A proposal for a new type of government-backed mortgage assistance program, similar to the Federal Housing Administration (FHA) mortgage loan, is on the table, introduced by a group of Democratic senators: Rev. Raphael Warnock and Jon Ossoff of Georgia, Mark R. Warner and Tim Kaine of Virginia, and Chris Van Hollen of Maryland. The bill is to create a new loan product for lower- and middle-income first-time, first-generation homebuyers.
The new mortgage
The new mortgage is called the Low-Income First-Time Homebuyers Act of 2021, which will be referred to as the LIFT Homebuyers Act, or simply a LIFT mortgage. Its aim is to help people who don't have a family legacy of homeownership to finally become homeowners themselves, providing them the opportunity to build wealth through homeownership.
The LIFT mortgage will be managed by the Housing of Urban Development (HUD) and insured by the Federal Housing Administration (FHA). The loan will have a 20-year term, a one-time mortgage insurance premium of 4% of the loan balance paid at closing and financed into the loan's principal, and a low fixed rate of 1.5%.
Comparing this loan with the current FHA 30-year loan shows that monthly payments will be similar (the LIFT will be slightly higher). But because of the lower interest rate and loan fees, homeowners would accumulate home equity twice as quickly because of the shortened 20-year term.
Who is eligible?
Here are the requirements for this loan:
- Annual household income less than or equal to 120% of the median income for the area
- First-time homebuyer
- First-generation homebuyer
A first-generation homebuyer is a person whose parents or legal guardians don't own a home in any state. Proving this requirement, referred to as the "attestation clause," is done through "the best of the individual's knowledge."
FHA commissioner Dave Stevens finds this clause somewhat troubling: "The real question is how do you prove that you're a first-generation buyer. As long as a borrower attests to the fact that they're first generation, they technically are able to apply." He added there could be some "moral hazard" here.
Before the Fair Housing Act passed in 1968,* Blacks and other minority groups weren't allowed to buy homes in certain parts of this country.
My own hometown of Anaheim, California, for example, had such restrictions that can be seen on many old deeds from around the 1950s era, which prohibited Blacks, Hispanics, Asians, and Native Americans from buying a home unless they were to work as gardeners, servants, or nannies -- shocking but true. The government aided and abetted this system through its FHA home loan mortgage program, which at that time, granted loans only to white people.
Said Senator Warner: "The No. 1 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. Today Black families in this country have an average net worth just one-tenth the size of their white counterparts."
*The Fair Housing Act made it illegal to discriminate concerning the sale or rental of housing based on race, color, religion, national origin, and sex, and later was amended to include disability, and familial status.
The Millionacres bottom line
The LIFT bill comes during a time when it's never been more difficult for any first-time homebuyer to buy a home -- inventory is the lowest ever recorded. As a result, home prices are up 17.4% during 2021's second quarter from last year at this time.
This bill will certainly help lower-income people qualify for a mortgage loan, but until the housing supply catches up, the even bigger obstacles will be finding a house to buy and then winning the bidding war that often ensues.