Down payments are the biggest homeownership hurdle. Why is Washington making them scarcer?
The cost of housing in America is so high that many Americans despair of ever owning a home.
There’s near-universal agreement among housing observers that the primary barrier to ownership, for most people, is the down payment. And in recent years, the cost of renting has become so onerous that nearly two-thirds of renters live with negative cash flow, rendering it nearly impossible to save to buy a home.
That’s why many in the real estate space are disappointed in the decision by a Washington regulator to end support for some programs that helped many Americans over that hurdle and into a position to buy homes.
“Special Purpose Credit Programs,” or SPCPs, are targeted lending products designed to specifically benefit some groups of Americans who have historically been denied credit due to discrimination. On March 25, Bill Pulte, the new director of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, terminated the involvement of the two government-sponsored enterprises in such programs.
“It's a real blow toward some of the progress we had seen in efforts to improve homeownership, especially for those who historically have been excluded,” said John Walsh, a researcher at the Urban Institute’s Housing Finance Policy Center, about the move.
“Between the tightness in the mortgage market and the lack of housing supply, first-time homebuyers are struggling overall,” Walsh said. “There's a real need for that boost to get people over the hump, into homeownership.”
The Federal Housing Finance Agency did not respond to multiple requests for comment from Paste BN.
Fannie, Freddie, and the SPCPs
Fannie and Freddie don’t make loans. They support the housing market by buying mortgages from banks and other financial institutions, taking them off their books so lenders can then make additional loans.
SPCPs are programs developed by such lenders to encourage ownership among the communities Walsh mentioned. Fannie and Freddie began to buy the loans in 2023, and nearly 15,000 households were able to achieve homeownership as a result.
An April letter from 18 members of Congress urging the regulator to reverse the March decision explained: “In 2023 alone, Fannie Mae acquired 921 loans through its HomeReady First SPCP program, delivering more than $5 million in down payment or closing cost assistance and acquired an additional 4,747 loans through lender-sponsored SPCPs. Freddie Mac supported an additional 9,300 households through similar programs last year.”
As one example, the lender formerly known as Guaranteed Rate had a program that provided up to $8,000 in assistance to underserved potential homebuyers. It was meant to cover such barriers as deposit minimums and move-in repair and maintenance costs. The company did not respond to a Paste BN query about whether the program would continue without support from Fannie and Freddie.
AnnieMac Home Mortgage, a national lender with headquarters in New Jersey, had two programs, Home Start and Borrower Smart Access, that worked in conjunction with municipal housing finance agencies, with the agency contributing a certain amount toward the down payment, and the lender another portion.
Craig Ungaro, AnnieMac’s COO, said the company sensed a “landscape change” that had happened in November as a result of the election, and decided to halt the programs when they were due to expire in April. The programs were designed to help borrowers who would otherwise have trouble making the down payment and covering closing costs, he said.
“There are definitely segments of the population that don't have as much of a grip on that or access to that, so they gave us a way into getting into those markets and reaching those consumers.”
The value of homeownership
NeighborWorks America is a national nonprofit that creates opportunities for people to live in affordable homes, most notably with the help of homeownership counseling services.,
“Things are very tough right now,” the group’s president and CEO, Marietta Rodriguez, said in a March interview with Paste BN. “You have rising insurance costs. You have rising taxes. And then you have general inflation and the economy. You feel like you're swimming upstream and so I completely understand how people are just opting out, like ‘homeownership is not attainable for me’.”
Still, Rodriguez said, owning a home connects Americans to their communities in a way that renting doesn’t. “So it's the responsibility of all of us to make sure that those opportunities are open (to) someone who wants to achieve it,” she said.
Many Americans may “take themselves out of the market” without realizing that there are many programs and systems in place to help them, she pointed out.
Indeed, there are over 2,500 down payment assistance programs across the country, an increase from late last year, according to the Q1 report from Atlanta-based Down Payment Resource.
Some programs support the purchase of manufactured housing, multifamily housing, first-generation homebuyers, and more. There is even special funding to surviving military spouses. Counseling services provided by NeighborWorks help Americans in all corners of the country, from Texas to Connecticut, as previously reported.
But many housing observers think the SPCP programs were special. The borrowers who used them might otherwise have used FHA mortgages, which have some downsides, including a more stringent mortgage insurance requirement for borrowers who make down payments of less than 20%.
They are also frequently more time-consuming to process, and as a result, can be viewed less favorably by home sellers than bids that have other types of mortgages, like those backed by Fannie and Freddie. "In the eyes of the seller and the selling agent and the people in the real estate community, (a non-FHA loan) is a better offer," Ungaro said.
"FHA is a good backup," said Walsh, of the Urban Institute. "But I think for a lot of these borrowers what the SPCP programs were offering helped them get over that hump in a way that FHA couldn't."