As we kick off the New Year, affordability remains one of the biggest challenges facing the mortgage industry and the broader housing market. It continues to shape conversations among lenders, policymakers, and consumers alike.
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, clean and intuitive, and it fits neatly into headlines and political talking points. But it’s also incomplete, and increasingly, misleading.
To understand why, it helps to start with something personal. The first home I bought was in 1989. It cost $259,000. My mortgage rate was 10¾ percent. By today’s standards, that interest rate sounds punishing. Yet the home price-to-income ratio was reasonable, and the system around the transaction (supply, taxes, fees, and friction) was far more forgiving than what buyers face today.
That contrast matters. Because if affordability were primarily a rate story, today’s market should look far better than it does. Many borrowers are financing homes at rates less than half of what buyers paid decades ago. And yet affordability is worse. That tells us something fundamental has shifted beneath the surface.
The real problem isn’t 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 issue: we simply don’t have enough homes. Zoning restrictions, municipal permitting costs, and regulatory friction have pushed builders into a corner where the only economically viable projects are high-end homes. In many markets, particularly coastal states like California, it is nearly impossible to make money building entry-level or workforce housing.
The result is predictable. Builders chase seven-figure price points. Inventory skews expensive. And the gap between what people earn and what homes cost continues to widen.
Federal policy ideas (i.e., opening federal land, expanding tax credits, subsidizing construction manufactured/modular housing) are often floated as solutions. Some may help at the margins. But they don’t address the deeper structural bottleneck created at the state and local level, where zoning and permitting decisions are made. Until supply constraints are meaningfully loosened, affordability will remain under pressure regardless of where rates go.
The Tax Code Is Working Against Homeownership
Compounding the supply issue is a tax system that hasn’t kept pace with how housing actually functions today. After the Global Financial Crisis, institutional capital stepped into the single-family market and provided a critical floor under home prices. That intervention stabilized neighborhoods and balance sheets at a moment when both were under severe stress. It’s convenient to forget that now, but it mattered.
The problem is that the tax code still advantages capital over individuals. Investors can deduct interest, maintenance, insurance, and taxes in ways that owner-occupants cannot. Two neighbors living in identical homes can face very different after-tax economics depending on whether they own or rent the property to one another.
Add to that the erosion of deductibility for property taxes, rising insurance costs, and outdated capital gains thresholds on home sales, and it becomes clear that affordability isn’t just about purchase prices. It’s about the ongoing cost of ownership, and how public policy amplifies or offsets that burden.
Ignore tax policy, and you miss a major lever in the affordability equation.
What the Mortgage Industry Can (and Can’t) Control
It’s tempting to treat affordability as someone else’s problem. Builders blame regulators. Lenders blame policymakers. Policymakers blame markets. But that doesn’t absolve the mortgage industry of responsibility.
Mortgage companies are information takers and service providers. They operate within the rules set by FHA, VA, USDA, and the GSEs. They don’t control zoning laws or tax codes. But they do control how efficiently capital moves from investors to borrowers.
That’s where real progress is possible.
At its core, affordability improves when the cost to originate a loan comes down. If it costs $5,000 or more to originate a mortgage before title and insurance, that expense ultimately finds its way into the borrower’s rate or fees. Reducing that cost, even without changing margins, directly benefits consumers.
Technology is the lever. But only if it’s used honestly. Adding tools without removing friction or redundancy doesn’t lower costs. True efficiency requires structural change: fewer handoffs, faster decisions, and confidence in execution. When loans close faster, borrowers save interest. When lenders can commit to closing dates upfront, buyers can bid with confidence. That confidence has real economic value, especially in competitive purchase markets.
Affordability isn’t just about cheaper loans. It’s about more reliable ones.
Rethinking the Cost Buckets
A mortgage transaction breaks down into a few major cost buckets: origination, title, appraisal, and pricing adjustments imposed by the GSEs. Each deserves scrutiny.
On purchases, title insurance and appraisals serve an important purpose. Fraud prevention and collateral validation matter. But on refinances, forcing borrowers to repeatedly pay for protections they already purchased is hard to justify. The title pilot and appraisal waiver pilots have demonstrated that risk 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 pricing adjustments. Policies that were introduced during periods of excess profitability (such as certain loan-level price adjustments) may no longer make sense in a market where refinancing activity is subdued and affordability is strained. If the goal is to help borrowers lower payments, the system should not quietly penalize them for doing so.
The VA streamline program offers a blueprint: seasoning requirements, recoupment tests, and reduced friction in exchange for lower risk. There is no compelling reason non-veteran borrowers shouldn’t benefit from a similar framework.
Where the Industry Lost Its Voice
One of the lingering effects of the financial crisis is an industry that became afraid to advocate. Reduced documentation, streamlined processes, or alternative underwriting (even when sensible), came to carry reputational risk. Regulators tightened standards, and lenders learned to absorb policy rather than shape it.
That caution is understandable. The industry did real damage to its credibility in the run up to the GFC. But silence has a cost too. Without proactive engagement, outdated rules persist long after their original justification has faded.
Leadership today means reentering the policy conversation with humility, data, and concrete solutions; not deregulation for its own sake, but modernization aligned with risk reality.
The Payment, Not the Rate
Perhaps the most reductive frame in today’s affordability debate is the obsession with rates. Borrowers don’t live interest rates. They live monthly payments.
In markets like California, taxes, insurance, HOA fees, and utilities often matter more than the mortgage coupon. A narrow focus on rate obscures the true drivers of affordability and leads to blunt solutions that create new problems, like locking millions of homeowners into ultra-low-rate mortgages they can’t afford to give up, freezing supply even further.
Affordability improves when the entire system works better: when supply increases, when transactions cost less, when policy is coordinated, and when incentives align with long-term stability rather than short-term optics.
A Coordinated Path Forward
Housing policy works best when it is coordinated and disciplined, focused on fundamentals like supply, efficiency, and stability. That requires clarity of purpose. Are the GSEs meant to maximize profitability, act as countercyclical stabilizers, or expand access to homeownership? Those goals are not always compatible, and pretending otherwise leads to half-measures that satisfy no one.
The same is true for tax policy. Homeownership has long been intertwined with tax incentives. If policymakers want to unwind that relationship, they should do so deliberately and accept the affordability consequences. What doesn’t work is ignoring the issue entirely.
The mortgage industry’s responsibility is to operate responsibly, advocate intelligently, and continually lower the friction between borrowers and homes. Done right, that benefits everyone: homeowners, lenders, investors, and the broader economy.
Affordability isn’t a single lever you pull. It’s a system you tune.