The National Association of REALTORS® (NAR) has long been advocating for measures to reduce the cost of credit to consumers and increase the number of first-time homebuyers. In the past two months, the Administration has announced new policy initiatives to help more homebuyers enter the housing market.
On January 8, 2015, President Obama announced that the Federal Housing Administration (FHA) would reduce FHA annual mortgage insurance premiums (MIP) by 50 basis points. This reduction is a victory for NAR members who have called for lower fees on FHA loans since early 2014. NAR first raised concerns about the costly premiums in an April 2014 letter to then FHA Commissioner Carole Galante, and worked in coordination with advocacy groups and members of Congress to educate HUD about the critical need to reduce the fees. NAR estimates that a 50-basis point reduction in the annual MIP from 1.35 percent to 0.85 percent would price-in an additional 1.6 million to 2.1 million renters, along with many trade-up buyers, resulting in 90,000 to 140,000 additional annual home purchases. On January 26, the 50-basis point MIP cut went into effect.
On December 8, 2014, Fannie Mae and Freddie Mac released details on new mortgage product offerings that would provide access to qualified borrowers able to put down at least three percent. Originally announced at the 2014 REALTORS® Conference and Expo by Federal Housing Finance Agency Director Mel Watt, these new initiatives will expand credit for qualified home shoppers who may have been sidelined the last few years because of higher downpayment requirements. NAR research shows that saving for a down payment is the biggest hurdle to homeownership for many first-time buyers who have been entering the market at lower than normal rates. It is important to note that Fannie Mae and Freddie Mac borrowers will still need to meet standard eligibility requirements, including underwriting, income documentation, and risk management standards. Lenders were able to start offering Fannie Mae’s products on December 13, 2014, while Freddie Mac will implement the program on March 23, 2015.
While the above initiatives are a good first step to getting more homebuyers into the market, there are still issues that the Administration needs to address that are negatively impacting the housing recovery. Fannie Mae and Freddie Mac’s increased guarantee fees (g-fees) and upfront fees charged to borrowers (loan level pricing adjustments or LLPAs) impact the costs and, ultimately, access to mortgages for an ever-increasing number of borrowers as these charges are passed onto borrowers, typically in the form of higher mortgage rates. NAR is especially concerned with the disparate impact the changes will have on first-time homebuyers and other traditionally underserved borrowers.
Significant restrictions by FHA, Fannie Mae and Freddie Mac on the purchase of condominiums are also impacting the housing market. Owner occupancy restrictions, project approval processes, investor ownership and pre-sale requirements are just some of the barriers preventing consumers from the ownership of condominiums, which are often the most affordable options for first-time homebuyers. FHA, Fannie Mae and Freddie Mac have worked around the edges on the condo issues, but really need to treat condos more like single-family homes in order to serve more eligible borrowers.
NAR continues to press for reasonable reforms to increase access to homeownership. NAR will continue to work with Congress and the Administration to ensure that any reforms expand opportunities and choices for Americans without exposing them to risky mortgage products that do not serve their interests.
This column is brought to you by the NAR Real Estate Services group.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.
For more information, visit www.realtor.org.