OPINION:
The U.S. housing market is stuck in a deep freeze: Mortgage rates remain high, prices are at a historic high, having risen more than 60% since the start of COVID-19, and inventories are too tight to meet demand. Millions of would-be buyers want to purchase homes but cannot afford to buy in their communities.
The Trump administration has introduced a flurry of policy changes, spearheaded by the pugnacious director of the Federal Housing Finance Administration, Bill Pulte, intended to jump-start the market. The administration has made reforming the mortgage finance market, especially the status of Fannie Mae and Freddie Mac, a central part of its housing agenda.
Although skeptics have questioned the efficacy of these reforms, efforts at the federal level to make it easier to buy a home should be applauded. Owning a home is the primary way most U.S. households create wealth, yet millions of 20- and 30-something Americans have been locked out of homeownership. The median age of first-time homebuyers hit a record 38 last year.
Mr. Pulte has wasted little time attempting to reshape Fannie Mae and Freddie Mac. For instance, he recently directed the mortgage giants to adopt VantageScore 4.0, a more robust and predictive credit model that could ultimately help longtime renters, people with nonstandard financial history and/or younger borrowers with thin credit records.
The elephant in the room, of course, is the administration’s plans to privatize Fannie and Freddie after two decades in conservatorship. Although this would reduce the government’s footprint, it could also push up borrowing costs, depending on how the FHFA deals with the implicit guarantee the federal government has given to the mortgage-backed securities sold by Fannie and Freddie.
The private sector is also reshaping the mortgage market. Rocket Cos. is nearing the close of its $9.4 billion merger with Mr. Cooper Group, which would create a mortgage giant servicing more than $2.1 trillion in loans, nearly 1 in 6 U.S. mortgages. Just months ago, Rocket closed its acquisition of real estate brokerage Redfin.
Rocket’s maneuvers stand to completely revamp the homebuying process by creating a one-stop shop for homebuyers, who could use a single company to help search and finance their home. As someone who recently bought a new home, I can attest to how fragmented, time-consuming and confusing the process can be, even for someone who has worked in financial markets much of his life. Purchasing a home entails numerous steps, each involving a different entity, creating friction and adding costs at every step.
Mortgage servicers, the companies responsible for processing mortgage payments and managing mortgage accounts, play a critical role in assisting homeowners with repayment. They are often selected by the mortgage originator or owner of the loan, not the homebuyer. These companies also tack on a mortgage-servicing fee equal to about a quarter percent of the outstanding mortgage, exceeding, on average, $1,000 a year. For homeowners struggling to keep up with monthly payments, that’s a real hit.
By folding Mr. Cooper into Rocket’s broader operations, the combined company can keep fees low by finding operational synergies in the portfolio. The combined company could introduce greater transparency in the process; instead of having to shuttle among brokers, lenders and servicers, each with its own paperwork and fees, buyers could navigate the process in one ecosystem and be presented with a single aggregate fee for these services. This integration holds the potential to trim costs, shorten closing times and make mortgage management more intuitive over the life of the loan.
Most people buy a house no more than a handful of times in their lifetimes, and the complexity of the process means that when it comes to navigating the process, most are at the mercy of their real estate agent. Simplifying the system would empower potential homeowners to take more control and ultimately make a decision that’s unambiguously best for them, not for those who hope to make money from the deal.
• Ike Brannon is a senior fellow at the Jack Kemp Foundation.
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