Q&A: A mortgage exec reflects on housing market's challenges

WASHINGTON – From the outside, the housing market looks solid: Sales are climbing. So are prices. Mortgage rates are near historic lows.

But the picture gets more complicated the deeper you dig into the data. U.S. home ownership rates have sunk to a half-century low. And qualifying for a mortgage requires an all-but-pristine credit score. Which can make life hard for both would-be sellers and buyers.

The Associated Press spoke with Rohit Gupta, chief executive of Genworth Mortgage Insurance, about today's housing market.

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Why are mortgage rates so low?

Gupta: Rates have always been tied to 10-year Treasury yields. The yield is the interest paid on government debt. Concerns about a global slowdown have caused more investors from around the world to put their money in Treasury notes, as has past government stimulus. This has kept rates low.

But the people receiving mortgages also have better credit records than in the past. So there is less risk in lending to them and, therefore, lower rates. Credit gets measured using a FICO score, with 850 being the highest. Our average FICO for mortgages is 740 to 750.

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Do people have the standard 20 percent down payments?

Gupta: Even with the housing market recovering, there are still plenty of first-time homebuyers who can't afford 20 percent down. But mortgages insured through Fannie Mae and Freddie Mac increasingly have down payments of 30 percent or 40 percent. Those are very pristine borrowers.

Unfortunately, there are still borrowers who don't have the down payment or the credit score. If you have 10 percent down with a FICO of 640, your interest rate will be so high that you're probably going to just rent.

As more renters come onto the market, then people who once only had primary homes are buying houses for rental purposes. This trend reduces the supply of homes for sale, which means home prices go up.

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Can new construction help?

Gupta: Builders aren't building a lot of starter homes, in part because of the costs of regulation and land. We've had this theory internally that middle class families would typically buy four homes in their lifespans: A starter home, an upgrade home, their vacation home and then, finally, their retirement home. But this concept of starter homes is getting tougher and tougher in the United States.

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Do you foresee the home ownership rate increasing from roughly 63 percent?

Gupta: We believe that housing is robust in the United States. And housing is going to be robust over the next few years, unless there is a negative global event.

But that entire housing story is not going to move the home ownership rate. This is because under the current conditions, a good amount of the population is staying on the sidelines as renters.

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Answers edited for content and clarity.