As the Biden / Harris administration takes office, it faces many crises and challenges – including bridging the party divide, increasing vaccines to end the COVID-19 crisis, stimulating the economy and tackling huge budget deficits all into one Time when many believe we need to spend more to help the economy.
From my perspective, as the owner of a small independent mortgage lender, the Biden government shouldn’t overlook another important priority – maintaining access to mortgage credit, especially for minority, low-income and underserved homebuyers and homeowners.
The COVID-19 pandemic has exacerbated inequalities between minorities and non-minorities, and between the rich and the disadvantaged, in many areas, including economic well-being, access to health care, educational opportunities – and home ownership.
The home ownership gap remains large: a home ownership rate of over 70% for non-Hispanic White Americans compared to rates in the 50s for Hispanics and in the 40s for African Americans. There is no reason to believe that COVID will not exacerbate these loopholes.
How the mortgage industry is working together to make housing more affordable
There is no one-size-fits-all solution to the issue of affordability of living space, but by working together across the housing industry, we can jointly offer more people more opportunities to acquire sustainable, long-term home ownership.
Presented by: Fannie Mae
What can we do against it? Lenders like my firm strive to find and provide minority credit, including training our lenders to address the needs of underserved borrowers. Mortgage service providers need to be responsive and flexible to borrowers struggling to make mortgage payments due to COVID (and the good news is that mortgage service providers seem to be doing a better job than they did after the 2008 crisis). Communities and nonprofits can provide financial literacy and home ownership advice.
Perhaps most important is that Federal Housing Administration must continue to play its vital role in serving qualified borrowers with limited down payment and minor credit defaults. With the assumption of office of the Biden administration Community Home Lenders Association, of which I am a member, has published a comprehensive set of FHA recommendations to improve FHA’s access to mortgage credit.
First and foremost are the premiums from the FHA. CHLA argues that FHA’s net worth is at a record high of over 6% (more than three times the legal requirement) it should stop overcharging its loans. The Trump administration – which was a good administrator of the FHA program – nonetheless began on inauguration day by canceling a 25 basis point annual premium cut that the outgoing Obama administration had made on its way out. CHLA believes that restoring this premium cut should be an immediate priority.
Another priority is ending the FHA’s Life of Loan premium policy. Introduced in 2013 as one of several temporary measures to top up FHA reserves after the 2008 housing crisis, it has far outlived its need. FHA borrowers already pay around 10% premiums when they reach 78% of the loan-to-value. The term of the loan adds another 8%. It is not actuarially justified and it deprives minority and underserved borrowers an estimated $ 16,000 of equity for a $ 200,000 home purchase held until the loan is due.
Life of Loan is also bad for FHA finances – depriving FHA of premiums as Life of Loan pushes borrowers who are able to refinance to other cheaper loans that don’t carry lifetime mortgage insurance premiums.
FHA should also focus on access and availability. Assuming the Biden government restores the DACA program, FHA should clarify that Dreamers are eligible for FHA loans.
Additionally, the Trump administration has made constructive changes to the FHA condominium loans – but more is needed to really move the condominium loan program forward. The FHA should provide more guidance on Form HUD-9991, create a more interactive application process, and allow lender certification subject to a rigorous FHA review of key areas such as cash reserves.
This column does not necessarily reflect the views of the editors of HousingWire or its owners.
To contact the author of this story:
Anthony Kellum at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]