- NAR should be pursuing aggressive action on innovative suggestions that address affordability, lack of inventory and how renters can become homeowners more quickly rather than chasing the MID that only affected 5.4 percent of home loans this year.
Last week, NAR’s Chief Economist, Laurence Yun and Ken Rosen, of the Rosen Consulting Group, made the case against the Trump tax plan that would max out the MID at $500,000. The underlying issues are affordability, consumers struggling to come up with down payments and a lack of inventory.
NAR is still in the process of digesting what to do about the Trump tax plan, but its initial position is clear — fight for the MID. Yun explained, it’s what 80 percent of its members want.
Jennifer von Pohlmann, senior data PR manager at ATTOM, sent an email with data that suggests NAR may be wise to re-evaluate its position.
“With the recent Republican tax proposal calling for the cap on mortgage interest deductions reduced from interest paid on $1 million in home loans down to $500,000, ATTOM Data Solutions took a state and county level look on all loans (purchase and refinance) originated so far in 2017 for single family homes and condos to see the areas with the most homeowners impacted.
“Out of all loans originated this year nationwide, 5.4 percent were more than $500,000. The District of Columbia will be affected the most with 35.1 percent of loans in 2017 being over $500,000. This is followed by Hawaii (15.1 percent), California (11.5 percent), Delaware (9.3 percent), Massachusetts (9.1 percent) and Washington (9.1 percent).”
Where are NAR’s resources best spent?
The issue for NAR is whether its efforts are best spent on fighting for the MID that impacted only 5.4 percent of all loans originated in the U.S. this year, or would its efforts be better spent elsewhere?
In my opinion, NAR should be pursuing aggressive action on the innovative suggestions Rosen and Yun discussed in their sessions that address affordability, the lack of inventory due to properties in the rental pool and how renters can become homeowners more quickly.
Ease borrowing restrictions
Although there is easy credit for student loans and car loans, Rosen shared a chart showing the current median credit score for Fannie Mae mortgages is just below 750.
Rosen argued that Dodd Frank is too restrictive, and people with scores of 660-719 should be able to borrow with no problem. NAR should be lobbying Congress to ease the restrictions in Dodd Frank and make it easier for well-qualified buyers to purchase.
Roll student loan debt into a mortgage
One of Rosen’s most interesting suggestions would allow those with student loans at 9 percent to 10 percent to be rolled into a purchase mortgage.
For example, a student with a $50,000 student loan amortized at 10 percent for 10 years has annual payments of $7,929.48 per year. If that $50,000 debt is rolled into a 30-year mortgage, their payments would be $2,964.52. That’s a savings of $5,064.48 or $413.74 per month.
Shared equity — an idea whose time has come
Universities have been doing shared equity transactions with their faculty for years.
To illustrate how this works, assume that the homeowner has an 80 percent equity position in his or her property. The investor (which could be a mortgage institution, credit union, pension fund or mom-and-pop investor) would buy a percentage of the ownership from the homeowner.
The only thing that changes for the homeowner is his or her equity position. He or she retains the same control he or she had over the property prior to the equity share.
When the property sells, the investor recoups the percentage of the equity purchased plus half the appreciation (or depreciation if there is a loss) on the house. The exact terms are agreed at the time of the equity purchase.
Here are three ways equity sharing could assist present and future homeowners:
Down payment sharing
Many well-qualified buyers struggle to accumulate a down payment. An investor acting as an equity participation co-owner could assist a first-time buyer with the down payment.
This provides an avenue for institutional investors to own property without having the hassles of dealing with tenants and property maintenance.
More importantly, new homeowners would need less down and may also have lower monthly payments.
Let mom keep her house
It’s heartbreaking to see an elderly person lose a spouse and then be forced to leave his or her home because he or she can no longer afford it.
Reverse mortgages have provided some relief in this area, but borrowers must qualify. The shared equity approach would allow mom to stay in her house while also providing her with funds to cover her additional costs or any unforeseen expenses as well.
Lease to own
Lease to own deals have been around for years. The owner attributes a portion of the rent toward the lessee’s down payment or purchase price.
A different approach is what is sometimes called a land sale contract where the property owner retains ownership until the lessee/buyer makes that last payment.
Establish a tax free individual housing account
One of Rosen’s most fascinating ideas was to create a tax free individual housing account. Consumers could take the money they would contribute to their IRA and roll it into this account.
When a renter becomes a buyer, his or her net worth increases based on the appreciation on the entire property rather than the paltry interest received on his or her IRA contributions.
Create a graduated fixed payment program for young people
Rosen also proposed a graduated fixed payment mortgage that was 25 percent less at the front end and went up 3 percent to 4 percent a year to match the increased earnings most young people experience as they advance in their careers and can afford more.
Create a national effort to counteract NIMBY with YIMBY
There is already a national movement that counteracts the “Not in my backyard” with “Yes in my backyard.”
Rosen cited how it took his son-in-law two years to get clearance to build a new subdivision in California. There is a national trend afoot (even in California) to prevent local NIMBY forces from slowing down approvals and to require them to be done in as little as 90 days.
Other options include easing up requirements to build a guest house or small unit on properties zoned for one unit, using modular housing that can cut production costs by 20 percent to 30 percent or using “co-housing” where owners have small homes they live in with a shared kitchen and large living area.
Regardless of what happens with the MID and tax bill, each of the above proposals provide concrete solutions to major issues we’re facing.
I urge NAR to take steps to put its considerable clout and resources behind these initiatives to enable more Americans to obtain their dream of homeownership.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Learn about her training programs at www.RealEstateCoach.com/AgentTraining and