By AJ Greathouse | Point of View
Prospective Arizona home buyers face myriad challenges — and new federal regulations may make an already difficult housing market even worse.
High home prices, rising interest rates, and low inventory have all contributed to making some of the most popular housing markets in the country, such as Phoenix, cost-prohibitive for many buyers.
As a Phoenix-native working in investment management, I can tell you that residents are struggling to afford and even qualify for homes.
Unfortunately, more bad news may be coming due to a recent proposal from Washington D.C. regulators that would make it harder for banks to lend money to low- and moderate-income (LMI) borrowers.
This proposal, known as the Basel III Endgame, would directly harm Arizona families seeking the financial security and economic opportunities that come with home ownership.
Further, it would have a disproportionate impact on Hispanic and Black home buyers in our state, who often qualify as LMI borrowers. Arizona elected officials must protect the dream of home ownership in Arizona by considering the impacts of such sweeping regulations and engaging our community before making such decisions.
Federal bank regulators are considering a new proposal to dramatically increase capital requirements for all banks with more than $100 billion in assets. This includes roughly 30 of the top banks in the United States — eight of those banks alone held about 14% of the market share of funded loan originators in 2022. While the plan is intended to strengthen the banking system, the rushed nature of the proposal will have unintended consequences.
One of the most concerning issues is that the newly proposed bank capital changes would disincentivize mortgage lending to low- and moderate-income (LMI) borrowers, further restricting Arizona families’ ability to obtain resources needed to purchase a home.
Here is how it would work.
The proposal would target certain mortgages as increasingly risky, specifically single-family homes with down payments of less than 20 percent. These types of mortgages are often issued to LMI borrowers. Because these mortgages would be considered more risky, large banks would be forced to hold more capital against the loans, thereby either increasing the costs charged to these borrowers or dissuading banks from making these loans altogether.
Contrast this with mortgage loans made to borrowers with lower loan-to-value ratios — typically high middle class to upper class borrowers — for which banks would need to hold less capital. If adopted as proposed, the proposal would put in place systemic barriers for LMI borrowers, many who may be trying to buy a home for the first time, while making it even easier for people with more financial power to purchase homes.
The Urban Institute, a non-partisan research organization, recently studied the proposal’s impact and concluded that “the level of capital that banks would be required by the NPR to hold against mortgage loans held in portfolio is excessive” and “is likely to further discourage bank mortgage lending” to LMI borrowers, who often come from minority communities.
The Urban Institute also noted that the changes in the proposal are “contrary to ongoing federal efforts to advance equity in the mortgage market.” Banking regulators at the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency should consider these findings and instead pursue policy solutions that make it easier, not harder for borrowers to own a home.
What can we do about it?
Last year, Arizona was named the most popular state to move to — and it’s no surprise, as we live in a great place to work and raise a family. At the same time, Arizona elected officials have a duty to their constituents to ensure that home ownership is still an achievable goal in our state. That means stopping any unnecessary obstacles to home ownership.
On behalf of many Arizona natives, and potential first-time home buyers in Phoenix, I would ask that Congress review such rules before being implemented, keeping the implications of all members of the community in mind.
Upward mobility needs to continue to be a focus for the lower and moderate-income demographics and these rule changes would directly contradict those efforts. How can we both protect the downside of systemic risks within our financial system, while also enabling people to pursue the American dream of buying a home?
Editor’s note: Mr. Greathouse is a third generation Arizona resident. He is an alum of the University of California-Berkeley and Abilene Christian University Alum whereas today he lives in downtown Phoenix focused on a career in commercial development. He is also a member of the South Mountain Planning Commission.