Ten steps than can improve housing affordability

Removing antiquated laws can reduce closing costs by more than half.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | July 23, 2021

Dear President Biden:

I was excited to read about your recent Executive Order on promoting competition across America with the goal of reducing consumer prices.

When it comes to real estate, reducing purchase and refinance transactional costs along with improving ongoing payment affordability might be easier than one might anticipate. First, policymakers, regulators and Congress need to update an obsolete batch of dinosaur rules, regulations, and laws. Here are the top 10:

1. Create competition in the title insurance industry by allowing bundled settlement services starting with title insurance. Here we are in 2021. Consumers still cannot negotiate title insurance.

How can it be that something so expensive as settlement charges can only be had through a la carte pricing? If title insurance providers bundled services, closing costs would go down by at least half.

2. Update the Federal Housing Administration mortgage insurance rule by eliminating mortgage insurance once certain equity levels and timelines are met. This is already available for private mortgage insurance.

Why should minimum down payment FHA borrowers, typically of lower income and lower family wealth, pay nearly a full percentage point higher interest rate for the life of the loan? Give me a break.

3. Direct the Consumer Financial Protection Bureau to create sting operations to stop the rampant criminal kickbacks solicited and offered in exchange for placing real estate settlement services with various vendors.

I surmise unsuspecting borrowers get rates that are 0.25% higher to cover kickback overhead. Prior to the pandemic I took a mortgage industry executive on a weekend ride-along.

We hit resale and builder open houses. The executive was amazed at the brazenness of the demands from some complete strangers for payola if they expected me to receive their mortgage client referrals.

Operation Varsity Blues (college prep cheating scandal) will look like a drop in the ocean compared with the names you might find on the perp list should the CFPB implement this.

4. Require Fannie and Freddie to recognize roommate, boarder and granny flat rents reported on a borrower’s 1040 tax returns. It is incredibly insulting and undermining for honest taxpayers to report income and pay income tax but not be allowed to use that for loan qualification purposes.

5. Require Fannie and Freddie to end their prohibitively difficult policies for second home and rental mortgages. These recent policies leave borrowers no choice but to go to significantly higher-priced mortgages.

Additionally, this helps large investment firms and hedge funds that are buying up single-family homes across America because mom-and-pop no longer have access to the previously affordable Fannie-Freddie sourcing.

6. Reduce the high cost of property appraisals by allowing mortgage loan originators to choose the appraiser, eliminating appraisal management companies. Who better than your local loan officer would know of the best appraisers with the fastest turn times?

We are in a much better place today with automated appraisal quality control than we were during the mortgage meltdown when too many loan officers conditioned an assignment on hitting the targeted property value.

Thanks to tools like Fannie Mae’s fully accurate Collateral Underwriter system, an appraiser would be hard pressed to pad the value and get away with it.

7. Facilitate 50-year interest-only mortgages to improve affordability. It can become a lifetime mortgage for most. Housing is so expensive. Why do we need to pay off our mortgages?

Think of car leases that work well for so many. And think no further than the Surfside condo collapse. Or wildfires. Or tornados. It is not always prudent to invest your life savings in the four corners of your home.

8. Expand negatively amortizing mortgages beyond reverse mortgages. Why should one have to be 62 or older to never have to make a house payment again?

Add the accrued interest to the back of the loan. This seems like reverse age discrimination. It would be easy for actuaries to calculate how much of a reverse mortgage those younger than 62 would be allowed based upon down payment or existing refinance equity.

9. Bring finality to property taxes. Property taxes never end. And there’s no annual tax cap in many states that lack the protections Proposition 13 provides in California. Some folks around the country are facing the prospect of having to sell their homes because their property taxes are unaffordable.

10. Maintain relationships between mortgage loan originators and consumers by exempting them from state licensing requirements. Why should a long-term trusted relationship between, say, a California resident moving to Texas or Tennessee end because the loan officer can’t possibly afford to get licensed across America?

The National Mortgage Licensing System keeps granularly close tabs on every loan officer, for every transaction-approved, denied or withdrawn. And consider the hypocrisy of exempting bank and credit union registered originators from state licensing laws. There’s no testing, licensing or standards for them.

Consumers are better off sticking with their trusted advisor.

Freddie Mac rate news: The 30-year fixed rate averaged 2.88%, 8 basis points lower than last week. The 15-year fixed rate averaged 2.22%, 2 basis points higher than last week.

The Mortgage Bankers Association reported a 16% increase in mortgage application volume from the previous week after adjusting for the July 4 holiday.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $30 more than this week’s payment of $2,276.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2.25%, a 15-year conventional at 1.875%, a 30-year conventional at 2.5%, a 15-year conventional high-balance ($548,251 to $822,375) at 1.99, a 30-year conventional high-balance at 2.69% and a jumbo 30-year fixed at 2.75%.

Eye catcher loan of the week: A 15-year fixed mortgage at 2.375% without closing costs.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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