The Independent Community Bankers of America (ICBA) [1], Community Home Lenders of America (CHLA) [2], and National Association of Realtors (NAR) [3] 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; [4] and Sandra Thompson, Director of the Federal Housing Finance Agency (FHFA) [5], 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 [6] 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 [7] 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 [8]. “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 [9], 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 [9] to read the letter from the ICBA, CHLA, and NAR.