Hello, LOs!
Changes to how federal agencies take student debt into account are supposed to make it easier for first-time homebuyers to get mortgages. Will it make it easier to find an affordable house to buy?
The Department of Housing and Urban Development announced Friday that it would adjust how it calculates student loan debt for purchase mortgages as well as reverse mortgages. Lenders can now tally up a borrowers' student loan debt as .5% of the principal, or the documented payment amount.
In a press release, the agency said the move would "streamline and simplify originations for borrowers with student loan debt obligations."
The HUD adjustment would change Federal Housing Administration underwriting rules. Those calculate a borrower's student debt burden as either 1% of the total principal, the payment reflected in the credit report or the documented payment amount, as long as it was fully amortized.
The FHA underwriting rules left little flexibility for borrowers on payment plans which tied their student debt payments to their income. It also did not account for borrowers who deferred their student debt.
The changes for federally insured loans aren't mandatory until August 16, although eager lenders can implement the new policy immediately. HUD will accept public comment for the next 30 days.
A recent report by the Center for Responsible Lending found that student debt is standing in the way of saving up for a down payment, especially for Black households. Having student debt adds more than three years to the time it takes Black college graduates to save up for a minimum downpayment, compared to their white peers.
Advocates for broad cancelation of student debt applauded HUD's announcement. It did not curb their calls to cancel student debt, however. (It's far from a given — Biden is not exactly a fan of student debt forgiveness.)
"This change removes an unjust and unjustifiable barrier to homeownership," said Christelle Bamona, a researcher at the Center for Responsible Lending. She urged the Biden administration to not stop there, calling for a "range of policies that remove impediments to homeownership, including targeted down payment assistance and broad-based student debt cancelation."
There are already two downpayment assistance plans, but both are mired in ongoing Congressional negotiations for an infrastructure package. The Biden administration has not publicly backed either of them.
But making it easier for prospective homebuyers to access credit won't make homes cheaper — or sweeten an offer enough to beat out an all-cash buyer who can waive contingencies and close in 30 days.
What in your estimation is the best way to attack the racial homeownership gap, which is as bad now as it was when redlining was still a thing?
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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