As we start the new year, affordability remains one of the biggest challenges facing the mortgage industry and the wider housing market. It continues to shape conversations among lenders, policymakers and consumers.
Affordability is not a rate problem
Ask most people what’s wrong with housing affordability, and the answer comes quickly: rates are too high. It’s an easy diagnosis, clear and intuitive, and fits neatly into headlines and political talking points. But it is also incomplete and increasingly misleading.
To understand why, it helps to start with something personal. The first house I bought was in 1989. It cost $259,000. My mortgage interest rate was 10¾ percent. By today’s standards, that interest rate sounds punishing. Still, the home price-to-income ratio was reasonable, and the system surrounding the transaction (supply, taxes, fees, and friction) was much more forgiving than what buyers face today.
That contrast is important. Because if affordability were primarily an interest rate story, the current market should look much better than it does now. Many borrowers are financing homes at rates that are less than half of what buyers paid decades ago. And yet affordability is worse. That tells us that something fundamental has shifted beneath the surface.
The real problem is not the cost of money. It’s the cost and scarcity of housing itself.
Supply is the first constraint
For years, housing policy debates have danced around the core problem: we simply don’t have enough houses. Zoning restrictions, municipal permit fees and regulatory friction have pushed builders into a corner where the only economically viable projects are expensive homes. In many markets, especially in coastal states like California, it is nearly impossible to make money building starter or workforce housing.
The result is predictable. Builders are chasing seven-figure prices. Inventory skewed expensive. And the gap between what people earn and what houses cost is widening.
Federal policy ideas (i.e. opening up federal land, expanding tax credits, subsidizing manufactured/modular housing) are often floated as solutions. Some can help on the margins. But they don’t address the deeper structural bottleneck that arises at the state and local levels, where zoning and permitting decisions are made. Until supply constraints are meaningfully eased, affordability will remain under pressure regardless of where rates go.
The tax law works against home ownership
The supply problem is exacerbated by a tax system that has not kept pace with the way housing functions today. After the global financial crisis, institutional capital entered the single-family market and created a critical floor for house prices. That intervention stabilized neighborhoods and balance sheets at a time when both were under heavy pressure. It’s convenient to forget that now, but it mattered.
The problem is that the tax code still favors capital over individuals. Investors can deduct interest, maintenance, insurance and taxes in a way that owner-occupiers cannot. Two neighbors living in identical homes may face very different after-tax economic conditions depending on whether they own or rent the property to each other.
Add to this the erosion of property tax deductibility, rising insurance costs and outdated capital gains thresholds on home sales, and it becomes clear that affordability is not just about purchase prices. It’s about the ongoing costs of ownership, and how government policies add to or offset that burden.
If you ignore tax policy, you miss an important lever in the affordability equation.
What the mortgage industry can (and cannot) control
It’s tempting to treat affordability as someone else’s problem. Builders blame regulators. Lenders blame policymakers. Policymakers blame the markets. But that does not absolve the mortgage sector of its responsibility.
Mortgage companies are information takers and service providers. They operate within the rules of FHA, VA, USDA and the GSEs. They have no control over zoning or tax laws. But they do determine how efficiently capital moves from investors to borrowers.
That’s where real progress is possible.
In essence, affordability improves when the costs of taking out a loan decrease. If it costs $5,000 or more to get a mortgage before title and insurance, those costs ultimately find their way into the borrower’s rate or fees. Reducing those costs, even without changing margins, directly benefits consumers.
Technology is the lever. But only if it is used honestly. Adding tools without removing friction or redundancy does not reduce costs. Real efficiency requires structural change: fewer transfers, faster decisions and confidence in implementation. When loans are closed faster, borrowers save on interest. When lenders can commit to closing dates in advance, buyers can bid with confidence. That trust has real economic value, especially in competitive purchasing markets.
Affordability is not just about cheaper loans. It’s about being more reliable.
Rethinking the cost buckets
A mortgage transaction falls into several major cost categories: origination, title, appraisal and price adjustments imposed by the GSEs. Everyone deserves control.
When purchasing, title insurance and appraisals serve an important purpose. Fraud prevention and collateral validation are important. But in the realm of refinancing, it’s hard to justify forcing borrowers to repeatedly pay for the protection they’ve already purchased. The pilots for the title pilot and the appraisal waiver have shown that risks can be managed without imposing unnecessary costs. The next step is to stop treating these programs as experiments and start treating them as standards.
The same logic applies to price adjustments. Policies introduced during periods of excessive profitability (such as certain loan-level pricing adjustments) may no longer make sense in a market where refinancing activity is subdued and affordability is under pressure. If the goal is to help borrowers lower their payments, the system should not quietly penalize them for doing so.
The VA Streamline Program provides a blueprint: requirements for taste, recovery testing, and less friction in exchange for lower risk. There is no compelling reason why non-sophisticated borrowers should not benefit from a similar framework.
Where the industry lost its voice
One of the lasting consequences of the financial crisis is that the sector has become afraid to stand up for itself. Less documentation, streamlined processes or alternative underwriting methods (even when sensible) came to pose reputational risks. Regulators tightened standards and lenders learned to absorb policy rather than shape it.
This caution is understandable. The industry suffered serious damage to its credibility in the run-up to the global financial crisis. But silence also has a price. Without proactive involvement, outdated rules persist long after their original justification has faded.
Leadership today means re-entering the policy conversation with humility, data and concrete solutions; not deregulation in itself, but modernization in line with risk reality.
The payment, not the rate
Perhaps the most limiting framework in the current affordability debate is the obsession with rates. Borrowers don’t live with interest rates. They live monthly payments.
In markets like California, taxes, insurance, HOA fees and utilities are often more important than the mortgage coupon. A narrow focus on interest rates obscures the true drivers of affordability and leads to blunt solutions that create new problems, such as locking millions of homeowners into ultra-low-interest mortgages they can’t cancel, further freezing supply.
Affordability improves when the entire system works better: when supply increases, when transactions cost less, when policies are coordinated, and when incentives are aligned with long-term rather than short-term stability.
A coordinated path forward
Housing policy works best when it is coordinated and disciplined, focused on fundamentals such as supply, efficiency and stability. That requires a clear goal. Are the GSEs intended to maximize profitability, act as countercyclical stabilizers, or expand access to homeownership? These objectives are not always compatible, and claiming otherwise leads to half-measures that satisfy no one.
The same goes for tax policy. Home ownership has long been intertwined with tax incentives. If policymakers want to break that relationship, they must do so deliberately and accept the consequences of affordability. What doesn’t work is ignoring the problem completely.
The mortgage industry’s responsibility is to operate responsibly, advocate intelligently, and continually reduce friction between borrowers and homes. When done right, everyone benefits: homeowners, lenders, investors and the broader economy.
Affordability is not just one lever you pull. It is a system that you tune.
David Spector is the chairman and CEO of Pennymac.
This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners. To contact the editor responsible for this piece: [email protected].
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