The policy conversation around housing affordability tends to focus on institutional investors buying up homes and the cost of credit reports. Neither is where the real pressure sits. The two forces that actually determine whether someone can afford a home – housing supply and the mortgage rate – remain stubbornly resistant to the fixes getting the most attention.
That assessment comes from Clifford Rossi, a former chief risk officer who held senior risk and credit roles at Countrywide, Washington Mutual, and Citigroup’s consumer lending division before joining the University of Maryland’s Robert H. Smith School of Business. His career spans the savings and loan crisis through the 2008 collapse and into the current rate environment, giving him a longer institutional view than most voices in the current debate.
With the 10-year Treasury hovering near 5% and the 30-year fixed-rate mortgage approaching 7%, the cost of financing a home is doing the most immediate damage to affordability. But Rossi argues that supply constraints are just as consequential – and that they trace directly to the 2008 crisis.
Home construction stalled during the financial crisis, and recovery has been slow. Builders need years to identify land, navigate permitting, and deliver finished homes, and Rossi says the momentum lost in 2008 has never fully returned. “When the whole mortgage engine just came to a screeching halt, that momentum that stopped with home builders is still there with us today,” he says.
The pandemic introduced a second distortion. Historically low interest rates created what Rossi calls stranded homeowners – people locked into 3% mortgages with no financial incentive to sell. Some of that inventory is working its way back into the market, but the constraint persists. “We’re still stuck there today,” he says.
Against that backdrop, Rossi is skeptical that policies aimed at smaller cost components will make a meaningful difference. He points to the FHFA’s lender choice policy, which introduced VantageScore 4.0 as a competitor to FICO at the GSEs. The stated rationale was reducing the cost of credit reports through competition. Rossi sees the logic but questions the scale of impact. “For a home buyer, the cost of a credit report is not sort of where the big affordability pain point is,” he says. “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.”
His concern extends further: in a white paper analyzing the FHFA’s lender choice policy, Rossi found that credit score competition could introduce additional credit risk to the GSEs. Lenders, he argues, will naturally select whichever score is higher in order to get loans approved, and his statistical analysis of publicly available loan-level data shows that this selection behavior is associated with higher default rates for investors.
The narrative that large institutional investors are a primary cause of affordability problems also doesn’t hold up under scrutiny, according to Rossi. While he acknowledges that institutional buyers moved aggressively into the single-family market – purchasing properties and converting them to rentals – the data doesn’t support the scale of concern the topic generates.
“In terms of the sheer percentage of homes that are owned by these institutional investors, it’s just a drop in the bucket,” he says. He adds that institutional demand also provides some benefit to the broader health of the housing market. His conclusion: “Trying to pick a fight with the institutional investment community over homes is not going to move the needle very much on dealing with affordability.”
One cost that deserves far more attention, according to Rossi, is homeowners insurance. Availability is shrinking, and premiums are rising in areas increasingly exposed to natural disaster risk, and the effect on total homeownership cost is substantial.
Rossi and his students have done statistical work examining the relationship between extreme weather events and mortgage default. Using loan-level data and controlling for standard borrower variables – credit scores, loan-to-value ratios, debt-to-income ratios – they added measures for the frequency and severity of Category 3 and above hurricanes over the life of a loan. The result: a statistically significant positive relationship between hurricane exposure and the likelihood of a borrower becoming 90 days or more past due.
Insurance carriers are responding to this risk by pulling back. “You’d be surprised how many companies are either not renewing or canceling or really increasing significantly the premiums on policies these days,” Rossi says.
For buyers, the implication is direct: the sticker price and the mortgage rate no longer capture the full cost of ownership. Insurance availability and pricing now function as a third affordability variable, one that varies sharply by geography and is moving in the wrong direction.
Rossi’s guidance for individual buyers draws on decades of watching how markets punish overextension. First, he advises against entering bidding wars. “I think there’s still enough properties out there,” he says. Overbidding stretches buyers – particularly first-time buyers – and puts upward pressure on prices that are already elevated.
Second, he cautions against treating adjustable-rate mortgages as simple relief valves. With the Fed signaling additional rate increases, an ARM that looks attractive today could become a burden. Rossi says the timeline matters: three years is unlikely to produce a favorable financial outcome, while five to seven years with reasonable appreciation starts to look more viable.
His broader concern, shaped by the cognitive biases he witnessed at the executive level before 2008 – herd mentality, recency bias, confirmation bias – is that institutional memory in the mortgage industry has eroded. “I am still surprised to this day that there’s a lot of that hubris and underestimation of what could be ahead,” he says. “People forget that institutional memory is just not there.”
That erosion matters most during benign periods, when defaults are low, and the economy appears stable. Rossi says the best chief risk officers function as umpires – calling balls and strikes as they come, not saying yes to everything or no to everything. The risk is that in a long stretch of calm, fewer people in decision-making roles remember what happens when that calm ends.
About the Expert: Clifford Rossi is a former chief risk officer with senior risk and credit roles at Countrywide, Washington Mutual, and Citigroup. He is now a Professor-of-the-Practice Emeritus at the University of Maryland Business School and Executive-in-Residence at the Johns Hopkins Carey Business School.
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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