‘Renter Nation’ for Low Income Americans
CNBC Real Estate Reporter
After decades and decades of the ownership society, and all the trouble it exacted on our economy, the Obama administration is and has been pushing the premise that, "Our goal is not for every American to become a homeowner."
That latest pronouncement comes from prepared testimony of Treasury Secretary Timothy Geithner before the House Financial Services Committee this morning.
In a hearing about the future of housing finance, i.e. the wind down of Fannie Mae and Freddie Mac, Geithner re-outlined the plan to take government out of housing. Part of that plan includes providing more government assistance for rental housing.
The home ownership rate has fallen precipitously since the housing crash began, from over 69 percent in 2004 to now 66.5 percent. The bulk of that loss comes from low and middle income Americans who lost their homes to foreclosure and from younger Americans who can no longer qualify for a mortgage, thereby dropping out of the household formation equation.
It makes sense that an administration governing during the worst housing crash in memory would take a policy shift, especially given that, as Secretary Geithner told the House panel, "We did not do a good job in helping low income Americans get access to sustainable housing finance options; we left them with a system where it was easy for them to be taken advantage of."
So is the conclusion now that these same Americans should simply be life-long renters?
That was the question posed by Democrat Melvin Watt of North Carolina.
He could find very little in the Treasury Secretary's testimony explaining how low income people could effect home ownership in the new mortgage landscape.
"Let's just be transparent that low income people are going to be renters in this country, there's not going to be any home ownership at the low income level. If that's where we are I'd rather know it and have the administration say it up front."
Geithner responded, "Under any of these options [Fannie and Freddie reform] we want to make sure that the FHA is able to play the very important role of making sure that Americans with low to moderate incomes can have the opportunity to get a government-guaranteed mortgage with a very modest down payment."
But he admits the FHA has raised its costs across the board and could require larger down payments for less qualified borrowers.
FHA credit scores are already higher, and the FHA commissioner has said over and over that the FHA should and will shrink in the coming years.
Its market share, in fact, is shrinking already.
Rep. Watt cautioned that any government assistance for low-income borrowers should not be done outside of the current mortgage reform. "If it's done as a separate step, it won't ever get done. Rich people will have home ownership and rich people will make money on apartment rentals, but we'll be a renter nation for low-income people."
This discussion takes place as the rental market surges. Vacancies are way down, and rents are way up, which makes it even harder for some former home owners to even become renters.