Brendsel on Housing Policy
Fielding questions on the mortgage interest deduction, GSE privatization, mortgage discrimination, credit quality and affordable lending, Freddie Mac's CEO shares his thoughts on American housing policy.
Freddie Mac has been a major player in the housing policy arena in this country since its creation in 1970. Its chief executive officer and chairman, Leland Brendsel, has a unique perspective on the challenges that confront those seeking to conduct housing policy today in this increasingly diverse country. His corporation must serve a housing policy mission set by Congress and at the same time satisfy shareholders and Wall Street analysts that the company's balance sheet is being managed wisely in ways that will yield handsome returns.
Approaching this last leg of the 1996 presidential election campaign, Mortgage Banking decided to tap the thoughts of Leland Brendsel about the current state of housing in America. We also asked the Freddie Mac CEO about the major policy issues that will confront the resident of the White House once the November election is over.
MB: What do you see as the most important housing policy development in the last few years?
LB: From my perspective, the most important development in the mortgage market is the advent of automated underwriting. This new technology offers consumers enormous benefits. It will lower the costs of obtaining a mortgage; make the process easier, faster and less intimidating; and expand the reach of mortgage lending and homeownership to an even broader range of people. Automated underwriting helps lenders determine accurately and objectively which borrowers are ready for homeownership. It gives everyone a fair shake, and it is most powerful when analyzing the tough calls. This is especially important for first-time homebuyers and minority and lower-income families who typically have less wealth. Automated underwriting is bringing in borrowers who, in the past, might have been screened out or relegated to paying the higher interest rates in the subprime market.
While there have been a number of positive developments in housing in recent years, automated mortgage underwriting represents a quantum leap forward. Loan approvals within minutes are reality today - this seemed like science fiction 25 years ago. As great as it is, though, automated underwriting is still in its infancy. As we enter the next century, I want to look back at the housing finance system of 1996 and marvel at how primitive it was.
MB: What is the most serious housing policy challenge facing America today?
LB: The nation has made enormous progress addressing housing needs - we are the best housed in the world. Still, we face the daunting challenge of serving the very poor. There is a growing gap between what it takes to operate a rental unit and what poor households can pay, yet government resources to fill this gap are shrinking and subsidies are expiring. Meanwhile, people living in poverty face a multiplicity of needs. The challenge is to go beyond bricks and mortar to provide sound living environments. All too often, well-intentioned efforts aggravate the problems; the concentration of poverty from some housing programs is one example. Housing is part of the solution - decent, affordable rental housing and homeownership help build communities while they help individuals build financial resources and independence. Beyond housing, a range of supportive services and economic development initiatives is needed to turn houses into homes where families can flourish and blighted blocks into viable communities.
MB: What are the chances that America can boost its homeownership rate much beyond the two-thirds of the people that own today, while still maintaining acceptable credit quality? What has to be done to achieve that goal while still preserving credit quality?
LB: Right now about two-thirds of American families own their homes; 80 percent will own their homes at some point in their lives. …