Over the past few years, mortgage industry participants have made great strides in efforts to help close the gap in minority homeownership. Nationwide initiatives, such as the MBA of America’s CONVERGENCE place-based initiatives, the NAREB Building Black Wealth Tour and the Hispanic Wealth Project, bring hope to both consumers and lenders. On October 2, 2024, the National Council of State Housing Agencies (NCSHA) recognized Affordable Housing Innovation Among State Housing Finance Agencies. Financial institutions have expanded their outreach activities and professional collaborations. Nonetheless, America is still faced with low inventory, uncertain interest rates, and cash-strapped homebuyers.
According to the 2024 State of the Nation’s Housing Report by the Joint Center of Housing Studies (JCHS) of Harvard University, half of all renter households (22.4 million) are cost-burdened, spending greater than 30% of monthly income on rent, and about half of this group (12.1 million) are severely cost-burdened, where 50% or more of income is needed to cover rent. Black and Hispanic renters have been hit especially hard, and over the past two years, the numbers of Black and Hispanic renter households that could afford the median-priced home dropped by 43% and 40% respectively, according to JCHS.
Next year’s mortgage shoppers will be “incentive-shopping”
In the hopes of finding an affordable home, homebuyers will be doing more than just shopping for competitive rates—they will be looking at the whole package. Due to the wide media coverage promising down payment assistance and tax credits, the search for incentives will be in full force. In addition to low housing inventory and uncertain rates, next year’s homebuyers are likely to be somewhat apprehensive about the “fear of missing out (FOMO).”
Customers will begin asking questions about how mortgage tax credits work, and what types of payment records are acceptable to prove their two-year rental history. They may need clarification about eligibility criteria noted on forms, such as the First Generation Homebuyer Certificate (Form 1109), which is currently required by state housing agencies.
Not every applicant will be eligible, but lenders can show good faith by searching for other programs and incentives. By encouraging “pre-purchase” interviews, originators can help customers by exploring homebuyer assistance in any geographic location using tools such as Freddie Mac DPA One.
Homebuyers can benefit from meeting with a HUD-certified homebuyer counselor
The fear of missing out—and other uncertainties—can be lessened with the help of an independent advisor. Trained counselors can bring much-needed clarity to a complex process, even when customers are dealing with a highly competent realtor or loan officer. Impartial advisors help validate what has been communicated to homebuyers regarding customary real estate practices and mortgage application steps.
The U.S. Department of Housing and Urban Development (HUD) administers a network of 1,500 Housing Counseling Agencies (HCAs), serving approximately 1 million clients each year. Certified counsellors also participate in providing applicable homeownership education requirements of Fannie Mae and Freddie Mac, as outlined on the Supplemental Consumer Information Form (Form 1103).
What will $25,000 in homebuyer assistance look like?
David M. Dworkin, President and CEO of the National Housing Conference, wrote that The Harris-Walz Housing Plan was detailed, serious, and impactful, and calls for a significant expansion of President Biden’s down payment assistance proposal. The Biden-Harris administration initially proposed providing $25,000 in down payment assistance to 400,000 first-generation homebuyers and a $10,000 tax credit for first-time homebuyers.
The Harris-Walz Housing Plan will provide $25,000 to all eligible first-time homebuyers and ensure full participation for first-generation homebuyers. The plan expands the reach of assistance to 4 million first-time buyers over the next four years.
There are two pending bills from the Biden-Harris Administration that are likely to serve as the background architecture for next year’s initiatives. The Downpayment Toward Equity Act (H.R. 4231) is a bill that was first introduced by Congresswoman Maxine Waters, and has been pending with the 118th Congress (2023-2024).
The Biden First-Time Homebuyer Act of 2021 is a bill that aimed to revive a 2008 tax credit that expired. Under the new plan, eligible home buyers could receive a tax credit equal to 10% of the purchase price of their home, capped at $15,000.
The First Generation Down Payment Fund is an active program as part of the Build Back Better Act, passed by the U.S. House of Representatives in November, 2021. The $10 billion grant program is allocated to U.S. states and available through housing partnership organization and other eligible entities. The program is available from participating housing finance agencies. Key eligibility rules are highlighted below—some of which are likely to be incorporated in the Harris-Walz plan:
- First-time homebuyers are those who have not owned a home in the prior three years.
- First-generation homebuyers are individuals whose parents or guardians never owned a home during the homebuyer’s lifetime and whose spouse has not owned a home in the last three years. Any individual who has lived in foster care also qualifies as a first-generation homebuyer as long as they have not owned a home in the previous three years.
- Homebuyers must have an income at or below 120% of the area median income (AMI) for either the area where the home being purchased is located or the area where the homebuyer’s place of residence is located. Income limits are increased to 140% of AMI if the home being purchased is located in a high-cost area.
Now is the time to shore up internal training
The First Generation Fact Sheet from Fannie Mae provides a comprehensive FAQ that can help mortgage operations employees understand a whole new vocabulary of terms. To help meet the needs of next year’s homebuyers, here are some key topics to include in staff training:
- Procedures in documenting a two-year proof of rent payments–and acceptable forms, such as the Venmo rental app.
- Acceptable forms of non-traditional documentation to verify payments for rent, utilities, cable, telephone, health insurance, tuition, child care, workers’ union, and equipment leases.
- Pre-purchase interviews for determining eligibility based on housing costs and MSA income for the area where prospective homebuyers are looking.
- Understanding exemptions to first-generation eligibility rules, such as heir’s property, undeveloped land, mobile homes, etc.
- Anticipating issues regarding rate lock and/or mortgage contingency expirations.
- Handling a below-contract appraisal and request for reconsideration of value (ROV).
Anna DeSimone provides fair lending consulting services at Housing Research, LLC
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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