Spotlight: Annual Savings of $800 for Homebuyers and Homeowners Under Biden-Harris Administration’s New Action
Today marks a significant stride forward in the Biden-Harris Administration’s endeavor to reduce the cost of homeownership in the United States. They have declared a measure that is set to decrease the annual housing expenses for homebuyers and homeowners with newly FHA-insured mortgages by an average of $800. This significant action could ease the financial burden for an estimated 850,000 individuals and families by the year 2023.
The Vice President, Kamala Harris, and the Department of Housing and Urban Development’s (HUD) Secretary, Marcia Fudge, are scheduled to journey to Bowie, Maryland, to unveil this impactful decision. The HUD plans to trim the annual mortgage insurance premium by 0.30 percentage points via the Federal Housing Administration (FHA), reducing the rate from 0.85% to 0.55% for most new borrowers. This premium is an additional monthly fee that homeowners with FHA-insured mortgages must pay to secure their mortgages, and this cost is in addition to their regular monthly principal and interest payments.
As it stands, the majority of wealth accumulation for American households primarily stems from homeownership. However, the dream of owning a home has become increasingly elusive for many first-time buyers, particularly due to the nationwide deficit of affordable housing and the changing housing demands triggered by the global pandemic. It is especially challenging for first-time homebuyers of color and those who are the first in their families to buy a home, as the persistent wealth gap often leaves them without the resources needed for a hefty down payment.
By reducing the annual mortgage insurance premium, this initiative is an important leap towards making homeownership more achievable. FHA-insured mortgages, which represented 7.5% of home sales in the third quarter of 2022, aim to serve prospective homeowners who might otherwise struggle to achieve this milestone. This financial relief could significantly enhance affordability for lower and middle-income borrowers, opening doors to credit-worthy borrowers and fostering the dream of homeownership.
The FHA facilitates loans with minimal down payments and flexible underwriting, allowing families to begin accumulating wealth through homeownership earlier than otherwise possible. The majority of FHA borrowers (over 80%) are first-time homebuyers, with over 25% being homebuyers of color. The homes purchased with FHA-insured mortgages are generally more affordable, costing roughly half the price of the overall national median home, with an average mortgage amount of less than $270,000.
With the lowering of its annual mortgage insurance premium by 0.30 percentage points, the FHA’s initiative stands to assist new homebuyers across the country in their quest to become homeowners. For instance, an average homebuyer in Prince George’s County, where Vice President Harris and Secretary Fudge will make their announcement, can expect to save nearly $900 per year based on the county’s average home price of around $300,000. Potential savings are substantial across different cities and range according to the mortgage amount, with annual savings ranging from $600 to $1500 for families in Detroit, Cincinnati, Phoenix, and Austin respectively.
This initiative is made possible by the accumulation of considerable reserves in the FHA’s mortgage insurance fund over the past few years, surpassing the required threshold set by Congress by more than five times. Thanks to HUD’s responsible management, home price appreciation, and significant refinance volumes, HUD can now more accurately adjust premiums to align with the performance of the loans insured by FHA, passing on savings to consumers responsibly without compromising the long-term stability of FHA’s mortgage insurance fund. The premium reduction is slated to come into effect on March 20, with projections to be included in the President’s FY 2024 Budget.
The Biden-Harris Administration’s Pledge to Housing Stability and Affordability
The Administration has already taken considerable action towards improving housing stability and affordability. The foreclosure and eviction rates remain significantly below pre-pandemic levels, thanks in part to policies the Administration has implemented, such as enhanced loan modifications and the Homeowner Assistance Fund, which aids struggling homeowners with mortgage payments and utility costs. They also established a first-of-its-kind national eviction prevention infrastructure, providing assistance to households at risk of eviction.
Beyond these recent measures, the Administration and HUD have implemented various strategies to increase homeownership opportunities for more Americans. They modified FHA’s underwriting policies to consider positive rental history when assessing creditworthiness, thus making it easier for first-time homebuyers to qualify for FHA-insured mortgages. Additionally, they expanded access to housing counseling, providing potential buyers access to over 1,500 HUD-approved housing counseling agencies and 4,000 HUD-certified housing counselors. Other changes include modifying the way student loan debt is evaluated during FHA mortgage underwriting, which makes it easier for those with student loans to qualify for an FHA-insured mortgage. The Property Appraisal and Valuation Equity Task Force (PAVE) also announced more than 20 concrete agency actions to eliminate racial and ethnic bias in home valuations, enhancing consumer empowerment and ensuring a diverse appraiser workforce.
President Biden has also made significant strides to enhance affordability for both renters and homeowners by boosting the overall housing supply. In May, the Administration unveiled a Housing Supply Action Plan, which aims to close America’s housing supply gap within five years. The Administration has also secured rental assistance for over 100,000 additional households through FY22 and FY23 appropriations and the American Rescue Plan. Earlier this year, the Administration proposed an Affirmatively Furthering Fair Housing rule and announced new actions to increase fairness in the rental market through its Blueprint for a Renters Bill of Rights, setting the groundwork for federal, state, local, and private sector action to strengthen tenant protections and promote rental affordability.
