A proposed 20-year government-sponsored mortgage program could allow new homeowners to build wealth twice as fast as a traditional 30-year loan.
However, industry participants wonder if this is the best way to help minorities and low-income families create wealth through housing.
The sponsors of the Low-Income First-Time Homebuyers Act, LIFT for short, are all Democrats: Sens. Mark Warner and Tim Kaine from Virginia; Raphael Warnock and Jon Ossoff from Georgia; and Chris Van Hollen from Maryland.
LIFT would allow first generation first generation borrowers to build equity twice as fast as a traditional 30 year Federal Housing Administration loan by foregoing the annual fee and offering a lower interest rate but paying a higher upfront fee and overall a slightly higher monthly payment.
The LIFT Act Leaflet provides a scenario that compares the traditional 30 year FHA loan and the LIFT proposal: a $ 210,000 property that the borrower pays $ 10,000 (a little less than 5%) on and a 30 year FHA loan priced at. absorbs 2.75% – with an annual fee of 85 basis points and an upfront fee of 175 bps – would result in a payment of $ 970 per month.
In the proposed LIFT program, the borrower receives a 20-year FHA loan at 1.5% with an upfront fee of 400 bps but no annual fee. Payment is $ 1,004 per month.
After 10 years of payments, the LIFT borrower would have $ 96,219 in equity compared to $ 50,268 for the 30-year FHA mortgage.
While some industry representatives welcome the idea, they don't wholeheartedly support it.
The LIFT plan already mirrors something in the Congressional budget vote proposal, which would provide $ 500 million to subsidize 20-year mortgages for first-generation homebuyers to help accelerate home equity development.
In addition, another part of the budget reconciliation proposal that includes a down payment would have a more immediate impact on housing affordability, said Doug Ryan, interim vice president of policy and applied research at Prosperity Now, a nonprofit group dedicated to improving the economy Dedicated opportunities for low income families
"Our position is that this (wealth creation mortgage and / or LIFT) should not be part of the arbitration," he added. "That's not to say it's not worth pursuing on paper, but reconciliation is the only game in town right now and we consider the commitment to deposit assistance a priority."
Congress will likely not have the appetite to pursue the LIFT bill once the budget reconciliation is completed, he added.
And while it makes sense to use a portion of the FHA and Ginnie Mae's profits to help homeowners build equity, there are other more efficient ways to do that, said Scott Olson, executive director of the Community Home Lenders Association.
"Secretary (Marcia) Fudge could do this right now – just exit the HUD policy that was put in place in 2013 to calculate FHA premiums for (the) life of the loan," said Olson. "This has been a top priority for CHLA for many years."
In an example from CHLA, a $ 200,000 loan down 3.5% ($ 7,000) has an upfront FHA premium of $ 3,436.61. Including the monthly fee of 85bps, the total premiums paid until the loan reached 78% Lending Ratio would be $ 20,000 and if the loan is for the full term it would be over $ 35,000 in potential savings.
The Mortgage Bankers Association did not comment on the LIFT proposal, but reacted cautiously to the similar asset-building component in the reconciliation proposal. In a September 13 letter to House Financial Services Committee Chair Maxine Waters, D.-Calif., And Ranking Member Patrick McHenry, R.-NC, they wrote, “Although the MBA recognizes the intent of this section However, we note that this program has significant operational complexities and less borrower attractiveness (determined by the extent to which monthly payments would differ between the 20-year and 30-year options) compared to The organization commented on the forgivable grants "for down payment assistance, which are mentioned in the Reconciliation Act. It has not commented on LIFT.
More positive about the proposal is Marvin Owens, chief engagement officer of Impact Shares, whose products include an exchange-traded fund that invests in mortgage-backed securities from agencies that invest in affordable housing.
"This much-needed innovation in the FHA lending program … shows that Congress can creatively think about solutions to this ongoing problem." said Owens. "In addition, the program also recognizes the important role capital markets play in working to ensure equal opportunities for all Americans."
After the LIFT loan was issued and then securitized by Ginnie Mae, the Treasury Department would buy the loan at a premium to compensate the lender. It would then reverse and resell the securities to the fixed income market at below par.
While the bill mentions the participation of both the FHA and the US Department of Agriculture in rural housing, it does not include the Veterans Administration.
"The mechanisms of securitizing these targeted mortgage pools are consistent with our existing Impact Shares Affordable Housing MBS ETF," said Owens. "LIFT affirms our strategy and we look forward to even more opportunities to build on public-private partnerships to find solutions to bridge the racial wealth gap."
Ginnie Mae does not comment on pending laws, a spokesman said.
While it's positive to see that the focus is on affordable home ownership, "there are so many parts. It's a really complex, intricate problem," said Ryan.
Meanwhile, the Senate has yet to approve Julia Gordon, Biden's candidate for Federal Housing Commissioner, and Alanna McCargo to fill the long-vacant post of President Ginnie Mae.
“These are pieces of the puzzle that need to be filled in pursuing the government's goals of expanding home ownership, of which these critical administrative posts are part of it. I would like to see the Senate focus on that, ”he said.