As Prepared for Delivery on October 3, 2023
Thank you very much for that kind introduction. It’s my pleasure to join you. It’s been a few years since my last visit with ACUMA, so I greatly appreciate the invitation for an encore appearance. It’s great to be here.
I particularly appreciate the opportunity to join you today because it gives us an opportunity to discuss the confluence of credit union mortgage lending with affordable housing and financial inclusion, which are among my longstanding priorities. This discussion is particularly timely because as you are all too aware, we’re experiencing significant challenges in today’s housing market.
In fact, just last month, a housing outlook report from Fannie Mae (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) suggested things could get worse before they get better. The Fannie Mae researchers found that the housing market is poised for its sharpest slowdown since 2011 due to higher interest rates and a weakening economy, and they forecast a recession for 2024. We can add to those other contributing factors like the shortage of affordable housing units, higher costs for construction supplies owing to an ongoing inflationary environment, the pressures of a growing population and demographic change, and other challenges.
These trends are having an impact on home buyers. In May, the Gallup polling organization released the results of their annual survey (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) on the economy and personal finance, which revealed that 78 percent of Americans believe this is a bad time to buy a house. Again, respondents expressed concerns about costs, and with good reason. According to the National Association of Realtors, home buyers now need an annual household income of over $104,000 (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) to qualify for a median-priced house at today’s interest rates.
These dynamics in the housing market are particularly troubling when we consider their effects on younger potential buyers, who make up the lion’s share of first-time buyers, many of whom are delaying home purchases. One recent poll found that a staggering 79 percent of millennial buyers (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) have decided to wait for interest rates to come down before entering the housing market. And according, once again, to the National Association of Realtors, the age of the average first-time home buyer is now 36 years old (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) , up from 33 years old just last year.
There are several factors at work here — student debt, delayed family formation, and uncertainty about future earnings prospects. This dynamic might be temporary, as younger consumers advance in their careers and start forming families of their own, they may embrace homeownership at higher rates. Still, these are red flags and something to watch closely.
I know you all don’t need me to recite the litany of facts about why homeownership matters. Whether it’s helping working families to build wealth over time through building equity as their property appreciates or strengthening communities through building a larger tax base and lowering crime rates. We know a responsible and sustainable approach to homeownership correlates to a great many desirable social outcomes.
So, the question is, in light of these various challenges confronting us, what can we do to get the housing market back on track, and to provide home buyers with a greater sense of confidence and optimism?
First, there’s no question we need action on the public policy front. There may not be much we can do about the interest rate environment beyond ensuring that financial institutions are carefully attuned to interest rate risks. But we should certainly be urging policymakers — in both the legislative and executive branches and at the federal, state, and local levels — to focus on creative ways to encourage more investment in affordable housing. Such solutions could include regulatory reforms, adjustments to onerous zoning restrictions that restrict new construction, and investments to boost the supply of homes.
That broader policy environment is critical, but I particularly want to emphasize the role that private sector lending can play, with a focus on how credit unions can elevate home mortgage lending as a priority. I believe there’s a great deal of room for growth in the mortgage lending space where credit unions could make a significant difference.
Just a few decades ago, credit unions’ role in the mortgage market was almost negligible, but that’s changed quite dramatically. Today, credit unions hold about 5 percent of outstanding mortgage debt in the United States, including a large and growing, percentage of second mortgages. The credit union industry is originating about $160 billion in real estate loans on an annualized basis. The pace of mortgage lending in the credit union industry is also quite robust; over the last five years, residential loans outstanding in the industry have grown by about 59 percent.
The good news is that credit unions have been performing well in the mortgage lending space. At the same time, there may be significant opportunities for credit unions to continue to expand further in this direction, which should be encouraged for several reasons.
First, we need real competition in the mortgage markets. I’ve spoken before about the importance of smaller and mid-sized institutions in the financial services ecosystem, particularly a time when that sector has been facing serious contraction. Think about the fate of community banks, whose numbers were decimated after the 2008 financial crisis. Unless we want to see mortgage lending dominated by a handful of large institutions, we should want to see greater loan participation by credit unions to ensure a more competitive marketplace.
Secondly, while many cooperative finance institutions may not have the capital reserves of larger institutions, they do have a tremendous lending advantage in terms of their strong relationship of trust with their members and within their communities. Those relationships are the key to building a system of sustainable home ownership.
And third, credit unions are particularly well-positioned to nurture home ownership in underserved areas, which would make a big difference in terms of reviving and supporting these communities. A lot of larger financial institutions have pulled out of underserved and marginalized communities over the last decade, which could create an opening for credit unions to extend lending and other service to these places of need.
I believe there’s a tremendous opportunity for credit unions here to have a larger and more meaningful impact on the mortgage markets.
One good place to start would be by looking at how credit unions can make use of financial technology, like mobile banking and online applications, to make the lending process faster, simpler, and more efficient. I encourage credit unions to continue exploring these avenues because they will likely make it possible for your institutions to reach more qualified borrowers at a lower cost, without compromising lending standards. In fact, just last month, the NCUA Board approved a new financial innovation rule that should go a long way toward providing credit unions with greater clarity and flexibility in how they engage with fintech companies and loan participations.
As a regulator, I’m always on the lookout for how we can help you to achieve those goals. As one of my duties as a member of the NCUA Board, I assumed the chairmanship last year of the board of directors of NeighborWorks America (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) , a Congressionally chartered, non-profit organization dedicated to increasing access to homeownership and affordable rental housing.
NeighborWorks has a variety of tools at our disposal to address the housing shortage, including direct funding for development or redevelopment of neighborhoods, financial counseling for home buyers, and partnerships with other entities to address housing needs at the community level. I’ll certainly be working with my board colleagues to provide the needed support to address these issues because they matter to us all.
So, my message to you is that as you look to build out your mortgage lending portfolios and make homeowners of more of your members, we will support you in that. And as always, we always expect you’ll comply with your regulatory responsibilities to ensure the safety and soundness of your institutions and the larger system. But my great hope is that credit unions can take advantage of this opportunity growth while helping those members take the next step toward homeownership because it’s a critical part of our financial inclusion agenda.
Some of you may have heard me speak about financial inclusion as being “the civil rights challenge of our generation.” I always emphasize to industry leaders that a commitment to financial inclusion is both good business as well as an ethical imperative. In his book, “Finance and the Good Society,” the economist Robert Shiller reminds us that “Finance is not merely about making money. It's about achieving our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society.”
If we take our commitment to financial inclusion and our role of stewardship, and the goal of creating a good society seriously, then encouraging and supporting greater home ownership must continue to be a priority. That remains a vital part of the credit union mission and a priority we should be working together to achieve.
So, thank you very much for all you do. And thank you once again for having me today.