MReport April 2020

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M R EP O RT | 57 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT The Fed's Role in Great Recession Recovery Homeownership remains lower than its pre-crisis levels. A nalysis by LendingTree reveals that while the housing market has mostly recovered since the Great Recession, the home- ownership rate in the U.S. is still lower than its pre-crisis level. The homeownership rate in the U.S. was 64.8%, which is 2 percentage points lower than it was to start the decade and more than 4 percentage points below pre-crisis levels. Mortgage delinquency rates fell to 2.45% in 2019, which is a far cry from the 11.5% recorded in 2010. Homeowners spent 4.1% of their annual incomes on mortgage payments—the lowest percentage since the Fed began tracking data in 1980. The piece's author, Tendayi Kapfidze, Chief Economist at LendingTree, says it is the Fed to thank for the low-interest rates homeowners have experienced over the past decade. Kapfidze says the Fed's hold- ings of mortgage securities rose from $909 billion in 2010 to $1.4 trillion by the end of 2019. The 30-year fixed-rate mortgage was 5.09% in 2010 but has fallen consis- tently through the decade to 3.74% to end 2019. Among the reasons for im- proved performance on loans has been a "significant tightening" in lending standards, Kapfidze said. "Before the housing downturn, there was a significant innovation in mortgage loan types, many of which proved to be poorly de- signed when home values fell and the labor market weakened," he said. "Subprime loans, in particu- lar, are no longer as prevalent, and subprime borrowers received just 8% of all mortgages in the third quarter of 2019, down from 20% prior to the crisis." He added that mortgage credit has moved more readily to borrowers with higher credit scores. Borrowers with credit of 760 or higher now receive 61% of mortgages, which is up from 28% before the Great Recession. Although many of the nation's markets have recovered, insight from CNBC warns that the next downturn may happen sooner than many think. Research from the MIT Sloan School of Management and State Street Associates found that there is a 70% chance a recession will hit in the next six months. The researchers created an index comprised of four factors and then used the Mahalanobis distance—a measure used to ana- lyze human skulls—to determine how current market conditions compared to prior recessions. "The Mahalanobis distance was originally conceived to measure the statistical similarity of the values of a set of dimensions for a given skull to the average values of those dimensions for a chosen group of skulls," the researchers said. CNBC states that looking back at data to 1916, researches say that the index was a reliable recession indicator since it rose leading up to every recession. When the in- dex topped 70% the likelihood of a recession in the next six months rose to 70%. The reading on the index was 76%, as of November 2019. (YIMBY) act in March, following approval by the House Financial Services Committee in February. The legislation—H.R. 4351—re- quires Community Development Block (CDBG) recipients to report on local policies that impact hous- ing affordability. Policies include bills regarding multi-family zoning, lot sizes, transit-oriented develop- ment zones, and more. "The YIMBY Act does not condition CDBG funding on implementation of any specific policy, but rather encourages com- munities to become a part of the housing affordability conversation by highlighting the policies that improve housing affordability— and those that make housing more expensive," a press release states. "America is missing millions of homes, and solving our nationwide housing crisis will require federal, state, and local governments to work together towards this shared goal," said Representative Denny Heck (D-Washington). "Sunlight is the best disinfectant, and we need to identify and reduce barriers to housing construction at the local level. "In passing the YIMBY Act, I am proud that Congress is taking a critical first step towards bring- ing relief to cost-burdened renters and homeowners across America." Both the National Multifamily Housing Council (NHMC) and the National Apartment Association (NAA) voiced their support for the YIMBY Act as it made its way past the House Financial Services Committee. "There is no doubt communi- ties across the country are facing serious housing affordability chal- lenges," the two organizations said in a joint announcement. House Financial Services Committee member Patrick McHenry praised H.R. 4351 dur- ing the committee's markup last month, calling it a "good step forward" in understanding local barriers to housing. "We need to look at local zon- ing laws. We need to look at the regulatory barriers and we need to look at the local processes and procedures that are harming our cities," McHenry said. Kim Hart, Managing Editor for AXIOS, appeared on CNBC in October 2019 to discuss the YIMBY moment. She said San Francisco was "ground zero" for rising home prices since the Great Recession, with home prices near $1 million and $1.7 million. "You're starting to see more and more people say, 'well, you know what, the answer to this is to increase the supply. To help meet that demand. We have to build more houses and we have to build more units beyond single-family houses,'" Hart said. "America is missing millions of homes, and solving our nationwide housing crisis will require federal, state, and local governments to work together towards this shared goal." —Rep.Denny Heck (D-Washington)

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