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A New Housing Regulator Could Make The American Dream More Accessible For Millions

Home ownership is the most powerful way most Americans build wealth over their lifetimes.
Home ownership is the most powerful way most Americans build wealth over their lifetimes.

Updated September 18, 2021 at 10:52 AM ET

The Biden administration is close to announcing the nomination of a key regulator with broad powers to change the $11 trillion mortgage market and reshape the American dream of homeownership, sources tell NPR.

The administration has narrowed down the candidates to run the Federal Housing Finance Agency, or FHFA, according to sources who are familiar with the matter but are not authorized to speak publicly.

While not a household name, the agency has enormous power because it controls Fannie Mae and Freddie Mac, the two entities at the heart of the mortgage market. They largely decide who can qualify for a home loan and at what cost.

And because of rules put in place after the Great Recession, the head of the FHFA has almost unilateral control to direct Fannie and Freddie to change policies or launch new initiatives.

It's never certain how nominations will play out. But for now, two leading contenders for the job are Sandra Thompson, now the FHFA's acting director, and Mike Calhoun, the president of the nonprofit Center for Responsible Lending.

Before joining the FHFA, Thompson spent decades in government, including as a banking regulator with the Federal Deposit Insurance Corp. There she worked on risk management and consumer protection.

Calhoun likewise has decades of experience, but more as an outside watchdog pushing for change and focused on expanding opportunities for homeownership through Fannie and Freddie.

NPR asked both for comment, but neither would, as is often the case with potential nominees.

Revamping mortgages and making it easier for renters to become homeowners

Whoever gets the job as director of the FHFA is going to have some powerful levers they can pull to reshape homeownership, which is the most common way Americans build wealth over their lifetimes.

Many housing economists would like to see the agency pave the way for more alternatives to the 30-year mortgage. It's a vestige of an era when people used to stay in their homes much longer and could build equity and wealth with a 30-year loan.

These days, people tend to move and sell their home more often. A 15- or 20-year loan allows homeowners to pay less interest and build up a lot more equity and wealth in their homes before they sell.

However, 15- and 20-year loans have higher payments. But Fannie and Freddie could be directed to bring those costs way down to help people get into a type of loan that helps them build wealth more quickly.

Many advocates also want to see the FHFA tackle racial disparities in homeownership, which are as bad as they've been in decades.

"The African-American homeownership rate is really where we were in the 1960s when the Fair Housing Act was erected," says Andre Perry, a senior fellow with the Brookings Institution who studies assets in Black majority cities.

He says the Black homeownership rate is around 46% compared with about 76% for white homeowners. "Why you see that kind of gap is because historic discrimination prevented black people from accumulating wealth."

On Saturday, Fannie and Freddie began to consider a renter's on-time payments to their landlord as a way of establishing creditworthiness.

Perry says the government could do a lot more, such as offering money to help with down payments for qualified first-time homebuyers.

Both of those programs would help many people, but particularly Black and Latino homebuyers, who tend to have less family wealth.

There are many other problems the new director could take on, even tackling climate change. Homeowners who installed solar panels on their roofs or made other improvements to lower their carbon footprint could qualify for lower mortgage rates.

Fannie and Freddie could be directed to help some of the lowest-income homeowners. Families living in mobile or manufactured home parks could get access to lower-cost loans making homeownership more affordable and sustainable for them.

What's more, Fannie and Freddie could access billions of dollars for these and other initiatives without an act of Congress. That is, if the new director pushes for it.

"I'm excited," says Perry. "This is an administrative issue, so if Biden is serious about closing these racial wealth gaps, about improving homeownership rates, he'll find a leader that will make the necessary changes."

Conservative housing expert: Easier loans is not the answer to supply-and-demand problem

Of course, whoever gets nominated will be facing Senate confirmation. And some of the power the new FHFA director will wield is disconcerting to conservatives.

"It could help or harm, right? It could go both directions," says Ed Pinto, director of the Housing Center at the American Enterprise Institute. He used to be a credit officer at Fannie Mae.

Right now, there aren't enough available homes for sale in the U.S. to meet the demand, so prices have risen dramatically. Pinto says the new director could make mistakes here, even if he or she is trying to help homebuyers.

Making it easier for buyers to get loans in the current market "would just increase demand without increasing supply," he says. "That just drives prices up."

Fannie and Freddie, though, could help increase the supply of homes by doing things such as making low-cost loans available for builders to buy land and construct lower-priced starter homes for first-time homebuyers.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

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