How lenders can continue to serve borrowers despite housing affordability challenges
Housing inventory remains persistently low, home prices are at all-time highs and affordability is becoming out of reach for more people with every passing day. These dynamics are creating a perfect storm for potential homebuyers who are quickly running out of options.
HousingWire recently spoke to Finance of America Mortgage President Bill Dallas about viable alternative options for homebuyers and the innovative products FAM offers to meet the unique financial needs of today’s modern borrowers.
HousingWire: What are the current challenges when it comes to affordable housing?
Bill Dallas: As construction and labor costs have climbed, so, too, have home prices. The same trend is seen in existing-home sales due in large part to a lack of inventory of available homes for sale.
Median new-home sales prices rose 17.5% to $407,700 in October compared to the previous year, according to the National Association of Home Builders. Meanwhile, the median existing-home price for all homes in the U.S. in October was $353,900, up 13.1% from the previous year, marking the 116th straight month of year-over-year existing-home price increases, according to the National Association of Realtors.
Despite persistently low mortgage rates, many potential homebuyers who fall in the middle- to lower-income tiers are being sidelined due to a lack of affordable housing options. That’s because home-price gains have galloped far ahead of income growth. The national price-to-income ratio is 4.4 as of 2020 — the highest level since 2006, according to the State of the Nation’s Housing 2021 report from the Harvard Joint Center for Housing Studies.Twenty years ago, the ratio was less than three times income in two-thirds of the nation’s 100 largest metropolitan areas and above five times the income in just a few metros, according to the Harvard report.
With higher home prices, potential homebuyers — particularly millennials who are grappling with student loan debt and increasing rents — are struggling to save enough for upfront costs to buy a home, such as down payments and closing fees.
HW: How can LOs and brokers serve more borrowers in spite of these challenges?BD: We have to meet borrowers where they are today, and that means avoiding the one-size-fits-all approach in qualifying them for a mortgage. It also means we have to get back to the basics of building relationships with our clients and being their loan adviser for life instead of treating them as transactional customers.
Loan officers and brokers need to reconnect with past clients and show their value. That value lies primarily in our knowledge and expertise. We’re mortgage and home equity advisers who can show borrowers how to take a holistic approach to understanding how their home financing decisions impact their overall financial wellness.
In 2022, we’re all pivoting to serving the purchase market, and it’s going to be a lot different than 2021 given the affordability headwinds facing potential homebuyers. Even homeowners who’ve amassed significant equity might be reluctant to tap it given muscle memory from the Great Recession.
So, to serve more borrowers, we need to do more outreach, educate more, follow up more and connect with referral partners more to ensure consumers understand the integral role we play in helping them reach their homeownership goals.
HW: What does the future of affordable housing look like?
BD: In my opinion, there are two major areas we need to focus on to create more affordable housing opportunities for American families: zoning laws and building costs.
The cost of acquiring land and building a new home is expensive, and it’s helping drive up housing prices across the board. I believe we need to increase access to new housing in areas that have higher density and build homes in a more cost-effective way.A key way to make housing affordable is to loosen stringent local zoning regulations. These local zoning laws make it illegal for developers to build anything other than single-family detached homes.
This takes more affordable options like townhomes, high-density condo buildings and duplexes off the table, especially if there’s strong political and resident opposition to adding those home types into neighborhoods with existing single-family detached homes.One exception involves recent policy changes that have warmed up to the construction of accessory dwelling units (ADUs). ADUs can generate additional income to homeowners who rent them out and they serve as an affordable alternative to traditional rentals. They can also be a cost-effective arrangement for multigenerational households.HW: How is Finance of America Mortgage meeting borrowers’ unique financial needs?
BD: Potential borrowers who’ve been priced out of the housing market need to be able to compete with an increasingly growing share of cash buyers and investors who are beating them in bidding wars.Finance of America Mortgage offers innovative loan products to help borrowers, particularly those who are self-employed or earn income in nontraditional ways, stay in the game. Our proprietary Two-X Flex suite of mortgage loans, including jumbo and non-qualified mortgage, or non-QM, borrowers, puts more borrowing power into the hands of borrowers who might otherwise be shut out of a conventional loan.
FAM’s ADU refinance option allows borrowers to refinance their primary mortgage and certain ADU financing into a single, new conforming mortgage loan. This helps borrowers reduce their monthly interest payments if they financed the ADU construction at a higher interest rate.
This is a game changer for homeowners who wish to leverage their property to generate rental income, and it can increase housing supply by providing access to a new, low-cost form of housing in an ADU.
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