Trio of Trade Groups Propose Solution to Promote Homeownership

The Independent Community Bankers of America (ICBA), Community Home Lenders of America (CHLA), and National Association of Realtors (NAR) have proposed a solution to reduce mortgage rates relative to long-term Treasury bonds.

In a letter to Lael Brainard, Director of the National Economic Council and Assistant to the President for Economic Policy, The White House;  Janet Yellen, Secretary, Department of the Treasury; Jerome H. Powell, Chair, Board of Governors of the Federal Reserve System; and Sandra Thompson, Director of the Federal Housing Finance Agency (FHFA), the proposal presented by the trade groups would reduce the historically large spread between 30-year mortgage rates and 10-year Treasuries to promote homeownership affordability.

“With housing accounting for nearly 20% of the nation’s gross domestic product and affecting homeowners and renters nationwide, policymakers must act to promote housing affordability,” ICBA President and CEO Rebeca Romero Rainey said. “ICBA and the nation’s community banks call on the administration to implement our plan to address lending challenges and mortgage-servicing impediments, which could support demand for mortgage-backed securities and reduce mortgage rates by an estimated 100 to 150 basis points.”

Affordability struggles linger for many looking to purchase homes, as Freddie Mac reports the average 30-year fixed-rate mortgage (FRM) sitting at 7.57%, the fifth consecutive week of rates on the rise.

“Prospective homebuyers’ budgets continue to be impacted by the combination of high home prices and mortgage rates that remain higher than 7%,“ said Edward Seiler, Ph.D., MBA’s Associate VP, Housing Economics, and Executive Director, Research Institute for Housing America. “If mortgage rates shift lower in 2024, as we anticipate, the combination of rising inventory levels and lower rates should lead to stronger demand for buying a home.”

In the letter, the group suggests the following actions be taken in order to make housing more affordable for those seeking the American dream of homeownership:

• The Treasury Department to amend the Fannie Mae and Freddie Mac Preferred Stock Purchase Agreements to enable the enterprises to temporarily purchase their own and Ginnie Mae’s mortgage-backed securities.

The letter cites data from the St. Louis Fed, which found that current 30-year fixed rate mortgages, the “30-Year Fixed Rate Mortgage Average” in the U.S. as of September 21, 2023 was 7.19%—2.7 times the average mortgage rate of 2.67% on December 17, 2020. In addition, the spread between the 30-year fixed rate mortgage and the 10-year Treasury is historically wide—a spread that sits at just over 300 basis points as compared to the historic norm of an average of 150 basis points.

Click here to read the letter from the ICBA, CHLA, and NAR.