Over the past year, I’ve had the opportunity to sit down with Pennymac CEO David Spector on multiple occasions, first while wearing camouflage in the Black Hills of South Dakota, subsequently for a memorable lunch in New York City, then a visit to the company’s headquarters outside Los Angeles, and also once from a golf course (more standing than sitting, in that case) during California MBA’s Western Secondary. What has made those conversations valuable isn’t simply Spector’s view positioned atop one of the country’s largest mortgage lenders, but it’s the way our discussions have evolved alongside the housing market itself (if you’ll allow me the cliché). Each discussion has moved beyond the headlines du jour and deeper into the structural challenges facing housing finance, affordability, and homeownership.
Spector has long been one of the industry’s more thoughtful operators, equally comfortable discussing mortgage technology, regulatory reform, capital markets, or the behavioral forces driving housing turnover. In our latest conversation, we covered everything from the nation’s housing shortage and the lock-in effect of low-rate mortgages to the role of technology in reducing origination costs and the policy changes he believes could meaningfully improve affordability. As always, the discussion was candid, occasionally provocative, and grounded in the perspective of someone who has spent decades navigating multiple housing cycles.
Our conversation has been edited for length and clarity.
Q: When we think about affordability pressures today, supply is often at the center of the discussion. Some say builders need to build more, others point to zoning reform, consumer finances, or mortgage product innovation. How do you assess the broader housing supply picture across the country right now?
A: Everybody should be looking in the mirror and asking what they can do to help address this issue as it relates to supply and getting people into homes. Having said that, the reality is that we still have a shortage of homes in this country. Depending on whose estimate you use, the deficit is measured in the millions. We’re seeing some improvement in existing-home inventory. NAR recently reported nearly 1.5 million units available, which equates to roughly four-and-a-half months of supply. At the same time, housing starts have declined, so the picture remains mixed.
At the end of the day, it starts with the number of available homes, and more specifically, available affordable homes. That’s the real challenge. Much of what gets built today is concentrated at higher price points, while the cost of construction continues to increase. As a result, affordability remains under pressure even when supply improves at the margins.
I think the administration deserves credit for recognizing that housing affordability isn’t just a financing issue. Historically, the response has often been to throw out a few grants, lower guarantee fees, or focus on mortgage finance. What’s encouraging today is that policymakers are looking more holistically at the problem. They’re trying to address all the factors that influence housing supply. The obstacles are well known: land, labor, materials, and regulation. Those remain significant barriers to increasing supply in a meaningful way.
Q: Historically, where has it been incumbent upon the mortgage industry to contribute to the supply side of the equation? Has that responsibility changed over time?
A: I think the idea that the mortgage industry directly affects supply is somewhat of a misnomer. What actually increases supply? Builders constructing more homes and existing homeowners deciding to sell their homes. That’s where additional inventory comes from. Where mortgage bankers can help is by making the origination process less onerous, less time-consuming, and less expensive. There’s still a tremendous amount of work to be done there. If we can make financing easier and more efficient, we can help facilitate transactions and improve mobility within the housing market.
Government also has a clear role to play. One issue that doesn’t get enough attention is capital gains treatment on home sales. We have homeowners who are effectively locked into their homes because selling would trigger a substantial tax bill. That creates a drag on housing turnover and, by extension, the broader economy. Ultimately, our responsibility is to make it as easy as possible for first-time homebuyers and existing homeowners to purchase a home when they find one they can afford.
Q: Affordability is probably being discussed more than ever. Incomes haven’t kept pace with inflation, and many consumers feel stretched. Sticking with the mortgage industry’s role, how can technology and operational innovation improve affordability and efficiency?
A: We have a responsibility to look in the mirror and ask ourselves how we can make the process easier, faster, and cheaper. Will that solve the supply problem? No. But it can absolutely have a meaningful impact on affordability. My responsibility is to continue driving down the cost to originate a mortgage. That starts with reducing my own cost structure. As we invest in technology and become more efficient, those savings ultimately get transferred to borrowers in the form of lower origination costs.
The second area is speed. We need to reduce the number of days it takes to close a mortgage. Today, borrowers are often competing against all-cash buyers who can close in 10 or 12 days. I want to give financed buyers the ability to compete on equal footing. My goal is to be able to tell a borrower, “I can close your loan whenever you want, starting in 48 or 72 hours.” I don’t want the lender to be the bottleneck. The bottleneck should be things like appraisal timing or title work.
Ultimately, I’d like to live in a world where borrowers can choose their closing date when they submit the loan application. That’s where technology can have a tremendous impact. We should also be asking bigger questions. Can we take a loan file that’s 500 pages today and reduce it to 100 pages without increasing risk to the GSEs or private investors? That’s our job as mortgage bankers. If we can make the process simpler, faster, and less expensive, we can have a meaningful impact on affordability and ease of use. There’s still a crowding-out effect from cash buyers in today’s market. Financing offers often lose to cash simply because they’re perceived as slower or more complicated. That’s a problem we should be solving.
Q: Pennymac has a unique vantage point across the entire mortgage lifecycle. What are you seeing in terms of homeowner behavior, housing turnover, and the interaction between those dynamics and inventory?
A: We’ve spent the last several years living through the effects of historically low mortgage rates. Many borrowers became locked into their homes because moving would require giving up an exceptionally attractive mortgage. Naturally, we’re looking for signals that indicate when those homeowners might be ready to sell and how we can help them through that process. Whether that’s helping them buy another home more quickly or facilitating concurrent closings, there are ways we can make moving easier.
As we sit here today, we’re approaching a point where roughly 35% of our portfolio consists of current-rate mortgages. In many ways, it’s becoming a bit of a “back to the future” environment. I think we’re going to see a return to a more traditional housing ladder. First-time buyers are increasingly purchasing smaller and less expensive homes because of affordability constraints. As their incomes grow and their families expand, they’ll want to move into larger homes.
Our job is to use the data we have to make those transitions easier and less burdensome. If we can do that, we can help increase housing turnover, and housing turnover remains one of the biggest challenges in today’s market. The lock-in effect is still real, but it’s not the only factor. Many homeowners simply want to age in place. Some don’t need to access their equity, while others face tax consequences that make selling less attractive. Those dynamics continue to suppress inventory.
Q: You’ve been complimentary of the administration’s efforts around housing affordability. What parts of the current policy discussion in Washington do you find most constructive?
A: I think the administration, the House, and the Senate deserve credit for coming together around this issue. Housing affordability is increasingly being treated as a national priority, and that’s important. Take the 21st Century Road to Housing Act. It’s addressing affordability through multiple channels. It includes environmental review exemptions, gives communities greater flexibility to direct development funding toward housing supply, expands housing-related activities that qualify for streamlined review, and encourages the use of pre-reviewed housing designs to simplify construction. There are provisions designed to clarify safety review processes and make HUD the primary authority on certain standards. HUD is also being directed to explore pilot programs that could expand access to FHA-backed mortgages under $100,000. The legislation also addresses the role of large institutional investors in certain segments of the housing market. None of these initiatives individually solve the problem, but collectively they’re tackling many of the smaller issues that add up to a larger supply challenge. I also think Director Pulte deserves recognition. He’s been actively working with homebuilders and looking for ways to accelerate the pace at which housing can be brought online.
Q: Where do you think the housing industry still has blind spots when it comes to affordability and supply?
A: I don’t know that I’d call them blind spots. I think we’re all so focused on running our individual businesses that we don’t spend enough time asking how the industry as a whole can become more efficient. You have mortgage companies trying to control every part of the customer journey, from the top of the funnel to servicing, in an effort to create a closed-loop ecosystem where they own the customer for life. I’m not sure that’s the same thing as focusing on affordability or housing supply. You also have different industry constituencies advocating for different priorities. As a large originator and servicer, some of my concerns are naturally different from those of a smaller independent mortgage bank. That’s understandable, but it can make it harder to focus on broader solutions. I think we could all do a better job of stepping back and thinking about these issues from a longer-term perspective.
On the builder side, it’s important to remember that many of today’s decisions are still influenced by the lessons of the financial crisis. Builders got burned by carrying too much land inventory into the downturn, and they’ve become very disciplined about managing risk ever since. In many ways, builders aren’t that different from mortgage lenders. We hedge our pipelines and lock in margins. Builders want to start construction, find a buyer quickly, and lock in their economics. Anything we can do to help builders manage risk, or create new financing structures that help them transfer some of that risk, could encourage more construction activity.
More broadly, I think we’re finally far enough removed from the financial crisis that we can begin reimagining the system. We’ve spent 20 years living with the lessons, and in some cases the PTSD, of that period. Now we have an opportunity to ask, with a blank slate, how we can make the process better.
Q: If you were given that blank slate, where would you start?
A: The first place I’d start is the regulatory framework. Housing affordability is a national issue, yet we operate under a system that includes federal oversight, multiple agencies, and 50 separate state regulatory regimes. That complexity ultimately creates costs and friction that get passed on to consumers. I think we need to have a serious conversation about rationalizing the regulatory structure and asking how we can make the process easier for homeowners.
If affordability is a national problem, we should be looking for national solutions that create a more efficient, consistent, and consumer-friendly experience.
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