Step 4: Get the mortgage market working again for America’s families

Ultimately, a robust and lasting housing-market recovery will require a resurgence of owner-occupant homebuyers. Yet the ability to secure a mortgage for a home has become elusive to many Americans.

Right now, the typical borrower approved for a conventional mortgage has a FICO score of 755 and makes a 20 percent down payment on a home. Given that nearly two-thirds of Americans have credit scores below 750 and that it takes the average family 20 years to save for a 10 percent down payment, the ability to buy a home is increasingly limited to the wealthiest of America’s families.

The secondary mortgage market in which investors buy mortgages, package them into securities, and sell them to other investors plays a significant role in whether credit is accessible and affordable to families. 

Lenders are less likely to make a mortgage loan if they are not confident that they can sell it on the secondary market. Right now, the secondary market is supported in large part by Freddie Mac and Fannie Mae, 
which were taken over by the government and remain in conservatorship. The confusing objectives of the conservatorship and investor uncertainty have kept credit very tight, especially for first-time homebuyers. 

In the first quarter of 2013, 76 percent of all mortgages purchased by Fannie Mae and Freddie Mac were made to homeowners who refinanced their existing mortgages, as opposed to financing renters to purchase their homes.

The nation urgently needs housing finance reform to make sure that we have a well-functioning secondary market that can serve all communities.

Conclusion
Investors can and should be part of our nation’s housing recovery, but there are serious risks associated with leaving neighborhood recovery in the hands of private investors. In order to make sure neighborhoods reap the benefits of this new investment, we must make sure investors are well monitored and managed at the local level. As bigger, relatively untested institutional investors enter the market, local officials should pay particular attention to how well they care for their properties. Federal regulators must also pay attention to the activities of institutional investors, particularly if a new market develops for securities backed by these investor-owned properties.

We must also redouble efforts to build a robust housing recovery that will allow communities and families the opportunity to rebuild. The housing market will not fully recover until we fully address the foreclosure crisis and fix the mortgage market so that creditworthy families can once again buy homes.