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Finally, Government Works

Different approaches could help boost home ownership

Lew Sichelman headshot
Lew Sichelman
Finally, Government Works

“I’m from the government, and I’m here to help you” is often considered one of the three great lies. Indeed, there are plenty of people who have long-held gripes with their state, local, and/or federal governments.

However, Uncle Sam can be helpful, especially in the housing space. Or not. To wit:

I was recently burned by a plumber who did a lousy job and would not return to fix his work.

I say this because I was influenced by reviews on our local community message board. I don’t know whether the reviews were legit or not. But if they weren’t, the already unethical practice is about to become illegal.

The Federal Trade Commission has proposed a new rule to stop marketers from using illicit review and endorsement practices, such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews.

“We’re using all available means to attack deceptive advertising in the digital age,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection.

Attention loan brokers and real estate agents: The rule calls for civil penalties for violators, up to $50,000 per. The consumer watchdog agency says case-by-case enforcement without civil penalty authority might not be enough to deter clearly deceptive review and testimonial practices.

According to consumer groups, some 30% to 40% of online reviews are fabricated or otherwise not genuine. There are even online outfits that will supply fake reviews for anyone willing to buy them.

Rewarding Good Behavior

Some landlords are quick to report tenants who miss a payment or two to credit bureaus. But positive rental histories are rarely reported.

Now, Fannie Mae is in the midst of testing a program that will allow on-time payments to become part of a renter’s credit record so they can have a better shot at obtaining financing for their first homes. And the Federal Housing Administration recently began allowing lenders to include positive rental histories in their credit assessments. The programs are designed to improve equitable access to credit, whether someone wants to own or continue renting. They hope to accelerate the adoption of rent payment reporting by owners and managers of rental properties. And based on a small sample, more and more landlords are starting to report on-time payments.

Samuel Levine, director of the FTC’s Bureau of Consumer Protection

According to a limited poll by TransUnion of 150 property managers who oversee mid- and large-size apartment projects with a total of 3,300 units, a third of those who are aware of their ability to report on-time payments currently do so. That’s a 37% increase from a year ago.

There’s nothing particularly altruistic here. Indeed, the main reason they report on-time payments is self-serving. Helping residents build their credit ratings attracts would-be occupants and encourages tenants to pay on time.

Currently, according to the Urban Institute, fewer than 5% of all rental households have their rental payment histories on file with the three major credit reporting agencies — TransUnion, Equifax, and Experian.

Permanent Standards

There’s no question that lenders and their clients need to be protected from buying into condominium and cooperative projects that are suffering from critical deferred maintenance and special assessments. And so it is that Fannie Mae and Freddie Mac this month will make permanent project review standards put in place on a temporary basis two years ago as the result of the Champlain Towers South collapse in Miami.

The update will deny financing for condo and co-op units in projects with unfunded repairs totaling more than $10,000 per unit are unwarrantable. The new guardrails also impose project review standards to address the risks posed by buildings with significant deferred maintenance that can result in “unsafe living conditions, evacuations, and uninhabitable homes.”

There’s also no question that condos — and to a lesser extent co-ops — are perhaps the lowest-cost option for rookie home buyers trying to get a toehold on the first rung of the housing ladder. So, the now permanent rules, rightly or wrongly, take what may be a significant share of less-expensive units off the market by making them ineligible for less-expensive financing.

Reigning In Tax Breaks

Speaking of creating inventory, eight Democratic senators have thrown into the hopper a measure that they hope persuades Wall Street investors from buying up thousands of houses that would otherwise be sold.

The bill, whose co-sponsors include Chairman Sherrod Brown (D-Ohio) of the Senate Banking, Housing, and Urban Affairs Committee, and Ron Wyden (D-Oregon), head of the Senate Finance Committee, would restrict tax breaks for private equity firms and other big investors.

Specifically, the legislation would deny investors who purchase more than 50 houses write-offs for interest and depreciation. These are the very same bennies that allow big-time investors to outbid real buyers for affordable houses that end up for rent instead of for sale.

“Our bill will help prevent corporate landlords from driving up local housing prices, and put power back in the hands of working families who need a safe, affordable place to live and raise their children,” Brown said in a statement.

Other lawmakers on the bill include Tina Smith (D-MN), Jeff Merkley (D-OR), Jack Reed (D-RI), John Fetterman (D-PA), Elizabeth Warren (D-MA), and Tammy Baldwin (D-WI).

Shorter Mortgages

Not to be outdone, five Democratic Senators led by Mark Warner of Virginia and a lone Congressman have reintroduced bicameral legislation to help first-time, first-generation buyers by offering them 20-year mortgages at “roughly” the same monthly payment as a 30-year loan would carry.

The Low-Income First-Time Homebuyers Act would require the Treasury Department to subsidize the mortgage rate and origination fees of the 20-year loans so the monthly payment “would be in line” with a 30-year FHA loan. It also would allow buyers whose incomes are no more than 120% of their area median to grow their equity twice as fast.

Here’s how it might work: Say the buyer puts down $10,000 on a $210,000 property and finances the rest. At today’s rates, an FHA loan with all the necessary fees would cost $1,377 a month. But with a 20-year LIFT loan at 1 percentage point less, the monthly nut, again with all the fees included, would be $1,430 and the borrower would build equity twice as fast.

“It’s about time Congress took bold steps to support the American dream of home ownership for working-class families that for too long have been left behind,” the House co-sponsor, Rep. Emanuel Cleaver (D-Missouri), said in a statement

But there are a couple of rubs here: One, Fannie Mae does not publically publish its list of unwarrantable properties. The FHA, VA, and Freddie Mae publish their lists, but not Fannie. Consequently, lenders and buyers can be caught unaware that a property in unwarrantable. Sometimes, not until the buyer is packed up and ready to move, leaving them to scramble for often more costly funding.

Some, like Jeff Lazerson, an Orange County, Calif., mortgage broker, complain that Fannie’s roster amounts to a “blacklist.” He says the “lack of transparency is financially blindsiding would-be home buyers that are unwilling or unable to pay the extra freight.”

Two, the Urban Institute, a bi-partisan think tank, argues that there are better ways to provide similar protections and with a lower market cost. One would be to require more frequent inspections. And if the architects and engineers performing said exams find severe structural damage, their findings should be reported not just to the condo board but to local building officials — within 24 hours!

The Institute also says there should be easier ways to find out when a building last passed an inspection and when the next inspection is due.

Better Gains

The nation’s homeownership rate dipped in 2020 to its lowest level in 53 years, and it’s likely to be lower now because the market has been all but frozen because of high loan rates, high housing costs, and the low number of houses for sale.

Now, two House lawmakers, one a Republican from Pennsylvania and the other a Democrat from California, have introduced legislation they believe will go a long way toward clearing the inventory logjam by increasing the federal gain-on-sale tax back to $500,000 for single filers and $1 million for joint filers, where it was prior to 1997.

Currently, single sellers can exclude just half the old amount — $250,000 — in gains from the sale of their homes, while joint filers can exclude only $500,000.

That would certainly help people like alert reader Tom Littman in San Jose, Calif. The Littmans have lived in their home for 36 years, their kids are grown, and they would like to sell and move to a smaller place. But they are locked in because they would be hit with a capital gains tax on the “significant” amount of profit over and above the current write-off.

“It turned out to be the deal breaker,” Littman wrote in an e-mail. Instead, like many others, they elected to “stay put.”

Perhaps with that single change and a return to yesteryear, it would help solve the inventory crisis.

This article was originally published in the NMP Magazine September 2023 issue.
Lew Sichelman headshot
Lew Sichelman,
National Mortgage Professional Contributing Writer

Lew Sichelman has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country. He also has been the real estate editor at two major Washington, D.C., dailies and spent 30 years on the staff of National Mortgage News, formerly National Thrift News.

Published on
Aug 29, 2023
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