Housing affordability remains one of the most pressing challenges facing the American dream, but understanding the solutions requires looking beyond the headlines and into the data. In this insightful episode, David Lykken sits down with renowned housing finance expert Laurie Goodman of the Urban Institute to explore the trends, policies, and innovations shaping the future of homeownership. From the remarkable success of modern loss mitigation programs and the untapped potential of renovation financing to refinancing reform, affordability challenges for younger generations, and the evolving role of institutional investors, Goodman provides a fact-based perspective on the issues driving today’s housing market. Drawing on decades of research and policy analysis, she offers practical insights into how lenders, policymakers, and industry leaders can create a more accessible and sustainable housing finance system for future generations.
[David] Listeners, we’re in for a real treat today. We have a true housing expert who’s well known, speaks at many conferences, is well published and I’m talking about Laurie Goodman. It’s so good to have you, Laurie, joining the podcast. Thank you so much.
[Laurie] Thanks so much for having me on.
[David] Well, it’s I always like starting out hearing people’s stories. I mean, when we talk about how we got to where you’re at, you’re so well written and published and are so well known, but a lot of people like to know possibly w how you got to where you’re at. What’s your journey to where you’re at?
[Laurie] Well, I spent thirty years as a Wall Street mortgage backed securities analyst trying to assess the implications of various actions on the valuation of mortgage backed securities for the benefit of the investors. And it was a it was a great job and then sort of in the after in the after the financial crisis, the government obviously put into place a lot of programs that had an impact on securities prices. So I started looking at sort public policy for the first time because it just was so influential in determining the valuation of these securities. And I just sort of fell in love with public policy issues and then in two thousand and thirteen when I was when I’ve sort of felt like, I’ve been doing the same thing for thirty years and I’m a little bit bored, I have to find my next gig, I said, Well you know what, I really, really like working on public policy issues. This would be a great time to do the things I love, which include writing and analysis. And go to a think tank and start the Housing Finance Policy Center. You know, during the crisis there were I got so many calls for, hey, can you explain this? What’s the impact of this? What are the numbers here and there? And it became clear that so many decisions in Washington were made just on the basis of gut feelings because people didn’t have data and they didn’t have the analysis and sort of being able to provide that would be a gift it would also allow me to do something I love to do. So I started the Housing Finance Policy Center at Urban in 2013.
[David] Yeah. And you’ve done and Yeoman’s work there since then. You can tell you love it. And I think one of the messages for anyone listening to this is find something you love to do. and you say, who in the world would like to look at data? Now, well, someone like Laurie does, and it is a passion of hers, and she makes so much sense of it. I can’t wait to get into some of that that you were gonna be talking about as a result of your analysis. But tell us a little bit about the Urban Institute, so people can become familiar with that. We’ll put a link to all of this, folks, in the website show notes.
[Laurie] Well, thank you very much. The the Urban Institute is a Washington DC think tank and I started and it spans a wide range of issues, everything from justice to health care to housing finance and I started the housing finance policy center there in twenty thirteen and now we’re part of a broader housing and communities policy center.
[David] The wealth of information that comes out of this institute is it’s amazing. And anyone who’s a serious professional needs to be aware of it. So, will again put links to all of that. But let’s get into some of the things that we’re talking about. Laurie, one of the things you’ve been passionate about is loss mitigation. There’s been an impact as a result of improvements to loss mitigation waterfall. Love to get your thoughts on that.
[Laurie] Sure. So loss mitigation is what happens when the borrower runs into trouble on the mortgage. So they’re delinquent and then the question is what steps follow. Sort of prior…
[David] Then the waterfall concept.
[Laurie] Yes, and so prior to the financial crisis there was no standardized loss mitigation waterfall whatsoever. The first the first standardization occurred in two thousand and nine with the home affordable modification program where there was a standardized process for getting a for getting a modification. Since then there’s been a streamlining in terms of the documentation. there’s been a joining of the short term and long term waterfall. So prior to so prior to COVID they’d say, David, you’re behind on your mortgage. Do you have a short term problem or a long term problem? If you have a short term problem, we’ll offer you forbearance where you don’t make payments for a period of time and then you catch up very quickly. If you have a long term problem, we’ll offer you a modification and you say, Well, gee, I don’t know. I’ve just lost my job. I have no idea how long I’m gonna be unemployed and then other than pick one route or the other. in the in the aftermath of hurricanes Harvey, Irma, and Maria in twenty seventeen, in twenty eighteen the GSEs and FHA produced a sort of standardized waterfall where you automatically got forbearance for a period of time if you ran into trouble. That is you didn’t have to make your mortgage payments for a period of time. And then after that they then would then evaluate whether you could resume your old payments, whether you could pay it back at once, whether you could resume your old payments or whether you needed a modification. So when COVID happened in twenty twenty, this was already on the shelf, although on a very small scale, because it was the natural disaster waterfall. It became the COVID waterfall and you had and this was actually highly, highly effective. Out of 8.8 million forbearances, that is, people that didn’t make their payment for a period of time, the number of home losses was extraordinarily low on the order of around 2%. So it was just extraordinarily effective. So then the GSEs and FHA said, we should make this permanent. So in fact, they made this permanent. so now rather than saying, Do you have a short-term problem, do you have a long-term problem, you get a timeout for 12 to 18 for 12 months or so. some lenders do it three months at a time. and then when you exit forbearance, you’ve got several options. You can pay back the foreborn amount in a lump sum. You can increase your payments and repay over a year. You can keep the payments constant and defer the foreborn amount until the end of the life of the mortgage, or you can receive a modification where payments are reduced by about on the order of 20%. If none of if you can’t if you still can’t afford the mortgage, you will then move on to foreclosure. But this gives the borrow but this saves a lot of borrowers. So we did some work to figure out how many borrowers were actually saved by this? and we figured that it cuts the it cuts the home loss. you there if you sort of think about delinquent about home loss, there’s sort of three stages. You go delinquent, and then you transition from serious delinquency to home loss, and then they liquidate your home and there’s a severity. So that cut it cuts the middle piece, what the serious delinquency to home loss rate by 46%. So this is just extraordinarily powerful. It’s powerful for borrowers because it means a lot more of them are able to figure out their difficulty and work through it. We figured out that during COVID it probably saved that this feature alone probably saved more than five hundred thousand homes. And
[David] Wow. You think about the impact on families that that has. I mean, that is significant. It’s huge.
[Laurie] It’s huge. And one of the really interesting things is if you push the analysis a little bit further, you say, Well, listen, if your if your losses are going to be lower because you’re cutting the serious delinquency to home loss rate so substantially, maybe you could afford to widen the credit box a little bit on the front end. Maybe you could afford maybe more marginal borrowers should be able to get homes. This is the part that I’m trying to sell now and everyone is a little bit resistant, like, well the COVID experience was the COVID experience. You don’t know that it’s gonna be as successful on a permanent basis. That was unusual. But even if it even if the number isn’t forty six percent, even if it’s twenty-five percent, it’s still huge, huge, huge.
[David] A huge impact. Yeah, possibly.
[Laurie] Yes, it has a huge impact on b on borrowers and it should make you more confident in making mortgages that are just at the at the border of being acceptable.
[David] Yeah, I think it’s a lack of understanding that causes people to not be open to that idea. But you know, how far is far enough and all of those things? Another topic we need to touch on is renovation financing. Laurie, you and I were talking about how serious of a problem this is throughout America. Even some certainly in our older communities, there is such a need for improving renovation financing. What is the Urban Institute saying about that? And what’s your position?
[Laurie] Yeah, so renovation financing is a huge issue. I mean, we have a very aging housing stock. The average home in this country was built in nineteen eighty. It turns forty six this year. Happy birthday. The housing stock has aged, has aged you know, f it’s basically aging what it’s aging very, very quickly ’cause we’re not building as many new homes and people are always trying to do renovations on their existing homes and financing those renovations is just extraordinarily high. The denial rate is very high. It’s on the order it’s you know, on the order of forty percent. So, you know, you go you you buy ho you buy a home and you wanna renovate it or you wanna renovate an existing home, the denial rate is extraordinarily high. And you know and there are things that can be done within existing programs, and we also have to think about new ways to do things. So when you think about so FHA has a renovation program called the 203K program, and undoubtedly you have underwritten mortgages on that program for years, but it’s not very well used. and they’ve improved it significantly in twenty twenty four.
[David] But it’s still not being used it’s still not being used to the levels that it should be, in my opinion. I mean
[Laurie] It’s still not being used and part of it is you know, they increased if you’re over a certain threshold you need a HUD consultant to help. That threshold was increased from thirty five thousand to seventy five thousand. even so you’re not really getting the traction, a lot of lenders feel that it’s it’s very cumbersome and there still aren’t enough HUD consultants for the larger renovations. On the GSE side, on Fanny and Freddie side, the bank has to or the financial institution who is underwriting the mortgage takes the risk until the renovation is complete. That is they Fannie and Freddie have recourse back to the lender. and that and that turns out to you know a a lender looks at me and says, Well Laurie, how do I know you’re gonna do a good job on your kitchen renovation? You know, you’ve never done a lot of kitchen renovations. How do I know your contractor isn’t upselling you like crazy? And the answer is they probably are. So I think, you know, one way to rethink this would be to shift renovation risk to the parties that are best able to manage it, which is the contractors. So, and this would be a very, very major this would be a very major shift, but you say, I’m just gonna pick I’m just gonna use Home Depot as an example because they do renovations and they have a lot of subcontractors, or you say, Home depot. You are one of three renovators in Atl you’re one of three Fannie Mae approved renovators in Atlanta. In exchange for being one of our preferred vendors, you will do renovations at a fixed cost. You quote the price. If you have an overrun, it’s your problem. The renovation will be performed satisfactorily. You will essentially guarantee that renovation there’ll be an inspection at the end. And that sort of de risks the lender who is in no way it was in no position to usually not in a great position to oversee the renovation. It transfers the risk where it belongs, but it would be a very major shift and would require a preferred vendor approach because you’ve got to qualify the vendor and the vendor has to be willing to do the renovation at a fixed price. But that’s sort of the alternative model that I think we have to go to, to get lot more and the renova and the renovator has to also set, you know, assure that the home will appraise out that is the renovations will be reflected in the cost of the home. And I think that, you know, or at least if it isn’t, it’ll won’t go over the LTV threshold. So, you know, it’s a very different approach, but I think one that would be good for everyone and tr would transfer the risk where it belongs.
[David] Yeah, it’s exactly a transfers of risk where appropriately belongs. What is the headwinds to having adoption of some of these kind of recommendations you’re coming up with?
[Laurie] I mean I think this would be a great recommendation, but it would require a preferred vendor approach because you couldn’t you wouldn’t be willing to have you know, f you you wouldn’t be if I would decide to set up shop as a vendor, they you know, they would Fannie Mae would not be convinced that I would complete the job on time and on budget and therefore they would have the risk. So you have to have a limited number of preferred vendors who are willing to do this at a fixed price and guarantee it that you have confidence in that you qualify.
[David] Well, it’s an opportunity out there and I want to cover a lot of topics with you today. So I’m gonna if people are hearing this and I think most everyone recognizes the need for renovation, financing and create new creativity. Do you advise on those helping institutions do that? Is that part of the Urban Institute’s role?
[Laurie] No, that’s not part of our role.
[David] Okay, so you you identify the issue, write about it, and then encourage people to move towards it.
[Laurie] Right, and try to think about solutions that are maybe a little bit out of the box. and even and you know, with even within the box there are things you can do to improve the process, maybe lower the denial rate a little bit, things like, you know, making sure the two three 203K program has enough HUD consultants, for instance. Fannie and Freddie might want to consider a standalone second lien renovation funding program for those that don’t have like low rate mortgages. at one point they were thinking about a cash out refi program. Doing cash out refi specifically for renovation financing is another option that might make sense. So we tend to think about options that would make sense that could be that could be implemented.
[David] Right. And then that’s as good. If someone wants to look at the options you’ve created, what’s the best way for them to do so? This is one that’s pen near and dear my heart because I drive through cities and towns and I’m going, What a need for renovation. Just heartbreaking to see such beautiful homes continuing to go into disrepair, further and further into disrepair to the point some of them are gonna the only solution is to bulldoze them down and start over again.
[Laurie] Yeah, there’s such a such a huge need. And I mean I then the fact that your average home was built in nineteen eighties, just such nineteen eighty is just a shocking number. You know, fifty percent were built before, fifty percent built after. And we’re in twenty twenty six.
[David] Yeah. Well, I I hope you continue spending time focusing in on that, Laurie, because that is one that you and I share a passion for. Let’s move over to improving and standardized standardizing mortgage refinancing. Everyone’s thinking we’re going to have this big refinance wave. It appears that rates may have stabilized. In fact, we may have found that we’re now at the bottom of this rate cycle and we could be going up, but refinancing continues to be something that people need to do. Talk about what this institute is doing when it comes to standardizing mortgage refinancing.
[Laurie] I mean, so basically rates are something that we don’t control. What you really want is that if rates go down, people have the opportunity to refinance when it is advantageous for them to do so. What you don’t want is for people to refinance when it is not financially advantageous for them to do so. That is, if rates are unchanged, they shouldn’t be refinancing in order to generate an additional loan application for their lending and so what we have found is that people oftentimes don’t refinance when they should. People oftentimes refinance when it is extremely marginal for them to do so. And that is particularly true in the VA world and the VA loan VA loans where there’s a lot of churning. FHA and VA both have streamlined refinancing programs, which makes it very, very easy to do the refinancing. The GSEs do not have a streamlined refinance program because of the CFPB’s ability to repay rule. That is you have to, you know, every time you do a new loan, you have to make sure the borrower qualifies. Well if if you have already if you already have. If you’re Fannie Mae and you already have my loan, it doesn’t make sense to requalify me to make a lower payment because my probability of default has gone down. So therefore you as Fannie Mae are in a better position. You should be eager to watch me to have me refinance that loan. So, there are things that the CFPB so the CFPB could put in an exemption in to the in the ability to repay rule for refinance for rate term refinances where you’re not increasing the loan amount and the lender already has the risk on that loan. That would make total sense. It would also make sense to think about redoing both FHA and VA have various benefit tests to make sure it’s in the interest of the borrower to refinance. But these tests are really, really easy to gain so you end up with borrowers doing, as I mentioned earlier, very marginal refinancings. If you required borrowers to not if you did not allow borrowers to roll costs and mortgage insurance premiums into the loan amount and instead required them to roll it into the rate, you would allow borrowers to do a much more apples to apples comparison. And so that’s you know, so we’ve been trying to push that point is that you have to rethink the refinancing process. Yes, make it easier so borrowers who can refinance when they should, but don’t let but try but discourage them from refinancing when they shouldn’t.
[David] Yes. Make makes total sense. We’ve seen a lot of refinancing abuses. That’s why in many ways, that’s why Dot Frank came about, because of the abuses that were there. And it’s good to see that you guys are studying that and looking at that. We are overestimating the homeownership rate for young adults. We talked about this. I am so excited for you to share some statistics because it’s quite different than what’s being published out there. Explain what we were talking about.
[Laurie] Yeah, so you know the homeownership rate for young adults looks like it’s fallen somewhat, but it’s actually fallen more than it looks like. Because we define homeownership rate as homeowners divided by homeowners plus renters. So if you’re living in your parents’ basement, you’re neither a homeowner nor a renter. You’re simply not counted in the numbers at all. And so when you look at what’s happened to young adults, and I’m gonna define a young adult as the twenty-five to thirty-four-year-old age group.
[David] Which is a standard buying which has been traditionally the the age group which is buying their first home.
[Laurie] Yes. So you look at the percentage of young ad of t twenty-five to thirty-four year olds living with their parents, that number in two thousand and five was around twelve percent. In twenty twenty four, it was twenty percent. the number of young adults living with others was eighteen percent. It was it was fourteen percent, it’s now eighteen percent. So if you add those two numbers together. In twenty twenty five, about twenty-six percent of twenty twenty-five to thirty-four year olds were not independent households. Now that number is thirty-eight percent. it’s going the wrong direction, and we’re not counting these people as either homeowners or renters. So when you look at the homeownership rate, it’s actually a lot lower because these people aren’t in the equation at all.
[David] That’s I mean, how do how do we start collecting that data? I mean, how is is it a Census Bureau?
[Laurie] That census data, that’s j this is just American Community Survey data. There’s no there’s no trick to the data. American Community Survey does a marvelously good job of collecting the data. It’s all available. We’re just not using it properly.
[David] Interesting. So fascinating. That is a statistic we were talking that kind of blew me away when you look at it. The biggest hurdle I’m assuming and I’m is the cost affordability of housing today. Yeah. Any other things that are there that we should be aware of that we’re not thinking about, Laurie?
[Laurie] I mean obviously things like, you know, a lot of times people get out of their parents’ basement when they get married, but certainly, you know, in less constrained areas people get out of their get out of their parents’ basement the minute they can afford to do so. so yes, I mean affordability is the number one issue. Certain milestones are happening later in people’s life, so the push to get out isn’t quite isn’t quite as powerful, but affordability is again the single largest issue.
[David] Yeah, it’s amazing. Let’s talk about the evolution of the institutional single family rental market. That’s another area I know the Urban Institute spends a lot of time looking at. Talk about that one.
[Laurie] Yeah, so if you sort of the institutional single family rental market is very interesting because it didn’t really start until twenty eleven when Invitation Homes basically said, Listen, you know, homes are just so cheap. There’s room for us to come in, improve them and rent them out. So that was the birth of the market and you know, it and in it’s still a very small market. Institutional investors are something like four percent of total single family homes. It’s obviously concentrated in certain areas.
[David] Yeah, it sounds like it’s bigger than that. When you talk to some people, the it seems like it’s a bigger number, but I found institutional ownership of home, single family, it wasn’t as much it wasn’t as large as
[Laurie] It’s, it’s tiny and a and you know, and and and this is against a background where eighty five percent of single family homes are owner occupied. So we’re talking about four percent to fifteen percent. So it’s a fairly tiny number. The one thing the reason it gets all this attention is it is probably the single issue that polls well on both sides. Everyone dislikes institutional single family investors. Something like seventy five percent of everyone thinks, you know, dis dislikes this category. So it sends tends to get outsized importance. It tends to get out outsized focused relative to its impact. But again, it’s relatively small. And when you look over time there’s been a real evolution. So initially these the single family operators were buying foreclosed homes and had actually put a floor in terms of how much home prices fell in the aftermath of the great financial crisis. They then moved to the multiple listing service around 2015, 2016, and then sort of around 2021, 2022 started focusing more heavily on bills rent because there wasn’t a lot on the multiple listing service. And the important thing to realize is on homes that institutional single family operators buy these homes are disproportionately homes that need repair. Why we just talked about the difficulties in getting renovation financing. And so if I walk into a home where I can imagine my curtains on the seller’s window, that home is going to go to the that home is going to go to me as an owner-occupant. It’s not going to go to an institutional investor. But if a home that needs repair I’m gonna I as an individual investor I as a owner occupant are gonna have trouble financing that home. And an institutional investor is gonna be able to finance the home more easily. They also will be able to do so much, much more economically than I can. That is, they know exactly what repairs have to be done, what repairs should not be done, they won’t be upsold because they’ve done this a lot of times. And they’ve got sta they’ve they’ve got, you know. this painting this paint, this carpeting, these HVAC systems and they get buy it all in bulk. So they’ll be able to do those repairs much, much cheaper than I can and they can finance those repairs.
[David] It’s a way to solve some of the problems of whether people stay in a home or not and what they do. So I look at a lot of the what you guys are studying. I do you guys look at the macro view of the housing market just generally? What is going on? Are we are seeing an expansion? What is the future of housing, the American dream in America, Laurie, based on what the urban institute’s seeing?
[Laurie] I mean it’s sort of hard to paint a really long term picture. You know, sort of short term we think rates are gonna remain elevated. As you point out, we’re sort of there there’s not a lot of scope for rates to go down a lot. Meanwhile, home prices are very high relative to affordable levels. I do not think they’re gonna come down appreciably. What you’re gonna see is that they go up very slowly, or not at all. For a number of years while wages continue to increase and affordability gets restored in that manner. household growth is definitely slowing, which sort of feeds so over time we’re gonna partially work off our supply shortage. Not entirely, because that supply shortage reflects both the homes that aren’t there, but also people living in their parents’ basement that would love to get out the minute they could afford to do so. But I you know, I but I don’t but I sort of see home prices being going up very, very slowly over the next couple of years, taken as a whole, and affordability being restored sort of more coming nd homes coming closer to affordable prices over the next few years.
[David] Laurie, it’s so good to have you be on the pro podcast. I’m so grateful for your time. lot of good information here. How can people get a hold of you to ask you to speak at the conferences or and learn more about the institute?
[Laurie] So, you know, the Housing Finance I’m sorry, the Urban Institute is has a website, www.urban.org. That’s the single best way to follow our research. You go down, look at housing and communities, and then housing finance policy center from there or just you know, put drop my name in the drop box and what I’ve written will come up. But it’s a very, very good website that has all of our work, not just it has all of Urban’s work, not just mine and a lot of people will find a lot of other things they think are interesting on that. And you know, my email address is first initial last name at Urban dot org. People can find me there.
[David] Encourage people to reach out to you. Laurie, but again, s thank you so much for being here. So good to hear what you have to say. But more importantly, that there are people like yourself that find great joy in diving into that data, into the and you do it exceptionally well. That when you hear you speak, it’s just I’ve never certain seen anyone talk about data with the passion that you do. Thank you.
[Laurie] Well, thank you very much for having me. It’s been a pleasure. Thanks very much.
[David] Yeah. Appreciate it. Thank you.
Important links:
Laurie Goodman is an Institute Fellow at the Urban Institute. She founded the Housing Finance Policy Center at Urban in 2013, and was its Director or Co-Director from 2013-2021. This Center provides policymakers with data-driven analyses of housing finance policy issues that they can depend on for relevance, accuracy, and independence.
Prior to joining Urban in 2013, Laurie spent 30 years as a mortgage-backed securities analyst and research department manager at a number of Wall Street firms, including Amherst Securities Group, LP, where she developed a reputation for her analysis of housing policy issues, and UBS, where she was a top ranked research analyst. She began her career as a senior economist at the Federal Reserve Bank of New York.
Laurie serves on the Board of Directors of MFA Financial and Arch Capital Group Ltd. She has published more than 250 articles in professional and academic journals and co-authored/co-edited five books. She has a BA in Mathematics from the University of Pennsylvania, and an AM and PhD in Economics from Stanford University.