Lobbyists kill White House plan to save homebuyers thousands of dollars
An experimental program that could have saved homeowners thousands of dollars in closing costs is dead in its tracks after industry lobbyists and lawmakers pushed back.
Earlier this year, the Biden administration introduced a plan to eliminate title insurance costs for a small number of mortgage refinancing deals as part of a pilot program administered by Fannie Mae.
Under the program, Fannie would have covered the title insurance cost on the selected mortgages offered by up to eight lenders.
The program was set to launch in the summer, beginning with a narrow segment of mortgages and eventually expanding to cover other types of loans.
Title insurance shields homebuyers from any financial losses arising from title defects. It usually costs the borrower half a percent of their loan amount—so $2,500 on an average $400,000 mortgage.
This under-the-radar program was part of President Biden’s broader plan to cut down on nagging “junk fees” that cost Americans untold sums on travel, banking, cable, and credit cards.
Mortgage closing costs were next in line. Or at least that was the plan until the title and settlement industry got involved.
One of the industry’s largest trade groups penned a letter to the Federal Housing Finance Agency (FHFA)—the entity overseeing Fannie Mae—warning that the program would have negative consequences.
The letter said Fannie had no experience handling title insurance and its new pilot program would increase financial risks.
The trade group received support from both sides of the political aisle, with Democrats and Republicans criticizing the project. The biggest objection came from New York Republican Congressman Andrew Garbarino, who said the program would “end up hurting consumers.”
After that, Fannie didn’t take long to abandon the program.
Buying a home is no longer sensible for most Americans
Rising interest rates and elevated property values have put homeownership out of reach for millions of Americans.
According to Redfin, new homebuyers must earn roughly $115,000 annually to afford the average U.S. home. That’s more than double the typical salary and over 50% higher than the average household income.
A recent report from Zillow found that affordability has gotten so bad that it would take the average buyer more than a decade to break even on their investment.
“New home buyers can expect to spend approximately 13.5 years in their house before they would be able to sell at a profit over the purchase, mortgage interest, and sale costs that went into the home,” wrote Nicole Bachaud, a senior economist at Zillow.
While most people are shielded from these predatory market conditions—66% of Americans own real estate—it’s not by choice.
Research from Realtor.com finds that eight out of ten homeowners feel trapped or “locked in” by their current mortgage rate, so they stay put in their current home instead of moving.
As CreditNews recently reported, this “golden handcuffs” phenomenon has reduced the supply of homes for sale and driven prices sharply higher.
What’s the government doing about it?
As the failed Fannie pilot program demonstrated, improving housing affordability through government programs is an uphill battle. But that hasn’t stopped the Biden administration from announcing further steps to lower costs and boost supply.
In July, the White House unveiled a three-pronged approach to tackling housing affordability: Relaxing land use and zoning rules, expanding financing programs, and converting commercial properties into residential buildings.
While housing affordability has become one of the key hot-button issues ahead of the 2024 elections, experts say there’s only so much the government can do to alleviate the supply shortage and bring interest rates back to manageable levels.
Interest rates are heavily influenced by the Fed, which is supposed to be an independent government agency outside of political influence.
“At the current 8% mortgage rate, mortgage payment[s] are 38% of median income,” said Moody’s Analytics chief economist Mark Zandi.
“The market is in a deep, deep freeze. The only way to thaw it out is a combination of lower prices, higher incomes, and lower rates,” he said.