The cost, terms, and availability of mortgage financing are of critical importance to the level of homeownership. Indeed, the substantial rise in homeownership rates after World War II can be traced not only to increasing prosperity, but also to the widespread availability of long-term, low- downpayment, fully amortizing first mortgage loans.
America's current mortgage finance system usually provides a steady and reliable source of market-rate mortgage money, but the transaction costs linked to home purchase and financing remain stubbornly high. In addition, the current housing finance system does not adequately serve all financing needs, especially those characteristic of older, urban neighborhoods, certain rural communities, and low-income borrowers.
There is widespread expectation that the mortgage finance system, and indeed the housing system generally, is on the verge of a period of dramatic change stemming from industry consolidation, redesigned processes, and the application of automation. It is vital that this change in the mortgage finance system be guided by a commitment to increase opportunities for homeownership for more families, particularly for low- and moderate-income and minority families, and to increase the national homeownership rate to an all-time high.
For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.
The current housing finance system includes a large number of participants: secondary market entities, government and conventional lenders and insurers, for-profit and not-for-profit enterprises, firms with national scope and those with local expertise. Each of these has a contribution to make, and progress requires both appropriate competition and cooperation among these participants. What these participants share is a commitment to extending the benefits of homeownership.
The strategies and actions in this chapter reflect the following principles:
- No single financing strategy will suffice to increase homeownership rates; the variety in housing markets, homebuyer needs, and property characteristics will necessitate multiple answers to financing issues.
- Competition among housing and mortgage industry participants is a driving force in reducing financing costs, but competition increasingly must be supplemented with cooperation and collaboration to share ideas and leverage resources.
- Changes in lending processes designed to reduce financing costs must not compromise consumer or investor protections.
- The housing finance system must effectively combine national and international capital markets with local housing expertise.
- Progress in reducing financing costs and increasing the availability of financing must benefit underserved populations, reach diverse property types, and help strengthen communities.
- New information technologies are creating opportunities to reduce costs by reengineering both the mortgage process and the real estate sales process. Whenever possible, savings should be passed on to consumers through an open, competitive marketplace.
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