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MortgagePoint April 2024

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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 30 April 2024 C O V E R S T O R Y Pinto brought a critical eye to a recent op-ed response piece to President Biden's State of the Union, entitled "State of the Union—Biden's Housing Proposals Would be Harmful, Not Helpful." In the piece, Pinto shared his thoughts as to why many of the president's initiatives are, in his opin- ion, approaching the problems incorrectly, or, at minimum, at risk of leading to unex- pected consequences. For example, in response to the president's proposed $10,000 tax credit for middle-class first-time homebuyers, Pinto argues that the credit will "increase demand for starter homes, which are al- ready in short supply, thereby driving up prices," as well as being likely utilized by people who could have afforded a home without the credit, thus providing this segment of homebuyers with "additional purchasing power to bid up the price of homes." His op-ed levels similar criti- cisms at both the president's proposed down payment assistance for first-gen- eration homeowners and the credits designed to encourage homeowners who may have remained on the sidelines due to the lock-in effect to finally put their starter homes back on the market. Spotser, however, is optimistic about the potential impact of the president's initiatives designed to spur more con- struction. "It's those starter homes that are the type of inventory we are looking to bring into the market," she said. "The reality is that construction has been significant over the past couple of years. It's just that the houses that are being constructed are not the houses that are going to be affordable housing." She added, "What the administration is doing even in their tax credit policies is freeing up the existing affordable hous- ing supply and allowing people to move from those starter homes." However, she acknowledges that it's a complex landscape full of many competing factors. Even if homeowners are inclined to put their homes back on the market, "but you're having to compete with extreme housing demand at a higher interest rate in whatever market you want to go to, it makes it to where people are not incented to go ahead and do the transaction." Pinto, however, cautions that "because it crowds out private sector development, [this type of policy has] historically created far fewer housing units than advertised. On top of that, these units are costly and often poorly targeted. The system's beneficiaries are the various intermediaries that can navigate the program's complexity—not low-income families." Pinto also notes that, historically, programs of this type have often been both costly and vulnerable to corruption and overcomplication. The LIHTC credit is roughly designed to be about 65% of the total development costs," said Pinto, with the remainder of the costs intended to be provided by the private sector. "The problem is, that's never really worked that way. It's been a stacking of one subsi- dy on top of another." For example, "In California, a LIHTC development costs about $800,000 a unit. That's just the development cost. But at $800,000, even if the cost out of pocket to the developer is zero, which it tends to be with all these subsidies, the cost of running that development is still very expensive. They still have to subsi- dize the rents to make them affordable to the people that they're supposed to be helping. And 90% of those rental subsi- dies come from the federal government." Pete Carroll, Executive and Head of Public Policy for CoreLogic, acknowl- edged that, if implemented, "the Biden administration proposals would go a long way toward stimulating the devel- opment or renovation of new housing, including single-family starter homes for owner-occupants." But there are, unsurprisingly, some sig- nificant asterisks attached to that possibility. "Altogether, the proposals would help restore the balance of housing supply and demand, moderate the growth of home prices, and increase homeowner- "Because it crowds out private sector development, [this type of policy has] historically created far fewer housing units than advertised." —Ed Pinto, Senior Fellow and Co-Director, AEI Housing Center

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