A Decade Later, What Has Changed in Housing?

Ten years after the financial crisis, Brookings Center on Regulations and Markets [1] looks back on the measures taken in the years since designed to prevent another crisis, both nationally and globally. Michael Calhoun, President of the Brooking Center for Responsible Lending, notes in his piece titled “Lessons From the Financial Crisis” that an important takeaway from the crisis was the role the housing market played.
“The subsequent regulatory safeguards and consumer protections have made today’s housing market much safer and resilient,” said Calhoun. “However, more could have been done to aid homeowners in the crisis and work remains to provide families with sufficient affordable, sustainable housing for today and in the coming years.”
Along with the response to the crisis, Calhoun highlights four key issues and how they may best be addressed. Home prices originally, plunged due to delinquencies and foreclosures piling up. The response from regulators was successful, although the Troubled Asset Relief Program (TARP) remains to be unpopular. Additionally, the Home Affordable Refinance Program (HARP) program and the Home Affordable Modification Program (HAMP) were put in place to aid homeowners with assistance for those needing repayment assistance and facing foreclosure. However, for many this was not enough.
The federal government now faces four key issues when dealing which will, according to Calhoun, determine the future of the housing market.
The first tissue is the ability to repay and fair lending rules. as home loans with unaffordable payments were the driving force of the crisis. Calhoun states that the most important reform to the housing market was the requirement that lenders determine and document a borrower’s ability to repay the loan, based on a fully amortizing payment.
The second issue is housing supply. In addition to providing sustainable credit for home lending, an adequate housing supply is key to a healthy housing market. Calhoun notes that there has been a major shortage of starter homes. Construction has recovered slowly since the recession, but builders are more focused on more profitable larger homes, meaning reform is necessary to increase affordable housing.
Third, Calhoun states that the False Claims Act needs some work. The FHA needs to add additional resources and updated technology to keep up with errors. The last issue Calhoun discusses is the secondary market. Many fear the GSEs have expanded too far into areas of the secondary market that can be covered by private entities. This may require additional reform.
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