Three yards and a cloud of dust

It’s an election year, and housing affordability appears to be a big concern for voters. So, it’s not surprising to see the administration and members of Congress announcing big ticket legislative initiatives to boost homeownership – like a 1^st time homebuyer tax credit and the Neighborhood Investment Act to fix up older homes. 

The Community Home Lenders of America (CHLA) applauds these initiatives. With the Fed gone AWOL on purchasing mortgage loans, mortgage rates have doubled and spreads over 10-year Treasuries are at historical highs. The American homebuyer needs help.

But it’s time for a reality check. Congress is gridlocked, so enactment of these initiatives is highly unlikely. Moreover, when it comes to housing Congress talks a good game, but more often takes a hike in the wrong direction.

In the 2017 tax bill, caps on state and local tax (SALT) deductions and a boost in the standard deduction eviscerated the mortgage interest deduction, ending its use for all but the wealthiest homebuyers. In late 2021, Congress renewed a 10 basis point tax on Fannie Mae and Freddie Mac loans for another decade – not based on loan risk, but to pay for non-housing spending. Homeownership is used far too often as the federal piggy bank.

The reality is that when it comes to homeownership affordability, gains aren’t made through big legislative proposals – but through positive incremental steps by the agencies that run our federal mortgage programs. As the legendary Ohio State football coach Woody Hayes put it, “Three yards and a cloud of dust.”

In February 2023, FHA Commissioner Gordon announced a 30-basis point cut in FHA annual premiums. This is significant, because as noted in CHLA’s annual IMB Report, “84% of FHA loans were for first-time homebuyers, and FHA’s share of Black and Hispanic borrowers was twice the percentage of all other mortgage loans.”

Another issue is home sellers’ bias against buyers using FHA loans, where offers from non-FHA borrowers are often selected even though lower in price. CHLA commends FHA for its work on its “Mythbusters” initiative, designed to blow up the myths around FHA loans by educating lenders and home sellers.

But now a new threat is emerging on this front. While most people are focused on how the proposed NAR commission settlement might change the realty industry, not enough focus is on first-time homebuyers, who might have to come up with significantly higher down payments, which in turn could exacerbate biases against homebuyers using FHA loans.

CHLA wrote to FHA, VA, FHFA, and RHS back in December, warning that underserved, minority, and veteran first-time homebuyers could be harmed without changes to these programs by a shift in home buyers having to fund their broker’s commission. While we took some heat from raising this issue at that time, the proposed realtor settlement could mean that this now becomes a reality on the ground.

So, CHLA recently sent a letter to the Department of Veterans Affairs asking for a fix to the VA prohibition against veterans and active-duty service-members using their own funds to pay broker agent commissions. Last week, we wrote a letter to FHA, offering constructive suggestions to ensure a level playing field between borrowers where the seller agrees to fund buyer brokerage commissions and where the seller doesn’t. 

On a related matter, we also see some in the mortgage industry touting business opportunities of dual compensation – firms or loan originators representing a homebuyer simultaneously as realty agent and home lender.  

Such opportunities may arise. But our members are smaller independent mortgage banks (IMBs), so we have concerns that, if not properly handled, dual compensation simply results in mega realtor/lender firms that crush smaller IMBs. This would harm consumers by reduced competition, resulting in higher costs and fewer lender choices.  

We want to resolve key questions, like potential conflicts of interest, upholding RESPA protections, and ultimately ensuring that borrowers actually benefit from such use.

Another development in the focus on first-time homebuyers is CFPB’s recent announcement that it was going after junk fees and other non-competitive practices in the mortgage loan process.  While some criticized this announcement, CHLA applauded it.

We first used the word “junk fees” two years ago in a letter to the CFPB to characterize the click fees that ICE Technology Partners routinely charges our lender members (and ultimately the borrower) – just to access the data from the same vendors our lenders retain!

CHLA has also called out the FICO 500% boost in the price of credit reports and just recently the near monopoly and excessive prices of Equifax Work third party electronic Work Number (WN) verifications of employment income.  CHLA has also applauded FHFA Director Thompson for FHFA’s work in championing lower cost alternatives to title insurance, such as using attorney opinion letters.  More recently, we have publicly supported FHFA for reviving a pilot program that would offer an alternative to title insurance – an initiative that could save first-time and low-moderate income homeowners a significant amount of money in closing costs on their refinance.

All these homebuyer charges add up.  We need to rein them in.

Three yards and a cloud of dust.