Open letter to FHFA, HUD, CFPB and Congress

The President neither signed nor vetoed the 21st Century ROAD to Housing Act, proving that sometimes doing absolutely nothing is still enough to make a law. 

Policymakers are calling the legislation historic, and there has been enough bipartisan back-slapping to qualify as its own round of stimulus. Its centerpiece promise is the same refrain we have heard for years: Housing affordability is a supply problem. It goes like this…

There’s a housing shortage.
Build more.
Restrict institutional buying.
Affordability will improve.

But the data is increasingly refusing to cooperate with the narrative. 

The supply and demand disconnect 

Start here: Total housing inventory is already north of five months of supply. A “balanced” housing market is generally considered six months.

So, supply has already improved materially.

But if the problem legislators are trying to solve is affordability (and it should be), there is little in recent history to suggest that adding more supply will solve it, particularly if that addition will take many years.

• The Atlanta Fed’s Home Ownership Affordability Monitor still shows affordability is badly impaired. 
• The qualified income needed to buy the median-priced home is far above actual median household income.
  

• The FHFA House Price Index shows home prices are still higher — not lower — despite more inventory. 

We have more homes for sale, but not more payment capacity. We gave buyers more choices, just not more ability to afford any of them. 

What about wage growth? 

There are those who argue that wages are now outpacing home price appreciation, and that’s true since 2024.

The differential is ~1% to the good for wages. But let’s not uncork the champagne. It will take roughly 18 years to restore 2019 affordability at today’s wage-growth advantage. Anyone up for waiting until 2044?

Even then, home price is only one number affecting payment.

Property taxes are up 27% since 2019. Homeowners insurance has climbed by 24% to 64% since 2021, depending on location. HOA dues, where applicable, have risen 25% to 30%.

So, one affordability input improved by about ~1% over the past 18 months. The other three keep getting more expensive. 

What actually moves affordability?

The single biggest factor is still mortgage rates.

The lower the cost of financing, the lower the monthly payment. And when the monthly payment falls, affordability improves faster than gradual changes in inventory. But this is where the conversation gets uncomfortable. Mortgage rates are precarious.

One: We do not simply “set” mortgage rates by passing a bill or issuing a press release. The market sets mortgage rates.

Two: Even if we could substantially lower mortgage rates overnight, if they fall too far, too fast, we could trigger another round of demand and home-price appreciation that outpaces wages.

To borrow World Cup jargon, that would be the ultimate own goal: celebrating lower rates while affordability gets worse.

The answer is to improve affordability strategically, carefully and controllably. But how?

There are real levers we can pull right now. 

Here’s the ugly part: Some profitable little arrangements would have to end.
Here’s the hopeful part: Most ideas require no legislation at all. The FHFA, HUD and the CFPB simply have to want to do it. 

If we truly wanted affordability relief, there’s no need to wait for Congress. Let’s dig in:

1. Allow optional prepayment penalties for agency loans in exchange for a lower rate

With clear guardrails and full consumer choice. This already exists in DSCR and business-purpose lending. And the rate improvement is substantial. If a borrower wants a lower rate and is willing to trade some flexibility to get it, why should that option be denied?

2. Reduce loan-level price adjustments (LLPAs)

The GSEs have the balance sheets to support targeted pricing relief. In 2020, Fannie Mae’s net worth was $14.08 billion. Today, it’s $112.7 billion. How’d that happen in the midst of a housing recession? If affordability is the goal, the egregious pricing add-ons quietly passed to consumers in April 2022 and May 2023 should be rolled back.

3. Reduce FHA mortgage insurance premiums

FHA is one of the most direct affordability tools we have. Its Mutual Mortgage Insurance (MMI) Fund is sitting at a capital ratio of 11.47%, more than five times the 2% congressional minimum. It grew by $16 billion last year alone. Lower mortgage insurance premium (MIP) would improve payment affordability immediately for the very borrowers policymakers claim to care about most.

4. Expand HomeReady / Home Possible eligibility

Use price-to-income ratios, not just Area Median Income (AMI), as the qualifying framework. AMI by itself is too blunt. Income rank relative to your neighbors has little to do with whether you can buy a home. What matters is the income needed to afford a median-priced home in a given metropolitan statistical area (MSA).

5. Institute a temporary 50% reduction in capital gains tax

Do this particularly for investment property owners who sell to owner-occupants over the next 24 months. If we want more supply for actual homebuyers, let’s get serious about moving the right inventory into the right hands. And let’s do it this decade. Unlike the first four levers, this one actually requires an act of Congress.

The bigger point

If the policy goal is affordability, then let’s stop acting as though counting homes is the same thing as improving affordability.

It isn’t.

A market can move from four to five to six months of supply and remain deeply unaffordable if:

• financing costs are too high, 
• prices remain sticky, 
• and the mortgage system keeps layering cost (which it has). 

That is what the current data is telling us.

So let’s be precise about who can pull these levers. Congress controls one. The FHFA, HUD and the CFPB own the other four, and they don’t need a single new bill to pull them. 

Affordability is a payment equation.

And until policymakers start addressing the payment side of that equation (not just the supply side), we are going to keep congratulating ourselves on more inventory while the consumer remains locked out.

Mark Milam is the CEO, Founder and Mortgage Banker at High Mortgage.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: [email protected].