Dems propose 20-year mortgage for first-gen homebuyers

The LIFT Act would create a program through HUD to sponsor low fixed-rate 20-year mortgages

The raft of legislation designed to spur first-time homeownership in America seems to grow by the minute. Another bill has joined the fray, and its sponsors propose creating a new 20-year-fixed-rate mortgage program through Ginnie Mae.

The legislation, dubbed the “Low-income First Time Homebuyer (LIFT) Act,” would create a program through the Department of Housing and Urban Development that would sponsor low fixed-rate 20-year mortgages.

The bill is sponsored by Sens. Mark Warner (D-VA), Tim Kaine (D-VA), Chris Van Hollen (D-MD), Raphael Warnock (D-GA), and Jon Ossoff (D-GA).

To qualify, one would have to be a first-time, first-generation homebuyer, with an income equal to or less than 120% of the area median income.

“The number one way that middle class Americans build wealth is through homeownership, an opportunity that due to racism and structural inequality has been denied to too many families of color,” Warner said in a statement. “Today, Black families in this country have an average net worth just one-tenth the size of their white counterparts.”

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According to the bill, Ginnie Mae in tandem with the Department of the Treasury would subsidize the interest rate and origination fees associated with these 20-year mortgages, so that the monthly payment would be in line with a new 30-year FHA-insured mortgage.

The move could “allow qualified homebuyers to build equity-and wealth- at twice the rate of a conventional 30-year mortgage.”

In the past couple of months two versions of the $15,000 first-time homebuyer tax credit and Rep. Maxine Waters’ (D-CA) Down Payment Towards Equity Act of 2021 were introduced as alternatives for addressing housing inequity.

The response from some fair housing advocates to the LIFT Act has been lukewarm so far. Some sources expressed worry that if significant money is allocated to this program, funding for Rep. Maxine Waters’ down payment assistance bill – a favorite among fair housing advocates – might not come.

Dave Stevens, former FHA commissioner, said in an interview with HousingWire that Warner’s bill has the potential of getting traction in Congress.

This first-time homebuyer bill has a “unique combination of Republicans and Democrats that have aligned on how this thing can work,” Stevens said.

Additionally, the legislation is “very limited” and specifically geared towards first-generation homebuyers, addressing worries of a bill being too broad, resulting in minority homebuyers getting pushed out of purchasing a home.

“In Congress right now, and I would guess the White House, they would like to see both Maxine Waters down payment assistance bill and this one make its way to the reconciliation process,” added Stevens. “If you could get a modest amount of dollars for both Chairwoman Waters’ piece of legislation as well as for the LIFT bill, you get some really good dollars targeted for first time homebuyers.”

Dave Dworkin, CEO of the National Housing Conference, said that down payment assistance is still the number one option for increasing homeownership.

“[The LIFT Act and Waters’ down payment assistance] have to go together,” he said. “Our first priority is creating homeowners and our second priority is to accelerate wealth building.”

Dworkin added that NHC “would like to see at least $20 billion to $50 billion go to down payment assistance.”

Meanwhile, Mark Zandi, chief economist at Moody’s Analytics, commented that there are upsides to the bill, mainly that it “preserves affordability and supports homeownership” while also allowing homeowners to rapidly accumulate equity.

“LIFT is among the most effective ways policymakers have to address the nation’s pernicious problem of large and widening economic disparities,” he said.

The only troubling language with the LIFT Act, said Stevens, may be the attestation clause.

“I mean, the real question is how do you prove that you’re a first-generation buyer,” said Stevens. “As long as a borrower attests to the fact that they’re first generation, they technically are able to apply.

“That’s the only area where I think there could be some moral hazard,” Stevens concluded.

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