Biden calls for home buyer tax credits, pilot cutting title on some refis

In advance of the State of the Union speech, the White House announced tax credits proposals for certain homebuyers and a title acceptance pilot program that would eliminate the requirement for a lender title policy on certain conforming refinancings.

A White House fact sheet in advance of tonight's speech listed several homeownership and rental initiatives that Pres. Biden is looking to push.

The president is proposing a mortgage relief credit that, if Congress passes, would provide middle-class first-time home buyers with an annual tax credit of $5,000 a year for two years.

It claims that would be the equivalent of reducing the interest rate by more than 1.5 percentage points and will help more than 3.5 million middle-class families purchase their first home.

Meanwhile, to push more current homeowners to list their property for sale, the White House is calling on Congress to pass a one-year tax credit of up to $10,000 to middle-class families who sell their starter home to another owner-occupant. It defined that market as homes below the area median home price in the county. This proposal is estimated to help nearly 3 million families, the White House said.

The White House also called for Congress to provide up to $25,000 in down payment assistance "to first-generation homebuyers whose families haven't benefited from the generational wealth building associated with homeownership," the fact sheet said. 

Another initiative focused on cutting the costs of homeownership will come from the Consumer Financial Protection Bureau, who will undertake rulemaking and provide guidance "to address anticompetitive closing costs imposed by lenders on homebuyers and homeowners," the fact sheet added.

The Biden Administration also wants to build and/or preserve 2 million homes. It proposes expansion of the Low-Income Housing Tax Credit program to build or preserve 1.2 million more affordable rental units; and a new Neighborhood Homes Tax Credit, which if enacted, would lead to the construction or preservation of over 400,000 starter houses.

Another proposal would ask Federal Home Loan Banks to double their annual contribution to the Affordable Housing Program to 20% of the prior year's net income from the current 10%, which will raise an additional $3.79 billion for affordable housing over the next decade.

A new $20 billion competitive grant fund will be included in the president's budget proposal to support communities across the country to build more housing as well as lower rents and home purchase costs.

"Together with our partners across the federal government, we are committed to boosting our housing supply to increase affordability and removing barriers to advance homeownership," Department of Housing and Urban Development Secretary Marcia Fudge, said in a separate press release. 

The National Housing Conference called this the most consequential State of the Union speech when it comes to housing in over 50 years.

"President Biden's call for Congress to tackle the urgent matter of housing affordability through tax credits, down payment assistance initiatives, and other measures is warranted and represents a crucial step in easing the burden of high rents and home prices," David Dworkin, president and CEO, said in a statement. "We have a deficit of 3-5 million housing units in this country. We dug this hole over 15 years. We are going to have to get out of it the same way. One shovel at a time."

Title trouble?
In addition to the pilot program that would eliminate the requirement for lender title insurance on certain refiances, the government wants to hold a roundtable consisting of stakeholders, including consumer advocates and academics, to discuss the title insurance industry and analyze potential reforms.

The negative impact of the pilot to title insurers is likely limited, said Bose George, an analyst with Keefe, Bruyette & Woods in a flash note.

"We expect the scope of title waivers to be narrow since it is part of a GSE pilot program," George said. "Further, we think Federal action on title insurance will be difficult to accomplish since title insurance is regulated at the state level."

The American Land Title Association declared that the pilot program exposes consumers, lenders, and taxpayers to financial risks.

"The approval of this waiver is a hollow attempt by the White House to placate Americans' current economic frustrations," the trade group said in a statement. "By announcing this only hours before the State of The Union address, without outreach to, or engagement with, the title insurance industry, the Administration has reduced the crucial role of the industry to nothing more than a politicized talking point."

This proposal would waive the need for a lender's title policy or attorney opinion letter "on certain low-risk refinance transactions where there is confidence that the property is free and clear of any prior lien or encumbrance," a statement from Federal Housing Finance Agency Director Sandra Thompson explained.

"The title acceptance pilot will make it possible to test whether allowing lenders to sell these refinance loans is a responsible approach to reducing the closing costs incurred by existing homeowners," Thompson said. "Lenders will also retain the option to provide evidence of clear title through other options, such as title insurance or an attorney opinion letter."

But the ALTA declared this announcement was an unwelcome about-face from statements previously made by the FHFA and Fannie Mae last year about a similar program.

"In August, Fannie Mae and FHFA confirmed to ALTA that the title waiver pilot program was abandoned — a decision that was clearly overridden elsewhere in the Administration," the ALTA statement said.

The Mortgage Bankers Association said the new pilot could undermine consumer protections, increase risk and reduce competition.

"In 2015, the industry implemented final rules from the Consumer Financial Protection Bureau making comprehensive reforms to mortgage disclosures to increase clarity and transparency and to help facilitate consumer shopping," Bob Broeksmit, the MBA's president and CEO, said in a statement. "In 2020, the CFPB reviewed and praised its own rules. Suggestions that another revamp of these rules is needed depart from the legal regime created by Congress in the Dodd-Frank Act and will only increase regulatory costs and make it untenable for smaller lenders to compete."

The MBA otherwise welcomed the Biden Administration's focus on legislative and regulatory fixes that could increase the supply of both single- and multifamily housing and make homeownership more affordable and attainable.

"We will further analyze these initiatives — many of which require Congressional action —  as more information is released and will continue to work with the Administration, lawmakers on both sides of the aisle, and industry stakeholders on effective solutions that bolster housing supply, improve affordability for both renters and borrowers, and improve access to sustainable homeownership," Broeksmit said.

Title insurance policies come in two forms: one portion covers the lender, while the second optional coverage is for the borrower. Loans sold to the government-sponsored enterprises typically require some form of protection for the lender's position on the title. Borrowers will retain the right to purchase their own policy, both the FHFA and White House explained.

"As with any pilot undertaken by an Enterprise, this effort will be subject to robust oversight by FHFA to monitor the effectiveness of the pilot in meeting its desired outcomes," Thompson said.

However, the ALTA pointed to results from an Ernst & Young study, which claimed the title insurance and settlement services industry directly generated $30 billion of gross domestic product and 155,000 jobs in 2022.

"Despite economic challenges in 2022, the industry continued to deliver jobs, support small businesses, provide critical funding for community priorities and, importantly, protect millions of Americans' property rights," said Diane Tomb, ALTA's chief executive, in a press release announcing the survey results. 

The ALTA, whose members are challenged not just by competitive threats but lower mortgage originations, said the study found that title and settlement companies helped to identify and collect $3 billion in back federal income taxes, property taxes and unpaid child support. These companies also directly supported an estimated $13 billion in wages and benefits for those employed in the industry.