FHFA asked to raise income limits for 3% down-payment programs

The Mortgage Bankers Association is asking the Federal Housing Finance Agency to raise limits to the area median income for low down payment programs.

In a recent letter, the association called for income limits to be increased to 100% from 80% for two programs at the government-sponsored enterprises the FHFA oversees: Fannie Mae’s HomeReady and Freddie Mac’s Home Possible. The letter also calls for the limits to be eliminated completely for low-income census tracts. Such changes would reverse some policy adjustments made in 2019 and would make more borrowers eligible for programs that offer lower down payments for consumers and price breaks for lenders.

The association asserts that the requested increases would be in line with research that suggests the racial homeownership gap, which has remained roughly 30 percentage points lower for Black households than white ones, is not necessarily income-linked.

“The Black homeownership gap is persistent across all household income levels, which illustrates that although Black families may be successful financially, they still face obstacles when it comes to becoming homeowners,” Bob Broeksmit, president and CEO of the Mortgage Bankers Association, noted in the letter to FHFA Director Sandra Thompson.

That’s borne out in some of the analysis in the recent State of Housing in Black America report, which is released each year by the National Association of Real Estate Brokers, the oldest minority trade group in the United States.

“Origination rates for white applicants were higher than that for Black applicants regardless of applicant income level,” NAREB noted in its report, which includes research from authors James Carr and Michela Zonta. (Carr is a housing finance and policy expert who has worked for the Fannie Mae Foundation, Senate Budget Committee, National Community Reinvestment Coalition, and in academia. Zonta is a senior analyst for the Center for American Policy.)

Within the large market for loans Fannie and Freddie buy, the gap expressed in terms of share is 20 percentage points or more for all income levels up to 120% in NAREB’s analysis of 2021 Home Mortgage Disclosure Act data. (Above 120%, the gap still exists but does narrow by 6 percentage points.)

Restoring HomeReady and Home Possible AMI limits to 100% could go further toward building a more equitable lending system because those programs allow applicants that qualify to get loans with as little as 3% down, Broeksmit said in the MBA’s letter.

“An increase in the AMI threshold could better serve minority borrowers who have the means to meet their monthly mortgage obligations but may lack family resources or wealth to assist with a larger down payment,” said Broeksmit.

The move could also promote access to new units that builders aim to add to the dearth of inventory at affordable price points, the MBA executive said in the letter.

“Two of the nation’s largest homebuilders recently analyzed their data for MBA, and results show that increasing the AMI has a significant impact on affordability and access to their communities for Home Ready and Home Possible borrowers,” Broeksmit said. “In one instance for homes priced $350,000 or less, raising the AMI to 100% makes about 40% more of that builders’ communities available to these borrowers.”

A second builder that examined a sample of 100 of its communities in four states also reported to the MBA that an increase in the HomeReady and Home Possible income limits would increase access to inventory, moving it from 0% to 17%, according to the MBA’s letter. The MBA did not name either builder.

“The obstacles facing minority borrowers are compounded as a result of the nation’s current housing affordability crisis, which has been brought on by a housing supply shortage and rising rates. Expanding access to HomeReady and Home Possible programs could help alleviate some of these pressures,” Broeksmit noted.

While such steps could address some of the buying and borrowing hurdles that contribute to the homeownership gap, the MBA acknowledged other causes would likely need to be addressed as well to narrow it. The gap has remained stubbornly wide even with some gains in the minority homeownership share in the past year, according to The Washington Post‘s recent analysis of quarterly census data.

The association “believes returning the income thresholds for HomeReady and Home Possible to 100% of AMI should be the first step in expanding and exploring other opportunities to enhance these products,” Broeksmit said.