It’s that time of the year again, when presidential hopefuls lay out their plans to save America and get the nation back on its feet.
While a lot of it is just noise, I do enjoy reading about the candidates’ housing policies to see what they think about real estate, mortgages, and so on.
It was especially important in the previous election, but has barely been mentioned this time around thanks to a resurgent housing market.
This week, Bernie Sanders weighed in with a piece titled, “Fighting for Affordable Housing.”
It has a number of proposals along with six main areas of interest, including:
– Expand affordable housing
– Promoting homeownership
– Helping underwater homeowners
– Preventing homelessness
– Getting lead out of our homes
– Addressing housing and environmental justice
First, Sanders wants to expand affordable housing by building more affordable rental housing units for extremely low-income households.
Along with that, he wants to raise the minimum wage to $15 an hour by the year 2020, while also reinvigorating federal housing programs, repairing public housing, and defending the Fair Housing Act.
When it comes to promoting homeownership, Sanders promises to fight to support first-time home buyer programs, including expanded HUD and USDA offerings, as well as pre-purchase housing counseling.
Credit Score Reform?
He also wants to enact some kind of “credit score reform,” which is confusing to say the least. The proposal points out that a “prime score” before the housing crisis was 640, and that it’s now 740.
I can’t really get behind this because 640 back then was still 640, just slightly above subprime. Today, it’s the same, but you can still get a mortgage with very little down and a score that low.
Additionally, he notes that those with low scores had their credit ruined by foreclosures. Unfortunately, your credit score takes a hit when you stop paying your mortgage, even if the mortgage was destined to fail.
The upside is that there are already programs in existence for those with a foreclosure in recent history that wasn’t really their fault, and even some if it was your fault. It’s also been long enough that many boomerang buyers are now eligible for mortgages again.
He also backs the CFPB and ostensibly the Qualified Mortgage rule, but warned that Republicans are attempting to undermine the agency’s efforts. There’s certainly a lot of controversy there with many lenders feeling the need to walk on eggshells.
But all in all, the new forms should be easier for consumers to read (and to compare to other offers they receive), and the QM rule should limit the number of toxic mortgages doled out in coming years.
Mortgage Interest Deduction for All
Perhaps most interestingly, Sanders wants to extend the mortgage interest deduction to all taxpayers, not just those who itemize their taxes.
Many have argued that the deduction only benefits wealthier taxpayers with larger amounts of mortgage interest paid, many whom tend to itemize. With mortgage rates low and the standard deduction already quite high, many homeowners actually see no tax benefit.
He claims they could close the second home and yacht interest deduction “loophole” and direct the money to some 19 million homeowners who would otherwise benefit if they itemized.
I’m not sure how it would work, but I’m guessing it would be a flat dollar amount that would level the playing field between rich and less rich.
Sanders may have a point because a lot of homeowners probably think they’ll save more money than they actually do once they file their taxes, despite being told beforehand that they’ll save lots of money on taxes. And this can affect the rent vs. buy decision.
Sanders also wants to reinvigorate the Home Affordable Refinance Program (HARP), which is odd seeing that it has been around for some seven years and is winding down at the end of this year. Loan volume is already super low because most who could benefit already took advantage.
Additionally, home prices have risen markedly, so it’s importance has diminished tremendously in recent years.
A more useful idea he’s also touting would expand foreclosure mitigation counseling, with studies showing better outcomes for underwater homeowners who receive counseling.
All in all, there are some hits and misses with Bernie’s housing plan, but expanding the mortgage interest deduction could certainly be a game changer. It just probably won’t happen.
(photo: Phil Roeder)