HUD down-payment policy harms first-time buyers
When the Department of Housing and Urban Development Secretary Ben Carson mishears the term “real-estate owned,” or REO — as he did in a hearing last month — it can generate quick laughs instead of a deeper analysis into what is happening at HUD.
But the problems that occur when America’s housing department takes actions that its head does not agree with are no laughing matter. Just last month HUD went rogue, issuing a new policy that makes it harder for first-time homebuyers — despite Carson himself later suggesting he disagreed with the change.
Unless the White House acts, or HUD reverses itself, the last laugh will be on American families facing higher home costs.
The policy requires governmental entities, like my organization, the National Homebuyers Fund, to request formal permission from all of the jurisdictions in which they operate in order to provide down-payment assistance to first-time homebuyers on mortgages insured by the Federal Housing Administration, an arm of HUD.
That’s a problem because NHF was created to function on a national basis, with both the adaptability of private enterprise and the accountability of a government entity. What HUD has done is to create a new provision effectively preventing governmental entities like NHF from providing down-payment assistance on a regional, multistate or national level.
FHA-insured mortgages, which aim to help first-time buyers and lower-income families, often include down-payment assistance, as saving for a down payment is, for many buyers, the “most difficult step in the home buying process,” according to the National Association of Realtors. Down payments are particularly challenging for African-American and Latino families, the Pew Research Center has found.
Imagine if the Department of Transportation issued a rule saying that your driver’s license is not valid in another state unless you have a letter from that state and a lawyer’s opinion saying it is OK. Sounds ludicrous, right? But that’s what HUD is essentially doing here.
The predictable result will be fewer governmental entities able to help families with their down payments and higher interest rates. Each state’s housing finance agency will operate as a monopoly, which is particularly concerning because competition tends to reduce prices and help buyers.
Still, if this hurts homeownership and makes no sense, why would HUD do it? The department’s stated concern is the performance of mortgages with down-payment assistance. That’s actually a good thing: HUD should be diligently protecting its role as insurer of these mortgages. If HUD had sought public input, conducted an analysis, published its findings and moved to restrict the worst-performing down-payment assistance providers, that would be good public policy.
But HUD did no such analysis.
In fact, at the same hearing where HUD Secretary Carson made his mistake, Rep. Ben McAdams, D-Utah, asked him about the data justifying this new policy. Carson’s statement that he was “not familiar with the data that was used” was correct. That’s because, as Rep. McAdams pointed out, “there is no data.”
Instead, HUD simply invented a geographic restriction that has no basis in the law or HUD’s regulations. If the department were following the president’s stated goals of reducing unnecessary government regulation, advancing competition and increasing economic growth, it would not have issued such a change.
Secretary Carson acknowledged this in his exchange at last month’s hearing when he responded to Rep. McAdams’ criticism of HUD’s actions, saying, “I agree with you, actually.”
Why would a rule be allowed to go forward on Secretary Carson’s watch where he hasn’t seen any data to justify it, especially when that rule adds new regulation that works counter to the president’s economic agenda? That mystery remains, growing deeper given the secretary's statements at the hearing.