The White House is finally taking steps to curtail or outright eliminate what most housing professionals believe is the number one problem standing in the way of making housing more affordable: overly burdensome rules and regulations.
On Friday, the President issued two executive orders: one removing regulatory barriers that block or slow the production of new houses, and another giving consumers greater access to mortgage credit.
The first EO directs numerous federal agencies to review their rules and eliminate those that constrain residential development and impede housing affordability, “especially the construction of affordable single-family homes as well as suburban and exurban neighborhoods.”
The order targets environmental permitting, energy-efficiency requirements, and zoning rules that drive up construction costs and delay housing projects.
Since most construction rules are at the state and local levels, the order also directs the Department of Housing and Urban Development to develop, within 60 days, a series of regulatory best practices, including streamlining permit processes by capping timelines and fees.
As a carrot to persuade localities to follow the Administration’s lead, various agencies are instructed to withhold grants and other federal funds from those jurisdictions that don’t embrace their “suggestions.”
The second order aims to change the rules that have driven up lending costs, limited access to creditworthy borrowers, and effectively blocked community banks from the mortgage business.
The order directs the Consumer Financial Protection Bureau to “appropriately tailor mortgage rules” so smaller banks can facilitate more affordable lending, and calls on federal banking regulators to revise supervisory guidance “to focus on prudent underwriting rather than overly technical process-oriented approaches.”
Regulators also are directed to consider whether to adopt new supervisory criteria that “promote portfolio mortgage servicing as a core community banking function and otherwise take other actions that lower barriers to entry and costs of operation for community banks in the mortgage lending business.”
The order cuts the red tape that has caused community banks to reduce their participation in mortgage lending, the White House said in an adjoining explainer.
According to the fact sheet, “Community banks and smaller lenders have retreated from mortgage markets they once served, unable to absorb the compliance costs associated with making, servicing, or holding a mortgage made to community borrowers.”
The order also addresses what it calls “outdated appraisal rules and rigid supervisory expectations” that have slowed the lending process and increased costs. In this regard, regulators are told to modernize their rules by, among other things, expanding the use of alternative valuation models, reducing unnecessary appraisal requirements for low-risk transactions, and setting clearer time lines for appraisals.
Housing interests welcomed the EOs with open arms. The influential National Association of Realtors, the country’s largest trade group, said in a statement that it “is critical” that creditworthy buyers, especially first-time buyers, have a clear path to homeownership.
The National Association of Home Builders also commended the orders, calling them “bold actions.” They “get at the root of the housing affordability problem by eliminating obstacles to build more homes and providing better access to financing,” Chairman Bill Owens said in a statement.
While supporting the EOs overall, the Mortgage Bankers Association hedged its excitement a bit. While its members welcome greater participation and competition, President Bob Broeksmit commented in a statement, “the goal should be to revise overly burdensome rules for lenders of all sizes and business models.”
