By Darren M. Swetz
Didn’t we learn anything?
That is the question critics have been asking since the Federal Housing Finance Agency announced plans earlier this fall to loosen lending requirements for some mortgages backed by government-sponsored lenders Fannie Mae and Freddie Mac. Fannie Mae on Dec. 13 started allowing first-time home buyers to get mortgages with down payments as low as 3 percent.
To some, this move represents a step toward another subprime lending crisis, much like the one that left us with the worst recession in decades. But it is easy to decry the FHFA’s initiatives if you already own a piece of the American dream: a single-family home.
So what have we learned since the recession?
We have learned that the nation’s homeownership rate, as of the end of the third quarter, was at 64.4 percent – the lowest rate since 1995, according to the U.S. Census Bureau. And we know that the tighter lending requirements that have been in place since the recession have increasingly made that American dream something many can only rent and not own.
Even here in Western New York, I’ve seen over the past six years a stark increase in clients who want to own a single-family home but are left renting instead because they cannot satisfy onerous down payment or credit requirements. It was these lending requirements that in part turned single-family rental housing into what Fannie Mae called “the fastest-growing component of the real estate market” and that prompted institutional investors such as the Blackstone Group to gobble up single-family homes across the country and then rent them out.
The shift toward single-family rentals has been pronounced in states such as California and Florida. In 2010, the Buffalo Niagara metropolitan area actually had the 13th lowest rental market share of single-family renter-occupied housing, according to a Fannie Mae report. But in the aftermath of the recession, this single-family rental trend has started making inroads in the region.
Just to be clear: There is nothing wrong with renting a single-family home. Renting a single-family home is actually a good stepping stone to owning one because it allows tenants to establish a payment history and to save for a down payment. And with Fannie Mae and Freddie Mac lowering their down payment requirements, tenants may be able to shorten the time renting or bypass renting all together.
We need to stop viewing mortgages as ticking time bombs and remember that they enable individuals and families to become more invested in their communities. Without question, changing the lending rules will pose risks for the economy. But not changing them will pose risks for the community.
Darren M. Swetz is a partner at Tully Rinckey PLLC in Williamsville, where he practices real estate law statewide.