100 Days in, Here’s Biden’s Impact on the Mortgage Industry

Last week marked Biden’s first 100 days in office. From a $1.9 trillion coronavirus relief bill to 200 million vaccine doses delivered, the new administration has been busy. Steadily rising mortgage interest rates signal a recovering economy, and consumer sentiment reflects optimism around life beginning to return to normal.

But has Biden held his promises so far when it comes to housing? Months back, we published our Mortgage Industry Voter’s Guide, which laid out Biden’s campaign promises related to the lending industry.

Those proposals included:

—A $600 billion housing plan meant to prioritize increased access to homeownership for various socioeconomic and racial groups

—As a part of that plan, a $15,000 first-time homebuyer down payment credit

—Tightened regulations, including growing the CFPB’s power under a new director and enforcing fair housing laws more stringently

—In contrast to Trump’s platform at the time, no urgent expressed interest in returning Fannie Mae and Freddie Mac to private hands over the next few years

Let’s see where Biden stands in delivering on these promises 100 days in.

Housing plan

The Biden administration has begun steps towards fulfilling their proposed housing plan. As a major driver of the economy, housing has predictably been a major focus of Biden’s first 100 days in office.

First-Time Homebuyer Act

Most notably, on April 26, new legislation called the First-Time Homebuyer Act was introduced. This bill aims to give a tax credit to first-time buyers up to 10% of the home purchase price, or $15,000.

To qualify for this bill, candidates must:

—Not have owned or purchased a home for the past three years

—Earn no more than 160% of the area’s median income

—Be purchasing a home priced at no more than 110% of the area’s median purchase price

—Live in the home as a primary residence for at least four years

This credit will be eligible for primary residence purchases made after December 31, 2020.

Homeownership accessibility

Biden has also started to make good on his proposals to increase access to homeownership for underserved communities.

A few weeks ago, a bill was introduced aimed at down-payment assistance. This bill is meant to help those affected by systemic discrimination in the housing market and would provide $25,000 to first-time homebuyers who qualify.

Also, as a part of the $2 trillion American Rescue plan, Biden is calling for the construction of 500,000 homes for low- and middle-income buyers. The plan similarly allocates $40 billion for the country’s public housing system.

1031 exchange

To help fund his $1.8 trillion American Families Plan—aimed at improving child care, paid family leave, and education programs—Biden has proposed changes to the 1031 exchange. Also known as the “like-kind exchange,” the 1031 exchange allows investors to defer tax payments on real estate by rolling profits into their next property. If performed continuously, 1031 exchanges can help investors defer taxes until death, when they can then pass the property on to heirs tax-free.

Biden is proposing to restrict the right to defer taxes to property gains under $500,000.

Opponents argue that smaller investors, often offering multifamily housing, will be affected. The changes could also impact small businesses that rent property. For instance, 68% of those surveyed by the National Association of Realtors expect rent increases if Biden’s 1031 exchange change goes through. 

Housing starts

While housing starts were down in February, March saw them jump 19.4% to a seasonally adjusted annual rate of 1.74 million.

This increase in housing starts will ideally alleviate current issues with extremely tight inventory, which currently sits at a historic 50-year low. Still, there’s a long way to go in solving the inventory issue.

Coupled with strong buyer demand, a lack of houses on the market is driving up home prices nationwide and throwing a wrench in many first-time home buyers’ plans.

In March, properties typically sold in 18 days—the fastest ever. Due to inventory issues, the wealth gap in the U.S. will get worse, and minorities, younger and lower-income Americans, and first-time home buyers will be hurt most.

Regulations

As a lending professional, you’ve likely been paying attention to the numerous CFPB communications released over the past weeks. In many ways, the increasing warnings and announcements come as no surprise. On the campaign trail, Biden vowed to tighten regulations, including strengthening the CFPB’s power. His actions 100 days into his presidency prove he was serious about those statements.

Throughout April, acting CFPB Director Dave Uejio repeatedly warned servicers to prepare for large amounts of borrowers exiting forbearance in the coming months. This week, the CFPB released a report that kicked those warnings into high gear.

The data revealed that consumers submitted more mortgage complaints to the CFPB in March than in any month since April 2018.

Most complaints revolved around forbearance, and many borrowers reported struggling to make their payments.

“More borrowers are behind on their mortgage than at any time since the height of the Great Recession,” said Uejio. “Communities of color have been hit hard by the pandemic, and the latest data show that many borrowers are still hurting. The CFPB will continue to seek and actively respond to developments in the market, doing everything in our power to help families stay in their homes. As we warned mortgage servicers last month, unprepared is unacceptable.”

Fannie & Freddie conservatorship

Biden hasn’t spent significant time addressing his plans for Fannie Mae and Freddie Mac’s conservatorship. Still, this week the Federal Housing Finance Agency (FHFA) finalized a rule that it will require Fannie and Freddie to create a plan for their eventual exit, called a “living will.”

“Just like other large financial institutions, these plans will provide Fannie Mae, Freddie Mac and FHFA with a roadmap for preserving business continuity should they fail again,” said Mark Calabria, FHFA Director. “This rule helps create a stronger, more resilient housing finance system by protecting taxpayers and the mortgage market from harm if either Enterprise fails.”

Parts of the will are expected to be made public, while other areas will stay confidential.

100 days down, many more to go

Biden has held true to many of his campaign promises when it comes to housing. Still, with housing prices rising and many at-risk borrowers locked out of the market, there’s plenty of room for action and change. The months ahead will be vital to his legacy in addressing historic inequities in the housing market and ensuring American economic recovery.

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