By SCOTT OLSON
June is National Homeownership Month. So the Community Home Lenders of America (CHLA) has called on Congress to begin debate and ultimately enact a Mortgage Interest Credit (MIC) when it considers tax legislation next year to extend expiring provisions from the 2017 Tax Cut and Jobs Act (TCJA).
The 2017 TCJA raised the standard deduction and capped state and local tax (SALT) deductions at $10,000. In turn, this significantly reduced the value of the mortgage interest deduction (MID). The Joint Committee on Taxation has estimated that the annual tax benefits of the MID are just $31.0 billion in 2024 – down from $63.6 billion in 2017 (and extrapolating, close to $100 billion in today’s dollars).
If Congress extends the higher standard deduction and SALT cap, it should restore some of the lost homeowner tax benefits with a Mortgage Interest Credit. CHLA proposes a 15% tax credit on mortgage interest payments, limited to 1st time homebuyers, and targeted to low- and moderate-income families.
Why is CHLA making this request? Because homeownership affordability is currently a big challenge.
Census data pegs the current national homeownership rate at 65.4%. Except for a short spurt in early 2020, this rate has largely remained steady since the start of COVID. Before that, we experienced a long continuous decline from just below 70% at the height of the Housing Bubble — to a low of 63% in early 2016 — then an upswing back to the current levels that have been maintained since the 1st quarter of 2020.
But within those statistics lie significant looming challenges to homeownership affordability. According to the Atlanta Federal Reserve, homeownership affordability has plunged in the last three years – from levels fairly consistently above 100% in its home affordability index for the decade from March 2011 to March 2021 – to 71.9% in March of this year.
The main culprit — among the “Drivers of Affordability” to use the Atlanta Fed’s term — is that 30-year mortgage rates have skyrocketed from 3% a few years ago to over 8%, before settling around 7% currently. At the same time, while income levels have been growing, soaring housing prices generally remain at historical highs, even in spite of the steep mortgage rate hikes. The result is unprecedented challenges for first-time homebuyers.
Minority homeownership levels remain low. The same Census data shows Black Homeownership rates some 20 percentage points below the national average (at 45.7%) and the Hispanic Homeownership rate some 15 percentage points lower (at 49.9%).
Younger homebuyers, whose incomes have not kept pace with soaring home prices, are also challenged. The homeownership rate for households under 35 is 37.7% and the rate for households between ages 35 and 44 is 61.4%. By comparison, the homeownership rate for households over 65 years in age is 78.7%.
There are also regional challenges. Homeownership rates in the higher-priced Northeast and West are in the low 60s, while homeownership rates in the lower-priced Midwest and South are in the high 60s.
What should we do about these challenges?
First, let’s recognize the main culprit, skyrocketing mortgage rates. They are not just high, they are well above historical averages compared to 10-year Treasury rates (now almost 2.75% higher vs. 1.5% to 2.0% for most of the last 14 years). This is largely because the Fed has abandoned its policy of buying mortgages.
That is why last October, CHLA, the National Association of Realtors (NAR) and the Independent Community Bankers of America (ICBA) sent a letter asking the Federal Reserve to resume purchases of mortgage loans, in order to bring mortgage rates down.
A different challenge looms for first-time homeowners: the looming realtor commission settlement. While everyone else seems focused on what this means for realtor commission levels and practices, CHLA has been focused like a laser since last December on what this might mean for mortgage loans for first-time homebuyers with low down payment capabilities.
If sellers routinely offer to continue to pay buyer’s broker commissions and build that into the home purchase price, the impact might be minimal. But if sellers do not – or if they extract higher sale prices in exchange for doing so – first-time homebuyers with limited down payment capabilities will be hurt.
In April, CHLA wrote a letter to FHA, asking FHA to finance buyer’s commissions in the same manner, regardless of whether they are paid by the seller or the buyer, laying out loan examples to show how this would not add risk to FHA.
More broadly, we should support federal mortgage agencies that lead the way in helping underserved borrowers with low down payment capabilities buy their first home. Start with FHA, which the latest HUD budget notes “is designed to encourage lenders to make credit available to borrowers whom the conventional market does not adequately serve, including first-time homebuyers, minorities, lower-income families and residents of underserved areas (central cities and rural areas).”
In 2023, 84% of FHA loans were for first-time homebuyers and FHA’s share of Black and Hispanic borrowers was twice the percentage of all other mortgage loans. FHA took a crucial affordability step last year, cutting annual premiums by 30 basis points.
Ginnie Mae, which securitizes FHA, VA, and Rural Housing Service loans, is also crucial.
Congressional appropriators should fully fund Ginnie Mae’s budget request, including sufficient staff in the HUD Office of General Counsel to promptly process issuer acknowledgment agreements. Congress should give Ginnie Mae the resources to develop an expanded PTAP liquidity facility program, to help IMB issuers carry out their role as bankers making advances for borrowers that miss their mortgage payments.
Finally, CHLA applauds the Consumer Financial Protection Bureau (CFPB) for its initiative against “junk fees” by third-party mortgage loan servicer providers. The Bureau’s focus is on sectors that lack competition or are experiencing large price increases, like the recent 500% increase in the cost of a FICO credit score.
CHLA also commends FHFA for greenlighting alternatives to costly title insurance, like Fannie’s pilot program for refinances.
Everyone supports homeownership and the wealth-building and social stability that go along with it. But we need to do more than just celebrate homeownership one month every year. We need a sustained commitment to constructive solutions to meet our homeownership affordability challenges head-on.
Maybe we should make 2025 National Homeownership Year.
Scott Olson is the Executive Director of the Community Home Lenders of America, the only national trade association that exclusively represents independent mortgage banks.