Biden should make access to mortgage credit a top priority
As the Biden/Harris administration takes office, it faces many crises and challenges – including bridging the partisan divide, ramping up vaccines to end the COVID-19 crisis, jump-starting the economy, and facing huge budget deficits at a time when many believe we need to spend more to help the economy.
From my perspective as the owner of a small independent mortgage banker, the Biden administration should not ignore another important priority – maintaining access to mortgage credit, particularly for minority, low-income, and underserved homebuyers and homeowners.
The COVID-19 pandemic has exacerbated the inequalities between minorities and non-minorities and between the wealthy and less well off in many areas, including economic well-being, access to healthcare, educational opportunities – and homeownership.
The homeownership gap remains large: a homeownership 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 COVID will not exacerbate these gaps.
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What can we do about this? Lenders like my firm are committed to outreach to find and make loans to minorities, including training our loan originators to be responsive to the needs of underserved borrowers. Mortgage servicers must be responsive to and flexible with borrowers struggling to make mortgage payments due to COVID (and the good news is, servicers seem to be doing a better job than after the 2008 crisis). Communities and nonprofits can provide financial literacy and homeownership counseling.
Perhaps most importantly, the Federal Housing Administration must continue to play its critical role serving qualified borrowers with limited down payment capabilities and minor credit blemishes. As the Biden administration takes office, the Community Home Lenders Association, of which I am a member, released a comprehensive set of FHA recommendations to enhance FHA’s access to mortgage credit role.
First up is the premiums FHA charges. CHLA argues that since FHA’s net worth is at record levels of over 6% (more than three times its statutory requirement) it should stop overcharging for its loans. The Trump administration – which has been a good steward of the FHA program – nevertheless started off on inauguration day by cancelling a 25 basis point annual premium cut the outgoing Obama administration made on its way out the door. CHLA believes restoring this premium cut should be an immediate priority.
Another priority is ending FHA’s Life of Loan premium policy. Put in place in 2013 as one of several temporary actions to boost FHA reserves after the 2008 housing crisis, it has far outlived its need. FHA borrowers already pay roughly 10% in premiums by the time they hit 78% loan-to-value. Life of loan adds another 8% on top of that. It is not justified actuarially and it deprives minority and underserved borrowers of an estimated $16,000 in equity on a $200,000 home purchase held to loan maturity.
Life of Loan is also bad for FHA finances – robbing FHA of premiums as Life of Loan pushes borrowers that are able to refinance to other less expensive loans that don’t carry lifetime mortgage insurance premiums.
FHA should also focus on access and availability. Assuming the Biden administration restores the DACA program, FHA should make clear that Dreamers are eligible for FHA loans.
Additionally, the Trump Administration made constructive changes to FHA condominium loans – but more is needed to really move the dial on the condo spot loan program. FHA should provide more guidance on Form HUD-9991, create a more interactive application process, and allow lender certification subject to stringent FHA scrutiny of key areas like cash reserves.
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