Voice of the Industry: Housing Policy, Mortgage Rates, and the Road Ahead for Homeownership

With the midterm elections behind us, attention in Washington is quickly turning to the next Congress and what it will mean for housing. This year brought the first comprehensive federal housing package in decades, the 21st Century ROAD to Housing Act, and lawmakers on both sides of the aisle are already talking about what comes next. At the same time, mortgage rates are above 7 percent, refinance applications are down more than 50 percent from a year earlier, according to the Mortgage Bankers Association, and affordability continues to weigh on both buyers and existing homeowners. Joining me to discuss the policy priorities he would like to see addressed by the new Congress in 2027, along with his outlook for the mortgage market and interest rates, is our Voice of the Industry, David Spector, Chairman and CEO of Pennymac. 

We’re just a week past the midterms. As you look ahead to the next Congress, how are you feeling about the outlook for housing policy in 2027?

David Spector: Following the passage of the ROAD to Housing Act, the first major housing package in a generation, there’s genuine, cautious optimism about building a “ROAD to Housing 2.0” in the 120th Congress. We saw that Congress can pass housing legislation when it focuses on practical, achievable reforms that make a real difference for homeowners. The bill’s passage demonstrated that there is meaningful bipartisan support for housing reform. It was a critical first step, but there’s still more work to do to address the affordability and availability challenges consumers are facing.

Looking ahead, Pennymac is focused on building on the successes of the 119th Congress and continuing to expand housing availability and affordability for current and prospective homeowners. That includes updating the capital gains rules on home sales so long time homeowners aren’t discouraged from selling, creating a tax credit to buy down mortgage rates, and continuing regulatory and zoning reform to increase housing supply. We would also like to see the Neighborhood Homes Investment Act reintroduced to encourage the construction and rehabilitation of homes in underserved communities.

Modernizing the housing industry to meet the needs of families across the country is a durable bipartisan priority. We believe there’s a clear opportunity to build on the progress already made. There’s an old Washington aphorism that if you’re not at the table, you’re on the menu. We want to be at the table, helping ensure that the policies lawmakers pursue ultimately benefit consumers through lower costs and better outcomes.

The ROAD to Housing Act became law in July. What did it get right, and what would you like to see included in a potential “ROAD 2.0”?

Spector: The legislation brought together provisions from more than 60 bills, most of them bipartisan, and focused on practical changes to how housing gets built and financed. That was an important accomplishment. As we look toward implementation, there are still several areas where we’d like to see additional policy and regulatory changes.

One is the capital gains tax exclusion for primary residences. The current limits of $250,000 for single filers and $500,000 for married couples have remained unchanged since 1997. Updating those limits would help longtime homeowners who might otherwise be discouraged from selling because of the tax consequences.

Another priority is the Neighborhood Homes Investment Act, which had bipartisan support in the 119th Congress. We’d like to see it reintroduced. The proposal would create a tax credit modeled on the Low-Income Housing Tax Credit to support the construction and rehabilitation of single-family homes in distressed urban, suburban, and rural communities where construction costs can exceed the prices homes will ultimately command.

We’d also like to see better financing options for accessory dwelling units, including backyard cottages, granny flats, and in-law suites. These units create additional housing on lots that already exist, and improved financing would make them a more practical option for homeowners. The bipartisan SUPPLY Act from the previous Congress offered a good starting point.

Zoning and permitting reform is another important area. The federal government can encourage local governments to make improvements by tying more infrastructure and transportation funding to zoning and permitting reforms. The zoning grants included in ROAD were a good start, but larger incentives could encourage faster approvals and fewer barriers to new construction. Manufactured housing also deserves attention. With the costly permanent steel-frame chassis requirement for manufactured homes now eliminated, expanding access to financing is the next important step. We also support a streamlined refinancing option for borrowers with Fannie Mae and Freddie Mac loans, allowing homeowners to lower their payments more easily when rates decline.

Finally, we’d like to see improvements to FHA partial claims. These programs help borrowers who fall behind on their mortgage payments catch up and remain in their homes. Clarifying that these loans can follow applicable state foreclosure procedures would eliminate costly legal uncertainty and help preserve this important option. The VA Home Loan Program Reform Act already provided similar clarity for VA borrowers, and we believe FHA borrowers should receive the same treatment. These are meaningful policy changes that could make a real difference in housing affordability and availability.

How would updating the capital gains exclusion for primary residences affect housing availability for growing families?

Spector: Think about a couple who bought their home 25 or 30 years ago and have watched its value appreciate significantly. When homeowners sell a primary residence, they’re allowed to exclude a certain amount of the profit from capital gains taxes. That limit is currently $250,000 for single filers and $500,000 for married couples, and it hasn’t changed since 1997. If those limits had kept pace with home prices, they would be approximately $885,000 and $1.775 million today, respectively.

That means many longtime homeowners now face a substantial tax bill if they sell, creating another reason to stay in their homes. And that’s on top of the mortgage rate lock-in effect, which has already discouraged many homeowners from moving because they don’t want to give up the low interest rates on their existing mortgages. The National Association of Realtors estimates that approximately 29 million homeowners could already exceed the current $250,000 exclusion limit, and by 2030 that figure could reach 56% of homeowners.

Older homeowners are particularly affected. Roughly 11.5 million homeowners over age 65 live in homes larger than 2,000 square feet. Many are empty nesters who might like to downsize, but a potentially six-figure tax bill gives them another reason to remain where they are. That means fewer larger homes become available for growing families who need the space.

There are several ways to address this issue. Congress could raise the exclusion limits and adjust them for inflation, establish a one-time tax holiday, or allow homeowners to place sale proceeds into tax-advantaged retirement accounts. Updating the exclusion would help bring more existing homes to market, improving housing mobility and availability. The economic activity generated by additional home sales could also substantially offset the cost of the policy.

Let’s turn to the market. What do you expect for rates and the mortgage market heading into 2027?

Spector: When we spoke around this time last year, the Fed had just started cutting rates, and I said we expected 2026 to be a more balanced year, with gradual improvement rather than a sharp rebound. The path has been bumpier than most of us expected. We started the year anticipating three rate cuts, but by September, the Fed’s median projection pointed to one more rate increase before the end of 2026. Higher inflation, driven largely by energy prices amid the conflict in Iran, pushed rates higher. The Fed raised rates in September and held them steady through October.

As of late October, the average 30-year fixed mortgage rate was approximately 7.32%, compared with about 6.2% a year earlier. It’s important to keep this in perspective. Rates are higher than they’ve been in recent years, but they’re still below the long-term historical average. People are continuing to buy homes, and buyers have opportunities in this market.

I won’t make a specific rate prediction, but Fannie Mae expects the average 30-year fixed mortgage rate to reach 7.4% in the fourth quarter of this year and average 7.5% throughout 2027. That makes the supply reforms we’ve discussed even more important. Helping buyers find homes they can afford is where the greatest need exists. Higher rates will also likely contribute to further consolidation across the mortgage industry. Companies that have invested in technology, maintained disciplined cost structures, and built efficient operations will be better positioned to serve homeowners through different market environments. At Pennymac, we’re planning for a range of rate scenarios and will continue supporting policies that meet homeowners where they are.

When policymakers talk about helping first-time buyers, down payment assistance often comes up first. Are there other approaches Congress should be considering?

Spector: Down payment assistance has helped many families achieve homeownership, and it remains a useful tool at the margin. But demand-side programs run into a fundamental limitation: if there aren’t enough homes available, additional buying power mostly drives up prices on the same houses. A buyer’s dollar goes further only when there’s something new to buy.

The country is short by millions of housing units, and the shortage is particularly concentrated in the entry-level homes that first-time buyers need. Builders have increasingly shifted toward larger, higher-margin products because the economics of building at the lower end of the market often don’t work. The most durable thing Congress can do is make housing less expensive and faster to build. That means addressing constraints that exist upstream of the mortgage itself, including local zoning and land-use restrictions, permitting timelines, construction labor shortages, and material costs. We should be looking at the entire housing ecosystem. Improving financing is important, but it won’t solve the problem if we’re not building enough homes in the first place.

How can regulatory and zoning reform meaningfully boost housing supply?

Spector: We all know there aren’t enough new homes being built, particularly for first-time buyers, and restrictive local zoning and slow permitting processes are significant contributors to the problem. Single-family-only zoning applies to roughly 70% of residential land. Other local restrictions add to the challenge. Minimum lot-size requirements can force each home onto a larger parcel than necessary, minimum parking requirements consume space that could otherwise accommodate housing, and height restrictions limit how many homes can be built on a given property.

Zoning is ultimately a local decision, but the federal government has tools to encourage reform. It can tie infrastructure and transportation funding to improvements in zoning and permitting, allow projects that meet clear standards to move forward without lengthy case-by-case reviews, and establish reasonable timelines for local approvals. Factory-built housing should also play a larger role. Manufactured homes cost approximately half as much per square foot to build as traditional homes. Greater adoption of robotics in construction could bring costs down further. Robotic construction also requires fewer workers on-site, which helps address severe construction labor shortages and reduces overall labor expenses.

Across the industry, addressing restrictive zoning and regulatory barriers will encourage more construction and help meaningfully expand housing supply. We need to make it easier to build the types of homes American families actually need.

When rates eventually ease, how can policymakers make sure homeowners are able to benefit from refinancing, and what role do servicers play?

Spector: Refinancing is one of the most direct ways homeowners can lower their monthly mortgage payments, yet unnecessary red tape can stand between families and those savings. At Pennymac, we support the initial steps being taken toward a streamlined GSE refinancing option for borrowers with Fannie Mae and Freddie Mac loans, similar to options already available to FHA and VA borrowers.

If a homeowner has a 12-month history of on-time payments and can reduce their interest rate by at least half a percentage point, the path to a new loan should be quick and straightforward. When a refinance remains within the same agency, no new credit risk is introduced. There’s a strong case for FHFA to reduce or eliminate the risk-based fees that Fannie Mae and Freddie Mac charge on these transactions, known as loan-level price adjustments.

Servicing also plays an important role. A low-cost, efficient servicer is in the best position to help homeowners, whether they’re answering a question, working through a financial hardship, or helping a borrower refinance. At Pennymac, our direct cost to service a loan was $89 in 2025, well below the industry average of approximately $185. We’re working to bring that cost down to $55 over the next few years through technology and automation.

We also believe it’s worth revisiting the minimum servicing fee. It has remained at 25 basis points since the 1980s, even as average home prices and loan balances have increased substantially. Because the fee is calculated as a percentage of the loan balance, lowering it could give efficient servicers more flexibility and potentially reduce costs for homeowners. Ultimately, a well-run servicer means faster assistance today and a company that’s prepared to help homeowners refinance when the opportunity makes sense.

If you could put one item at the top of Congress’s housing agenda for 2027, what would it be?

Spector: Updating the capital gains exclusion. It hasn’t changed since 1997, and it’s one of the most direct ways to encourage more existing homes to come to market.

More broadly, no single policy will solve the affordability challenge. It will take coordination across all levels of government and the private sector, with progress on housing supply, homeowner mobility, and the cost of financing. Every one of these policies comes back to a family: the couple trying to buy their first home, the retiree who wants to downsize, or the homeowner waiting for the right time to lower their monthly payment. If Washington keeps those families at the forefront of its mortgage and housing agenda, 2027 can be a great year for American homeowners and buyers.