The policies getting the most attention in the national housing affordability debate — credit score competition, restrictions on institutional investors, streamlined credit reporting — share a common flaw: they target costs that are trivially small relative to the two forces actually driving affordability out of reach for most buyers.
Those two forces are constrained housing supply and elevated mortgage rates, according to Clifford Rossi, who leads the Smith Enterprise Risk Consortium at the University of Maryland’s business school and previously held chief risk officer roles at Countrywide, Washington Mutual, and Citigroup. Policymakers, he argues, are spending energy on changes that shave small costs off the edges of a transaction while potentially introducing new risks into the mortgage system.
Rossi points to the FHFA’s lender choice policy — which allows lenders to use either FICO or VantageScore when submitting loans to Fannie Mae and Freddie Mac — as a case study. The policy was promoted partly as a way to reduce borrowing costs by introducing competition into credit scoring, which could lower the price of credit reports. Rossi does not dispute that competition is generally healthy. But he argues the benefit is negligible compared to the real barriers buyers face. “The cost of a credit report is not sort of where the big affordability pain point is,” he said. “It’s about the cost of the price of that home to begin with, and it’s the rate that they’re going to have to finance at.”
Housing supply has never fully recovered from the construction slowdown that followed the 2008 financial crisis. Home builders lost momentum when the market collapsed, and the permitting and land acquisition pipeline takes years to rebuild. That gap has been compounded by the rate lock effect – homeowners sitting on mortgages in the three percent range who have little financial incentive to sell and buy at today’s rates. “The problems that are keeping a number of home sellers on the sidelines are still there with us,” Rossi said.
Meanwhile, with the 10-year Treasury yield near five percent and the mortgage spread pushing 30-year fixed rates toward seven percent, the monthly cost of financing a home has risen sharply. Those two forces – prices inflated by limited supply and rates that multiply the carrying cost – account for the bulk of the affordability squeeze. “Got to deal with those two things first,” Rossi said.
Rossi’s concern goes beyond ineffectiveness. His statistical research on lender choice, using publicly available loan-level data, suggests that when lenders can choose between two credit scoring models, they will submit whichever score is higher for a given borrower – improving the borrower’s apparent creditworthiness without changing their actual risk profile. That divergence, he argues, could expose Fannie Mae and Freddie Mac to higher default rates over time.
“These other things, in my opinion, are nibbling at the edges and actually posing risk to the system itself,” Rossi said. The tradeoff is lopsided: a modest reduction in one small transaction cost in exchange for a measurable increase in systemic credit risk.
A similar dynamic applies to the political focus on institutional investors buying single-family homes. The narrative that large investment firms are pricing out ordinary buyers has generated proposed restrictions at the federal level. Rossi acknowledges that institutional purchases have had some effect on specific local markets. But the overall share of homes owned by institutional investors remains small relative to the total housing stock. He also notes that institutional buyers provide demand that supports the broader market’s health. “Trying to pick a fight with the institutional investment community over homes is not going to move the needle very much” on affordability, he said.
If the diagnosis is supply and rates, the prescription is straightforward in theory and difficult in practice. Building more homes requires local zoning reform, faster permitting, and sustained construction labor – none of which lend themselves to a quick policy announcement. Bringing rates down requires either a shift in Fed policy or a decline in Treasury yields, neither of which housing regulators directly control.
That difficulty may explain why policymakers gravitate toward credit score competition and investor restrictions – they are achievable, they generate headlines, and they signal action. But for a buyer whose monthly payment consumes a large share of their income, the distinction between a policy that sounds helpful and one that actually reduces their cost is the only one that matters.
“We’re not focusing or fixated enough on the big ticket items,” Rossi said. Until supply loosens or rates come down meaningfully, the affordability picture for most buyers is unlikely to change – regardless of which credit score their lender uses.
About the Expert: Clifford Rossi is a former chief risk officer with senior risk and credit roles at Countrywide, Washington Mutual, and Citigroup, now at the University of Maryland’s Robert H. Smith School of Business.
This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
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