October 2010
Housing Committee
Federal Committee
This material is for discussion purposes only and has not been approved by the Housing Committee, Federal Committee, Executive Committee or the Board of Directors.
Issue:
Should C.A.R., in conjunction with NAR, support the creation of a National Downpayment Assistance Program?
Action:
Action is required at this time so California’s NAR Directors will have direction for NAR’s November Business Meetings in New Orleans where this issue is expected to be addressed.
Options:
1. “SUPPORT” the creation of a National Downpayment Assistance Program
2. “OPPOSE” the creation of a National Downpayment Assistance Program
3. Other
4. Take no action
Background:
Some REALTORS® have advocated for the creation of a National Downpayment Assistance Program (NDAP) at the national level. The program would provide funding in the form of a loan for the downpayment on a home for first-time homebuyers. Payments on the loan could piggyback the first mortgage for a specific length of time. It is hoped the program would eventually pay for itself by charging an upfront fee similar to the USDA rural home loan program. This fee may also be wrapped up into the loan. To ensure the program is utilized by those who truly need it, it would be limited to first-time homebuyers with incomes below 120% of an area’s median home price.
Initial funding for NDAP would be provided by the federal government. The money could then go to the individual state Housing Finance Agencies or the federal government could handle the program itself.
Status/Outlook:
NAR is expected to address the issue of a proposed NDAP at their November Business Meetings in New Orleans. This idea was first discussed at NAR’s 2010 May Business Meetings; however, no policy committee supported the proposal at the time. The issue was raised on the NAR BOD floor and will be addressed again in New Orleans.
Support:
Supporters of the program state the current housing market needs a boost. The latest housing report shows existing home sales are down and inventory is on the rise. Even with today’s low mortgage rates housing demand is lagging and this program, its proponents argue, will significantly expand the pool of potential first time buyers. When the economic recovery gains traction, as it eventually will, rates will rise making the cost of buying a home more expensive.
There is no doubt that first-time homebuyers are being squeezed out of the current market. While some are able to scrape together the necessary downpayment and closing costs, many are unable to afford even the FHA 3.5% downpayment requirement. Many of these households have excellent credit, steady job history, and would otherwise qualify for a mortgage in every other manner minus the downpayment. This program is needed to get these homebuyers into the housing market and provide the additional demand needed to reduce supply and stabilize housing prices.
Supporters argue the program is already being done on a smaller scale at the state and local level. Unfortunately, because of the current recession and its impact on government coffers many state Housing Finance Agencies are unable to fund their current activities. The NDAP could replenish their programs while increasing tax revenue through the increase in new real estate taxes.
The program would model itself after the successful USDA home loan program. This includes tight underwriting standards and an upfront fee to cover the costs of the program. The USDA program demonstrates that a properly implemented housing program can promote responsible homeownership and low default rates.
Opposition:
Opponents argue the problem with today’s housing market isn’t a lack of housing incentives, but a lack of job growth. Regardless of how many incentives for homeownership the government produces, it will not be effective in an environment where fear and job uncertainty dominate household home buying decisions. A temporary stimulus will not address this problem in the long term. Instead, it is time for the housing market to regain its ability to sustain itself and stand on its own two feet.
Spearheading the creation of a multi-billion dollar program in the midst of massive government deficits will tax the REALTORS® lobbying efforts just as the government is looking at higher priority issues such as the future of Fannie Mae & Freddie Mac, mortgage interest deduction and other tax incentives available for real estate. Asking for the start up money for an NDAP will likely require Congress to take the money from another real estate program and REALTORS® may be asked to give up an existing tax provision. This is dangerous, opening the door for Congress to look at other real estate incentives in the tax code.
There is a strong possibility this will then become an annual fight to secure continued funding of the program.. Even the USDA program that this proposal models has run out of money on several occasions in the last few years. This has required the program to be suspended while Congress hunts for additional funding Additionally, the USDA recently announced a 75 percent increase in its up front premium.
Opponents also believe this program is an invitation for the federal government to have greater control over California’s housing market. By making California’s Home Finance Agency more dependent upon federal dollars, Washington D.C. will be able to dictate California’s housing policy or risk withholding funding, just as they do on other issues such as environmental reform.
Lastly, what happens if this program with no-downpayment backed by taxpayer money isn’t as successful as advertised and it has higher default rates than originally anticipated? If REALTORS® initiate this program and it fails, it will tarnish the credibility of our industry
C.A.R. Policy:
C.A.R. does not currently have policy on this issue.
NAR Policy:
NAR does not currently have policy on this issue.
Should C.A.R., in conjunction with NAR, support the creation of a National Downpayment Assistance Program?
