NCSHA Washington Report | September 20, 2024

Even before the Federal Reserve began, in March 2022, to hike interest rates repeatedly to tame inflation, housing economists and financiers knew the likely result would be bad for affordability. A review of Fed rate hikes and other “contractionary monetary policy shocks” from 1983 – 2017, for instance, had shown them to be associated with lower rates of homeownership and higher rents “as people are driven from homebuying toward the rental market.”

What nobody knew 36 months ago was how aggressive the Fed would be and how much its actions would hurt housing. Powerful trade groups representing mortgage bankers, builders, and Realtors, pleading for relief last fall, wrote to Fed Chairman Jerome Powell: “The speed and magnitude of these rate increases, and resulting dislocation in our industry, is painful and unprecedented in the absence of larger economic turmoil.” It’s been “an unprecedented, two-and-half-year ***drastic*** downturn in our business,” MBA Chairman Mark Jones posted Wednesday, after the Fed finally announced it would start cutting rates.

Housing finance agencies have relied on a familiar playbook and added some new plays as well to execute their mission in this environment. The suddenness and speed of rate hikes — jumping four percentage points in less than a year — was highly disruptive to the “TBA market” for MBS and cut into the premium investors would pay for the securities, which were the basis for two-thirds of HFA homeownership financings in 2021.

At the same time, higher rates starting the next year meant tax-exempt home mortgage bonds could deliver a deeper borrower advantage, and by the end of 2023, they funded more than half of HFA-backed homeownership loans. Using a carefully calibrated mix of MBS, tax-exempt, and — more than ever — taxable bond executions, HFAs as a group actually increased their overall annual homeownership production almost 24 percent last year, according to NCSHA’s survey of state HFA 2023 program activity.

Higher rates have also substantially eroded the purchasing power of the would-be, lower-income home buyers HFAs primarily serve and elevated the importance of down payment assistance (DPA). HFAs responded by increasing their total volume of DPA by 43 percent (to $1.5 billion) and their average amount of assistance by 48 percent (to $12,000) between 2021 and 2023.

These strategies, among others, will remain relevant because the Fed’s announcement this week, while welcome, won’t necessarily deliver large affordability dividends right away. Most analysts believe currently easing mortgage rates already reflect this week’s and forthcoming expected rate cuts. And supply remains way behind demand — as Powell said yesterday: “The real issue with housing is that we have had and are on track to continue to have, not enough housing” — so there’s some chance modestly cheaper mortgages will lead more borrowers to compete for the same constrained inventory, pushing prices up.

That said, the worst, in terms of monetary policy, appears to be behind everyone in home mortgage finance. State HFAs, as always, will be ready to respond to whatever happens next.

Stockton Williams | Executive Director

In This Issue

• Congress Struggles to Advance Government Funding Legislation, Avert Shutdown
• HUD Announces New Counseling Initiatives, Publishes Modernization Rule
• Senator Scott Introduces Housing Bill
• NCSHA in the News
• Looking Ahead

Congress Struggles to Advance Government Funding Legislation, Avert Shutdown
Facing an October 1 deadline to keep the government open, Congress continues to struggle to pass legislation to fund federal agencies beyond the end of the current fiscal year. In the House, Speaker Johnson’s proposal, a six-month continuing resolution (CR) coupled with legislation requiring proof of citizenship to vote, failed on Wednesday by a vote of 202 – 220 due to a number of defections among the Republican caucus. Meanwhile, Senate Majority Leader Schumer began taking procedural steps Thursday to prepare legislation that could serve as a vehicle for a CR in the event the Senate must act first, although there are indications he will continue to wait and see if the House can pass a different version of its legislation, likely with Democratic support, with a shorter duration and without extraneous policy provisions attached.

HUD Announces New Counseling Initiatives, Publishes Modernization Rule
On Tuesday, the U.S. Department of Housing and Urban Development (HUD) announced two new actions it has taken to expand access to housing counseling services and open new pathways to homeownership for Americans. One of the actions was publication of the Modernizing the Delivery of Housing Counseling Services final rule, which allows HUD-approved providers to use alternative communication methods, such as meeting virtually or by phone, to deliver housing counseling services. The final rule’s effective date is October 16. The other action is a partnership with Zillow to display “Let’s Make Home the Goal” advertisements on its digital platforms. In June 2023, HUD launched the “Let’s Make Home the Goal” campaign to generate awareness of the availability and benefits pre-purchase housing counseling can provide, especially among communities of color that historically have faced more difficulties achieving homeownership due to systematic barriers.

Senator Scott Introduces Housing Bill
Senate Banking Committee Ranking Member Tim Scott (R-SC) last week released the Renewing Opportunity in the American Dream to Housing Act (ROAD to Housing Act). This legislation would enact a series of reforms to federal housing programs intended to make them more effective and accountable. Notable provisions include eliminating the cap on the number of public housing units that may be converted under the Rental Assistance Demonstration program; fully authorizing the Moving to Work program; requiring HUD to prioritize grants for recipients located in or around Opportunity Zones; changing the definition of manufactured housing to allow more housing units to qualify; and directing the Consumer Financial Protection Bureau to amend its regulations to better incentivize small-dollar mortgage lending. The bill also would establish recertification requirements for housing counselors working for agencies that receive HUD funding, require that counselors lose their certification if the home buyers they assist default at a higher rate than the area average, and impose anti-lobbying restrictions on entities receiving funding from HUD’s Housing Counseling program. Senator Scott also published a section-by-section summary of the bill.

Banking Committee Republicans Mike Crapo (ID), Mike Rounds (SD), Bill Hagerty (TN), Cynthia Lummis (WY), Katie Britt (AL), Kevin Cramer (ND), and Steve Daines (MT) are cosponsoring the legislation. The bill is nearly identical to a discussion draft Scott released in April 2023.

NCSHA in the News
Iowa Finance Authority, 9.9.24, Iowa Finance Authority Names Cutler Development’s Goldfinch Lofts as Winner of Housing Innovation Competition
Manchester (NH) Ink Link, 9.10.24, New Hampshire Housing Names 2025 Homeownership Fellows

Looking Ahead

Legislative and Regulatory Activities

• September 20 | Comments Due | HUD Drafting Table Edits to HUD Guidance on the Qualified Contract Loophole in the Low-Income Housing Tax Credit Program
• September 25 | Senate Budget Committee Hearing on The Costs of Inaction: Economic Risks from Housing Unaffordability
• October 14 | Comments Due to NCSHA | Fannie Mae and Freddie Mac Affordable Housing Goals, 2025 – 2027
• October 28 | Comments Due | Fannie Mae and Freddie Mac Affordable Housing Goals, 2025 – 2027

NCSHA, State HFA, and Industry Events

• September 24 – 26 | Oklahoma Housing Conference 2024 | Midwest City, OK
  Stockton Williams will speak at this event.
• September 26 – 27 | Novogradac 2024 Housing Tax Credit and Bonds Conference | New Orleans
  Jennifer Schwartz will participate in this event.
• September 28 – October 1 | NCSHA’s 2024 Annual Conference & Showplace | Phoenix
• October 21 – 22 | ProLink Technology Live 2024 | Virtual
  Jennifer Schwartz is speaking at this event.
• October 23 – 25 | National Affordable Housing Management Association Top Issues in Affordable Housing Conference | Washington, DC
  Jennifer Schwartz will participate in this event.