construction over the last decade have left the market with a shortage of 5 million units, which effects both home prices and rents,” said the letter from NAR, CHLA, and ICBA. “The housing shortage is structural for the time being and has a significant impact on inflation. Our groups thoroughly respect the independence of the Federal Reserve but believe it should take this structural issue into consideration when evaluating strategies to attain the Fed’s desired 2.0 percent inflation target. While federal regulators do not have direct influence on many local construction issues, they can affect affordability for homebuyers and homeowners through the 30/10 spread.”
The other group noted in its letter that “shelter inflation” was responsible for 90 percent of the most recent gain in overall consumer prices. “The most effective approach to tame shelter costs, and assist on the broader inflation fight, is to facilitate the construction of attainable, affordable housing,” the letter said.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
