‘All of the proposals are short-term fixes’ that don’t address fundamental issues, says lending pro
The Trump administration hasn’t been short of proposals in recent months it says will improve affordability in the housing market and boost Americans’ chances of taking out a mortgage.
The mortgage industry is split on whether those ideas – from 50-year mortgages to allowing buyers to withdraw money from a 401(k) for a downpayment and a proposed ban on institutional investors – will have a meaningful impact on the housing market.
But while mortgage rates dipped below 5% on Thursday, they’re still prohibitively high for many Americans, and a prominent mortgage market watcher doesn’t believe the issue can be solved until the federal government gets real on its own spending problem.
Glen Weinberg of Fairview Commercial Lending told Mortgage Professional America he doesn’t see affordability issues easing if the government doesn’t address its swelling deficit, which has ballooned to nearly $700 billion.
“All of the proposals are short-term fixes,” he said. “The fundamental issue is government spending leading to deficits, which is driving up mortgage rates.
“It’s important to note that mortgage rates aren’t set by the government. They’re derived from the 10-year Treasury. If the government could get its fiscal house in order, mortgage rates would come down, which would spur the housing market.”
Persistent deficits and higher government spending have proven an important part of why 10-year Treasury yields have jumped since the 2010s. That’s partly because the Treasury has to issue more bonds when the federal government runs big deficits, with foreign central banks – especially China – becoming less aggressive buyers.
In turn, more of that supply must be absorbed by price-sensitive private investors, meaning yields need to be higher to entice those types of buyers.
There’s little realistic prospect of that deficit being meaningfully whittled down in the short term, meaning mortgage rates likely won’t see much help from the government on that front.
Institutional investor ban rears its head again
But Weinberg isn’t a fan of another idea proposed by the current administration on improving affordability – the institutional investor ban, which would see Wall Street companies barred from gobbling up single-family homes.
Trump first announced that plan in early January and renewed the call in Tuesday’s State of the Union address, describing the plight of a Houston mother of two who placed bids on 20 homes but lost out each time to “gigantic investment firms.”
Those companies, he said, “paid all cash and turned those houses into rentals, stealing away her American dream.”
Weinberg, though, sees that proposal as a nonstarter. “Banning large investors from the market is a terrible idea,” he said. “When you interfere with the free market, there will be huge unintended consequences like a decrease in supply – which will have the adverse effect, driving up prices.”
Could privatizing Fannie and Freddie be the answer?
The idea of ending conservatorship of mortgage giants Fannie Mae and Freddie Mac, meanwhile, was floated during Trump’s first presidency.
Trump and Federal Housing Finance Agency (FHFA) director Bill Pulte revived that plan again last year, with Trump touting a “Great American Mortgage Corporation” stock offering to bring the government-sponsored enterprises (GSEs) private.
It remains unclear when that might go ahead. Earlier this month, Pulte said that the government “don’t have to do” a public offering of the companies, and instead highlighted other Trump moves like his instruction for Fannie and Freddie to snap up $200 billion in mortgage bonds.
But ending that longstanding conservatorship, which began amid the global financial market meltdown of 2007-08, is an idea Weinberg says he could get behind.
The government, he said, “should work to spin off Fannie and Freddie, use these funds to pay down the deficit, and let the mortgage markets work more efficiently.”
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