What the midterm elections mean for the housing market — and a “politically contentious” issue that divides Democrats and Republicans

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By Aarthi Swaminathan

New report from Cowen lays out implications of November midterms for housing market

The US midterm elections are approaching. And elections affect the housing market, according to a new report from investment bank Cowen.

Cowen’s Jaret Seiberg report noted that the Nov. 8 election will determine which party controls the House and Senate for the next two years.

And the result will then have an impact on a number of housing finance policy issues, he said.

No more first-time buyer tax credit

Assuming Republicans “minimally take control of the House,” Seiberg wrote, that likely means there will be no first-time buyer tax credit.

The tax credit was, through an Internal Revenue Service tax code overhaul, to give first-time home buyers up to $15,000 in refundable federal tax credits. Democrats tried to pass the tax credit last year through a so-called reconciliation bill, Seiberg noted. But a new reconciliation bill is unlikely, he added.

Unlikely to get funding for rehabilitation housing

The original reconciliation package had another large housing component – rehabilitation housing.

The package had earmarked billions of funds to build, renovate or purchase affordable social housing, Seiberg noted, which would help with housing rentals. “It’s hard to see how that goes beyond a GOP house,” he noted.

No reform for Fannie and Freddie

Fannie Mae (FNMA) and Freddie Mac (FMCC) will likely remain in government custody regardless of the election outcome, Seiberg wrote.

Fannie and Freddie are federally backed mortgage lenders created by Congress. They buy and guarantee mortgages issued by lenders, such as banks (KBE) and fintech companies. They then hold the mortgages or sell them as securities in the secondary market.

They are under the direct supervision of the federal government. The government took control of them and put them under the administration of the Federal Housing Finance Agency in 2008, when the housing market began to collapse due to subprime loans.

The Trump administration had wanted to remove Fannie and Freddie from government trusteeship. But don’t expect that to happen anytime soon, Seiberg wrote, and it doesn’t matter who wins.

“The issue is politically contentious. It divides Democrats and Republicans. We don’t see a bipartisan solution,” he noted. “What could happen is more talk of regulatory reform, although it’s hard for us to see action before the 2024 election.”

Expect FHFA premiums to be reduced

Regardless of who wins, expect lower premiums for potential mortgage borrowers, Seiberg said.

If a potential homeowner has a lower credit score or a small amount of money saved for a down payment, they can take out an FHA loan instead of a conventional loan. But FHA loans come with a mortgage insurance premium, which is an additional payment homeowners will make to secure the loan.

The premium is twofold: an initial cost and an annual payment.

FHA borrowers currently pay 0.80% per year in annual premiums, according to the agency’s website, for loans of $625,000 or less and a down payment of 5% or more.

If the mortgage insurance premium rate is reduced, it could save the homeowner thousands of dollars in a year if they buy a new home or refinance.

For a $150,000 home, the premium is $1,200 per year (or $100 per month).

“President Biden already has his [Federal Housing Administration] curator and [Housing and Urban Development] secretary in place. That’s why even a GOP sweep shouldn’t stop the Biden team from cutting FHA bonuses,” Seiberg said.

“We still expect a 25 basis point reduction in initial fees and a 25 basis points reduction in annual fees,” he added.

Chaos at the Consumer Financial Protection Bureau

In mid-October, a federal appeals court ruled the Consumer Financial Protection Bureau, a financial watchdog agency, unconstitutional because of its funding.

If the Supreme Court agrees, it could lead to the invalidation of the qualified mortgage rule and the revised Real Estate Settlement Procedures Act (RESPA), both invalidated, Seiberg said.

According to the Urban Institute, the QM rule was created by the CFPB which sets standards for lenders and investors, so they can protect themselves from lawsuits by borrowers who claim to have received a loan they could not. not refund.

RESPA prohibits things like bribes for business referrals, arrangements of unearned fees, etc., which is in the interest of the consumer

And “it could create regulatory chaos because lenders won’t know what rules to follow,” he said. At the Mortgage Bankers Association’s annual conference in Nashville, Tennessee, this issue was raised as an important issue to watch among lenders.

If the rules of the road are unclear, consumers may sue lenders more often for predatory or unethical behavior, and thus lenders could face increased legal liability, Seiberg noted.

“The solution would be for Congress to authorize funding for the agency,” he added, “which could then ratify its previous actions.”

If the GOP took control of just the House, such a decision could become complicated to make, “because Republicans could either refuse to fund or underfund the agency,” Seiberg said. “It could create a standoff with Biden, who could reject anything but full funding.”

Do you have ideas on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected]

-Aarthi Swaminathan

 

(END) Dow Jones Newswire

10-30-22 0952ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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