From the White House to your house? How news in D.C. impacts your homebuying experience.
You know how it is with politicians: Each election cycle, candidates make promises about what they are going to accomplish but struggle to follow through once they’re elected. Part of it is the nature of politics—elected officials need to collaborate and compromise with other elected officials to see their initiatives through. This inevitably changes the outcomes.
But another aspect is how slowly change comes out of Washington. It can take years, often decades, for an idea to go from a candidate’s speech to something that is actually experienced by the public at large. And nowhere is this more true than in the difference in what we hear about housing policy and your experience of homebuying and homeownership.
How government policies can impact housing
Local, state and the federal governments have three main ways to influence the housing market: taxes, subsidies and regulations. These levers are used by government officials to encourage homeownership, to make it more affordable, to improve communities, to fund public services and to protect homes.
Far and away, the news you hear that affects housing policy is mostly coming from Washington, D.C. Not only do the White House and both Houses of Congress put forth policy initiatives intended to impact housing, but there are also many agencies and government supported enterprises whose jurisdiction includes homeownership and the homebuying process.
The agencies that in one way or another oversee housing policy and mortgages in the U.S. is a veritable alphabet soup. Here are a few of the most well-known.
- HUD (Department of Housing and Urban Development)
- FHA (Federal Housing Administration)
- FHFA (Federal Housing Finance Agency)
- CFPB (Consumer Financial Protection Bureau)
- USDT (Department of Treasury)
- VA (Veterans Administration)
And that’s not including Freddie Mac, Fannie Mae and Ginnie Mae, government sponsored enterprises that were established by Congress to provide public financial services, even though they are privately held.
When there are stories about housing policy on the news, you may hear a lot about these agencies. For instance, President Biden has recently nominated a new director to the FHFA, Sandra Thompson. While this is important news, it’s hard to be certain what this means for you if you’re planning on buying or selling a home in the near future. That’s true of almost every news story about housing that comes out of Washington, D.C.
Here are the stories in the news that could have a direct impact on you if you’re planning on buying or selling your home this year.
The biggest D.C. entity that will affect home sales this year is the Federal Reserve Bank. More commonly referred to as the Fed, this bank is responsible for setting the federal funds rate, which other institutions use to set their interest rates. This rate affects the mortgage rate that you could qualify for.
The Fed has given hints that they are going to raise their rates in the coming months, which could push mortgage rates higher. Keep an eye on news about the Fed and their rates to understand what may happen with mortgage rates. The lower the rate, the more mortgage you may be able to qualify for.
The Federal Reserve has also propped up the economy with a commitment to buying mortgage-backed securities over the course of the pandemic, which gives lenders an important secondary market for the loans they fund. The Fed has recently indicated that they will cut back on the amount of mortgage-backed securities that they’ll buy, which will also likely send mortgage rates higher.
Fees added by agencies
If you plan on buying a second home, or getting a high-balance loan, this year, you may have to pay a higher mortgage rate starting in April. That’s because the FHFA decided to add an extra fee for these type of loans when sold to Fannie Mae and Freddie Mac. Lenders will likely price this fee into the rate they offer these types of borrowers.
This is just an example of the type of news that could affect the rate you receive. The FHFA and other agencies have fairly broad discretion to put these types of fees in place, like they did in 2020 when they added an adverse market fee for refinances. They often don’t need to be debated in Congressional hearings and voted on like a bill or a law.
When these fees are added, they usually will end up affecting how much you spend on a home or when applying for a mortgage. There is a belief among many in the mortgage industry that this latest fee is just a beginning, and that the FHFA may institute more pricing changes that could affect you if you’re applying for a new mortgage this year.
Integrating new processes to speed up homebuying
During the pandemic, we saw a wave of innovations that were put in place by mortgage lenders to make it easier, and safer, to obtain a mortgage and close on a home remotely. Guaranteed Rate was one of the leaders of this revolution, especially with our FlashClose® technology, which allowed some borrowers to close on their loans remotely.
Many state governments and federal agencies loosened some of their guidelines to allow technology like this during the pandemic, and now they’re making those changes permanent.
One example of this occurred in October, when the FHFA made the acceptance of desktop appraisals permanent. Desktop appraisals were granted a short-term acceptance as a way to keep home appraisals going during the pandemic. Using public records such as home listings and tax appraisals, this allowed appraisals to be conducted remotely. Not only did this help protect people from contracting COVID-19, but it also sped up the appraisal process.
You can expect more of these types of guideline amendments as mortgage financing and transactions become more and more digital, which will make the whole homebuying process smoother and more efficient for you.
Helping keep homes affordable
One of the main ways that lawmakers and public servants in D.C. make a difference in the housing market is by trying to make housing more affordable for low income and first-time homebuyers.
As of this writing, there are three competing bills up for debate in the House and Senate with the expressed aim of making housing more affordable. But as we stated, it’s not clear if either of the three will get passed, when they will get passed and how they will ultimately be implemented.
Fortunately, that’s not the only way the government can help make housing more affordable. In the beginning of September, the Biden administration announced a number of steps that they will direct federal agencies to take to promote affordability. These include:
- Relaunching the Risk Sharing Program, enabling eligible state housing finance agencies (HFAs) to provide low-cost capital for affordable housing development
- Raising Fannie Mae’s and Freddie Mac’s equity cap for the Low-Income Housing Tax Credit (LIHTC)
- Making more funding available to Community Development Finance Institutions (CDFIs) and non-profit housing groups for affordable housing production under the Capital Magnet Fund
- Expanding financing through Freddie Mac to boost the supply of manufactured housing
- Prioritizing homeownership and limiting the sale to large investors of certain FHA-insured and HUD-owned properties
These measures can happen quickly because they’re being handled by the agencies. This just goes to show that for every time you hear or see a news story about a politician talking about housing policy, that what you’re hearing may not affect your homebuying experience this year. It is the smaller stories from agencies that don’t get as much coverage as politicians that have the potential to impact you if you plan on buying or selling a home this year.