A group of four housing industry trade groups—the National Association of Realtors (NAR) [1], the Mortgage Bankers Association (MBA) [2], the National Association of Home Builders (NAHB) [3], and the Manufactured Housing Institute (MHI) [4]—have collectively written a letter [5] to Brian Deese, Assistant to President Joe Biden and Senior Advisor; the White House; and the National Economic Council (NEC) [6] urging them to support the reduction of FHA’s mortgage insurance premium (MIP) [7].
Established in 1993, the NEC was formed to advise the President on U.S. and global economic policy, and is part of the Executive Office of the President. By Executive Order, the NEC has four key functions: to coordinate policy-making for domestic and international economic issues; to give economic policy advice to the President; to ensure that policy decisions and programs are consistent with the President’s economic goals; and to monitor implementation of the President’s economic policy agenda.
In the letter [5], the groups explain that by lowering the MIP with a focus on FHA’s recurring “annual” premium will increase home buyers’ purchasing power by reducing monthly payments. This move will put more money into the pockets of home buyers each month, giving them the opportunity to become homeowners and to build generational wealth.
The groups recognize the fact that America’s home buying market is struggling with affordability, as continued inflationary concerns and erratic mortgage rates are causing major affordability concerns for the nation’s home buyers.
“Sharply higher mortgage rates and rising home prices mean the time to act is now,” stated the letter [5]. “Home prices have continued to show strong year-over-year increases, with the existing home sales price reaching $410,600, up 11% from one year ago [8]. New home prices have also reached record levels in 2022, climbing to $439,400 [9]. Since the beginning of this year, mortgage rates have climbed sharply–this week’s rate for a 30-year fixed rate mortgage is 5.89% [10], 267 basis points higher than in January. The combination of higher prices and rates has put severe stress on prospective LMI and first-time homebuyers. According to the MBA’s Purchase Application Payments Index, the national median mortgage payment was $1,844 in July, up by more than $460 in just the first seven months of this year.”
Issuance of the letter could not come at a more opportune time, as earlier this week, the Bureau of Labor Statistics (BLS) reported [11] that the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in August on an adjusted basis after being unchanged in July. Over the last 12 months, the All-Items Index increased 8.3% before seasonal adjustment, as increases in the Shelter, Food, and Medical Care Indices were the largest of many contributors to the broad-based monthly all items increase. These increases were mostly offset by a 10.6% decline in the Gasoline Index. But despite the slide in fuel costs, the Food Index continued to grip households nationwide, rising 0.8% over the month, as the Food at Home Index rose 0.7%. The nation’s Energy Index fell 5% over the month, as the Gasoline Index declined, but the Electricity and Natural Gas Indices increased.
“As economic conditions continue to worsen, reducing the MIP also allows borrowers the flexibility to spend on necessary items like food, gas, education, and other monthly bills,” continued the letter [5].
In mid-May, President Biden and the White House released its “Housing Supply Action Plan” to ease the burden of housing costs [12] over time by boosting the supply of quality housing in every community. Under the Housing Supply Action Plan, the Biden Administration has committed to:
- Reward jurisdictions that have reformed zoning and land-use policies with higher scores in certain federal grant processes, for the first time at scale.
- Deploy new financing mechanisms to build and preserve more housing where financing gaps currently exist: manufactured housing (including with chattel loans that the majority of manufactured housing purchasers rely on), accessory dwelling units (ADUs), two- to four-unit properties, and smaller multifamily buildings.
- Expand and improve existing forms of federal financing, including for affordable multifamily development and preservation. This includes making Construction to Permanent Loans more widely available by exploring the feasibility of Fannie Mae purchase of these loans; promoting the use of state, local, and Tribal government COVID-19 recovery funds to expand affordable housing supply; and announcing reforms to the Low Income Housing Tax Credit (LIHTC), which provides credits to private investors developing affordable rental housing, and the HOME Investment Partnerships Program (HOME), which provides grants to states and localities that communities use to fund a wide range of housing activities.
- Ensure that more government-owned supply of homes and other housing goes to owners who will live in them–or non-profits who will rehab them–not large institutional investors.
- Work with the private sector to address supply chain challenges and improve building techniques to finish construction in 2022 on the most new homes in any year since 2006.
“The Department of Housing and Urban Development (HUD) was created with the goal of providing access to housing and homeownership and we commend the Biden Administration for putting an emphasis on housing issues,” closed the letter. “... we strongly encourage the Administration to immediately lower the MIP so low to moderate-income and first-time homebuyers can participate in the American dream of homeownership.”