July 28th, 2016 5:06 AM by Jackie A. Graves, President
Young people come out of the gate facing two
hurdles to home ownership — high student loan debt and tough rules for using
FHA financing for condominiums, which are often the most affordable homes on
the market. However, progress is being made on both fronts, according to
speakers at the 2016 REALTORS® Legislative Meetings & Trade Expo in
On the condo front, U.S. Department of Housing
and Urban Development Secretary Julián Castro used the meetings as an
opportunity to announce progress on a rule implementing improvements to FHA
The rule is under review at the Office of
Management and Budget — typically a last step before finalization — and Castro
said it would help make condo financing easier to obtain. “HUD’s rule is out
the door,” he told REALTORS® yesterday.
The rule will be open for public comment after
it makes it through OMB review and is published as a proposed rule. NAR’s
priorities include easing owner-occupancy and commercial-space ratios, and
making it easier for condo boards to get certified by the federal government
Student loan debt remains a large problem, and
it’s grown rapidly in the last decade. Today 42 million Americans have an
average of $29,000 in federally backed student loans outstanding, according to
Rohit Chopra, an advisor to the U.S. Department of Education who was also on
hand at the meetings. Of these borrowers, 7 million are in default, and each
day 3,700 additional borrowers go into default. “We have a lot of work to do,”
Chopra told REALTORS®.
It’s not just millennials who are racking up
the debt; baby boomers, either because they’re taking out loans on behalf of
their children or they’re going back to school themselves, hold a significant
portion of it, said Meta Brown, a senior economist at the Federal Reserve Bank
of New York who joined Castro and Chopra at a session titled "The Impact
of Student Debt on Housing Choices: Regulatory Issues Forum" on Tuesday.
The debt load, along with affordability
challenges that only grow as home prices rise, could be playing a role in the
drop in first-time home buyers. Jessica Lautz, NAR's director of member and
consumer survey research, says 32 percent of home buyers last year were
first-time buyers, a 10 percent drop from historical norms.
To help pave the way for home buyers, Castro
said in his portion of the session, the FHA is reducing the amount of deferred
student debt, from 2 percent to 1 percent, that counts against a borrower’s
debt-to-income (DTI) ratio. That means someone with $10,000 in deferred student
loan debt would have a $100-per-month repayment obligation in calculating DTI,
rather than $200.
Looking to the longer term, legislation is in
the works to address the issue. Among the bills, the “Empowering Students
Through Enhanced Financial Counseling Act,” H.R. 3179, would help ensure
students are better prepared to handle debt, and the “Access to Fair Financial
Options for Repaying Debt Act,” S. 1948, would provide more repayment options.
Mabel Guzman, chair of a working group on
student loan debt NAR launched in 2014, said the group is making policy
recommendations to the Board of Directors this week to help position the
association on the issue.
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