WASHINGTON – May 17, 2017 – Potential homebuyers have a lot to contend with from tight credit and low inventory to rising prices. But for buyers able to muscle past these hurdles, deals can still fall apart when needlessly high regulatory burdens get in the way.
Dr. Ben Carson, secretary of Housing and Urban Development (HUD), made that point before Realtors attending the Realtors® Legislative Meetings & Trade Expo in Washington, D.C., this week and received loud applause. Carson said HUD is working to make improvements and its goal is to usher in a new era of homeownership.
"It's important to be able to learn from success and from failure," Carson said. "That's what wisdom is all about."
NAR has long pushed for Federal Housing Administration reforms – a program office under HUD's jurisdiction – that would make it easier for homebuyers to tap into FHA's low-downpayment financing options. One example is NAR's call for FHA to address current restrictions on the treatment of condominiums. An NAR-backed rule that would make it easier to buy a condo with FHA financing has been pending since September 2016, and Realtors welcomed an update from Dr. Carson on the status of the rule.
On the issue of condos, Carson said that HUD's position is in "lock step" with that of Realtors. "I can assure you that this rule has very high priority," Carson told the audience. "I think it will make a big difference to a lot of Americans."
NAR President William E. Brown moderated a short Q&A session with Dr. Carson, in which Brown raised the condo rule issue, as well as some other key concerns facing Realtors.
"Condominiums are an affordable option that many young and first-time buyers look to when they start their home search, but using an FHA loan to buy a condo is still a real challenge," said Brown. "Finishing work on the condo rule would offer some much-needed clarity and relief."
Realtors also support an end to so-called "life of loan" mortgage insurance. On a conventional mortgage, borrowers typically must pay for mortgage insurance if they have less than 20 percent equity in the property. When the homeowner reaches that 20 percent equity mark, they're usually able to cancel the mortgage insurance and put those monthly payments back in their pocket.
With an FHA mortgage, however, borrowers must maintain costly mortgage insurance for the entire life of the loan. That needlessly takes money from the consumer and offers an incentive for strong borrowers to leave the program, potentially weakening FHA's book of business.
In addition to condo rules and life-of-loan mortgage insurance, Brown raised another Realtor priority: reinstating a cut to the mortgage interest premium FHA charges for its loans. FHA announced in January that it was cutting annual premiums consumers pay for mortgage insurance from 0.85 percent to 0.60 percent, but the cut was rescinded under the new administration just a few weeks later. FHA has said that the decision to reinstate the cut is still under review.
Brown said that while Realtors were disappointed that the MIP cut didn't go through, HUD leaders, including Carson, have shown a consistent willingness to work with NAR and its members to achieve a common goal in support of homeownership.
Brown also raised the issue of Property Assessed Clean Energy (PACE) loans. Although Realtors support the energy efficiency benefits of PACE loans, they warn that it burdens consumers with a lack of transparency and information that can threaten home buying and selling. To address these concerns, Realtors believe PACE loans should be subject to the same consumer disclosure laws as mortgages.
Carson said HUD is "very amenable to adjusting that policy in the future." Realtors responded to that with applause.
"I can't thank Dr. Carson enough for speaking to our membership and giving us his honest assessment of the road ahead," said Brown. "We can do so much more to clear the way for creditworthy buyers trying to enter the market, and HUD is at the center of those conversations. Realtors value their partnership with HUD and leaders like Dr. Carson, and we look forward to doing big things in the years to come."
FEMA and flood insurance
Following Carson's remarks, attendees heard from Roy Wright with the Federal Emergency Management Agency (FEMA). Wright is the deputy associate administrator for Insurance and Mitigation, with oversight over the National Flood Insurance Program (NFIP).
Wright told the audience that challenges remain in ensuring access to affordable flood insurance, but a multi-year reauthorization of the program is critical for protecting homeowners.
Wright announced what he described as a "moon shot" type effort inside FEMA. "We want to see the flood coverage in the U.S. doubled by 2023," he said. "In seven years, I want to see us have 10 million policies across the U.S." Wright said he hoped the greatest proportion of those policies could happen in the private market.
Brown noted that flood insurance is among Realtors top issues for 2017, and he thanked Wright for his attention to what has become a growing concern for homeowners.
"Hurricane season is just around the corner, and a September 30 expiration date for the NFIP has homeowners rightfully on edge," said Brown. "We know more can be done to improve the program, make way for a private insurance market, and strengthen flood mapping and mitigation efforts, and there's no small amount of work ahead of us. But it's encouraging to know that as we tackle these challenges, we have an engaged an open partner at FEMA willing to work hand in hand with Realtors on behalf of homeowners."