“If the cost of compliance is too high, we are going to see banks cutting growth again to stay below that threshold.”

Regulators aim to help people, but rule setting could affect the behaviors of institutions and individuals, said Jacelly Cespedes, an assistant professor of finance at the University of Minnesota. She has studied previous revisions of the 1977 law.

“Any regulation is going to help some people, but the regulations are going to also distort the behavior of the banks,” Cespedes said. “I’m very interested in how those distortions, or those unintended consequences, hurt the communities that banks serve.”

Banks are still digesting the final rule, which runs nearly 1,500 pages. The effective date for the new rule is Jan. 1, 2026, but reporting requirements won’t begin until Jan. 1, 2027. Cespedes spoke to Scotsman Guide about what could happen with the revisions.

Is this solely for banks or will it affect nonbank lenders?

The CRA applies only for banks. Right now, more than 50% of mortgages are originated by nonbanks, so people (early in the process) were expecting that the new CRA was going to was going to address nonbanks. But nonbanks are exempt from the CRA. Intermediate banks are going to be subject to more comprehensive lending tasks. Those are banks with assets higher than $600 million. The second major thing is that now they are providing more metrics about what the CRA means and what sufficient lending to underserved neighborhoods means.

Intermediate banks are facing CRA scrutiny now?

Yes. There are three categories: small banks, which are banks with assets lower than $600 million; intermediate banks, which are banks with assets between $600 million and $2 billion; and large banks are the ones with assets higher than $2 billion. The main difference with the 2005 reform is that now intermediate banks are subject to a more comprehensive lending test.

Could community banks choose to stay small rather than grow and be governed by these regulations?

I have a paper looking at the 1995 reform in which a $250 million threshold was imposed. What we found is that some banks close to that threshold decided to stay small. They started cutting their assets. Those banks that tried to stay small to avoid a more strict evaluation had a smaller share of business. This had a negative effect on mortgages and also independent innovation. They will need to build the infrastructure to assess loans to comply with the CRA, so that is going to be a cost. Those banks close to $600 million in assets are going to weigh the benefits and the costs of being intermediate. If the cost of compliance is too high, we are going to see banks cutting growth again to stay below that threshold.

Are the revisions doing anything else?

They are changing how assessment areas are determined. It’s not only where banks have their branches but also where they are lending. This is just to address online lending and the increase in online banking.

How else could the Fed encourage more lending in low- and moderate-income communities without these changes?

I don’t have a clear answer for that because what we have seen is that, probably, without the CRA, some communities would be underserved. So, it’s not that the CRA is completely bad, it’s just that the rule, as with any regulation, can create distortions. ●

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People can debate the impact of the federal law for banks — whether it has any teeth or whether it makes any difference with respect to mortgages. What seems clear, however, is that it makes no sense to try to adapt the same law — which was specifically designed for banks with branches and deposits — for independent mortgage banks (IMBs). This is the epitome of trying to fit a square peg in a round hole.

The Community Reinvestment Act was designed to prevent banks from taking federally insured deposits from underserved communities and diverting them to provide credit in wealthier communities. But independent mortgage banks don’t have access to insured deposits, to Federal Home Loan Bank advances or to the Federal Reserve’s discount window.

“Year after year, (independent mortgage banks) decisively outperform banks in originating mortgages to minorities.”

Independent mortgage banks don’t take money out of underserved communities. They bring mortgage credit into underserved communities by accessing Ginnie Mae mortgage- backed securities, cash windows from Fannie Mae and Freddie Mac, or by selling loans to aggregators. Unlike banks, only a small fraction of the mortgage business for these institutions is generated through physical offices.

Most importantly, there is no evidence that IMBs fail to work with underserved and minority borrowers. Year after year, these financial companies decisively outperform banks in originating mortgages to minorities (e.g., see the annual reports from The Greenlining Institute) and to underserved borrowers (e.g., see the monthly reports from the Urban Institute).

Unlike banks, independent mortgage banks generally do not impose credit overlays, or additional guidelines to prevent default, which in effect limit loans to wealthier borrowers. And unlike correspondent lenders such as Wells Fargo, independent mortgage banks don’t exit the mortgage market when times get tough.

Simply put, CRA statutes for independent mortgage banks are solutions in search of problems. Still, with states like New York and Illinois joining Massachusetts in adopting legislation, this seems to be a trend. So, let’s take a look at what these states have done and what the likely impact will be.

Massachusetts experiment

Advocates of CRA for independent mortgage banks point to Massachusetts, which adopted its law in 2007. Let’s take a look at how this turned out. Home Mortgage Disclosure Act data for Massachusetts since it adopted CRA for nonbanks (2020 versus 2008) showed that growth in nonbank lending within the state significantly trailed the national average.

When Massachusetts adopted its CRA, the 26% independent mortgage bank share of mortgages in the Bay State in 2008 was above the national average of 24%. Twelve years later, however, the IMB share of mortgages in Massachusetts (55%) had fallen significantly below the national average of 63%.

In these 12 years, the IMB share of mortgages to low- and moderate-income borrowers in Massachusetts increased from 27% in 2008 to 62% in 2020, while the national average of IMB lending to such borrowers increased at a faster pace, from 29% to 67%. The IMB share of mortgages to borrowers of color in Massachusetts increased by the same percentage (from 27% in 2008 to 62% in 2020). But the national average of IMB lending to minority borrowers increased even more rapidly, from 33% to 71%.

You can’t pinpoint cause and effect here. But clearly, the Massachusetts experiment has not lived up to its billing. And it is possible that the Massachusetts CRA was a factor in discouraging IMBs from coming into the state to make mortgages.

Plaguing questions

New York’s CRA law was enacted in 2021 and went into effect one year later on Nov. 1, 2022. It directs the superintendent of the New York Department of Financial Services (DFS) to assess the performance of a mortgage banker in helping to meet the credit needs of their entire community, including low- and moderate-income neighborhoods.

Specific factors to consider in this assessment include efforts taken by the mortgage banker to ascertain the needs of their community; marketing to members of their community; community outreach and educational programs; participation by management; any practices intended to discourage applications; and the geographic distribution of loan applications and denials. The New York state law also requires DFS to monitor the mortgage banker’s record of opening and closing offices; its participation in government-insured, guaranteed or subsidized loan programs; and the mortgage banker’s ability to meet community credit needs based on their company’s financial condition, size, legal impediments and local economic conditions.

The law provides for the assessment and all communications by DFS to be available to the public upon request. Furthermore, the superintendent may conduct public hearings when an objection to an application has been submitted. Therefore, in addition to the normal risks associated with noncompliance, there is a substantial reputational risk for failure to meet the department’s standards.

A fundamental question raised by this law is what constitutes the “community” of the mortgage banker. Under the federal Community Reinvestment Act, regulators such as the Office of the Comptroller of the Currency have defined the assessment area of a bank based in part on the location of its principal office, branch office or another deposit-taking facility. 

A mortgage banker who is licensed in New York is not required to maintain an office in the state — and many do not. What is the “community” in New York for an out-of-state mortgage banker? The industry will look to DFS for clarity in areas such as this, as this is the sort of question that plagues any state-based effort to apply CRA to independent mortgage banks.

Recipe for retreat

The Illinois CRA was signed into law in March 2021. In December of last year, the state released draft regulations on how to implement the law. This draft exemplifies the problems of applying CRA to independent mortgage banks. The proposed regulations show a fundamental lack of understanding of these financial companies’ business models.

For example, one assessment criteria is “innovative or flexible lending.” So, will an independent mortgage bank that overwhelmingly originates Federal Housing Administration (FHA) or U.S. Department of Veterans Affairs (VA) loans — which include low- or zero-downpayment terms designed for underserved and first-time homebuyers — be penalized because they are not “innovative” or “flexible”?

“For states determined to adopt CRA, it matters how they do it. There should be appropriate volume-exemption levels to avoid deterring nonbanks in nearby states from deciding to lend in that state.”

The same goes with requirements for loss mitigation. Independent mortgage banks predominately originate FHA, VA and conventional loans that have the strongest loss-mitigation requirements — much stronger than banks typically have. As long as an IMB follows these requirements, it makes no sense to have an additional test.

The regulations show a bias toward banks and against IMBs. They disallow credit for loans that independent mortgage banks originate and sell to banks, if a bank claims federal CRA credit for the same loan. This is backward. The loan would not have been made if the IMB didn’t originate it. And if a specific bank didn’t buy an FHA, VA or conventional loan, another bank would have done so.

Finally, like in New York, the Illinois regulations are unclear as to whether they impose a requirement that if a lender enters a state, it has to serve all geographic parts of the state. Combined with low loan threshold for CRA applicability, and new CRA exam costs and burdens, this is a recipe for discouraging lenders in adjoining states from expanding into Illinois.

Sensible alternatives

There are more effective ways for states to encourage mortgage lending to minority and underserved borrowers. For example, one way to generate more mortgages to minority borrowers is simply to have more minority loan originators. 

The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act creates high qualifications standards for independent mortgage bank originators. This is fine, even though for some reason the standards are much lower for bank-based originators.

But states should also look at ways to lower the hurdles for a nonbank originator to become licensed. States should waive SAFE Act exam fees and subsidize these courses for minority and low-income originator candidates. Additionally, states should not deny licenses to loan originators who have blemishes on their credit reports, which have nothing to do with their qualifications to be an originator.

For states determined to adopt CRA, it matters how they do it. There should be appropriate volume-exemption levels to avoid deterring nonbanks in nearby states from deciding to lend in that state.

The CRA process should be streamlined with appropriate safe harbors. If an IMB has loan statistics showing they are adequately serving low- and moderate-income borrowers, they should not have to undergo extensive and costly exams. And these institutions should not be forced to contribute to community development funds of nonprofits, because that is not their mission.

Finally, to other states considering the adoption of CRA for independent mortgage banks, consider one thing: Look before you leap. This all sounds like a good idea. But you will discourage the very thing you want to encourage. ●

The post This Fix Fails to Solve the Problem appeared first on Scotsman Guide.

Solution seekers

Undeserved borrowers

Federal resolve

Client outreach

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Historical precedent

When the housing stock is already severely limited due to an oversaturated pool of buyers and low supply, having maximum resources at your disposal is crucial.

Legislative solution

Key benefits

Bipartisan support

The post Viewpoint: Deliver Homes for Those Who Protect and Serve appeared first on Scotsman Guide.

Genuine need

Permanent benefit

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H.R. 7661, also known as the Trigger Leads Abatement Act of 2022, was introduced in the House by Rep. Ritchie Torres, D-New York, and was referred last week to the House committee on financial services. If codified into law, it would prohibit the creation and sale of trigger leads, which occur when a borrower applies for a mortgage. The inquiry to credit by a mortgage company is a trigger that notifies credit bureaus that the borrower has shown interest in applying for financing. The lead is then sold by the bureau to data brokers, which may include rival mortgage companies, and occurs without the knowledge or consent of the consumers.

According to the National Association of Mortgage Brokers (NAMB), competing companies may then reach out to these borrowers, which creates confusion and may prompt the borrower to pass along personal information that they may not have otherwise intended to share.

“We applaud Representative Torres and his congressional colleagues for introducing H.R. 7661, the Trigger Leads Abatement Act of 2022, that will deliver much-needed relief to the mortgage marketplace by ending the dangerous practice of trigger leads,” NAMB president Linda McCoy said.

“NAMB is honored to have worked to support members of Congress on this critical legislation, and today we celebrate the efforts made by so many across the nation to end this terrible practice that will no longer place undue strain on consumers, mortgage professionals and the entire marketplace.”

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The low- and middle-income rental market needs a fundamental realignment to make it easier for developers to build these units and for workers to rent them. This means a need to change zoning regulations, reduce development costs, expand housing aid, and reduce the segregation of neighborhoods based on income or race.

New housing that is affordable to moderate-income working households has the potential to be the biggest growth area within the multifamily sector. This is a sector of opportunity for commercial mortgage brokers and lenders, as they can play a large role in providing solutions. No city in the country has enough rental units at moderate and lower price points to meet the housing demands of the local workforce.

The lowest-income renters rely on federal vouchers or tax credits to secure housing. But since no state or city has an adequate supply of subsidized rental housing, even residents who qualify for vouchers often can’t find places to use them.

According to the National Low Income Housing Coalition, the U.S. lacks 6.8 million rental homes that would suit extremely low-income renters — those at or below 30% of the area median income. In the nation’s 50 largest metro areas, the number of available homes ranges from 16 units per 100 extremely low-income renter households in Las Vegas to 50 per 100 in Providence, Rhode Island. Nationally, the figure is 37 per 100.

No city in the country has enough rental units at moderate and lower price points to meet the housing demands of the local workforce.

Affordability crunch

With market-rate rental housing, few cities offer enough units at prices the local workforce can afford. Options for Americans making 80% of an area’s median income are sparse.

Nationally, a median of 98.42 attainable units are available per 100 households at this income level, according to the Urban Land Institute (ULI) 2021 Home Attainability Index. Smaller cities place this ratio at nearly one to one. Albany, New York; Ogden, Utah; Tucson, Arizona; and San Antonio are among the top-performing metros for affordability. In general, however, big cities have the least affordable rental stock for households making 80% of area median income. Los Angeles has only 56 rental units per 100 households at this income level while Miami has a paltry 49.

The supply crunch means that many Americans face severe cost burdens for housing in cities, especially the largest ones. Nationwide, a median of 6.2% of households making between $35,000 and $50,000 per year are severely cost burdened by housing. But nearly 30% of San Diego residents at this income level are severely cost-burdened, as are 28% in both Los Angeles and Washington, D.C. New York, Boston, San Francisco and Baltimore all have high levels of severely cost-burdened, low-income residents as well.

The COVID-19 pandemic made affordability even worse. Unemployment soared and remains higher than pre-pandemic levels. The problem is particularly stark for workers such as frontline teachers, nursing and home health aides, and retail and restaurant workers, who often already struggle to afford moderately priced rentals.

Rent moratoriums allowed tenants to defer payments and stay in their homes. But now, low-income households have accrued deferred rent obligations over the course of the pandemic to the tune of at least $70 billion. The full consequences of the rent backlog still aren’t clear. But as the U.S. opens up, a wave of evictions and an uptick in homelessness could follow.

Racial disparities in the rental-housing market existed prior to the pandemic. According to this year’s ULI and PwC Emerging Trends in Real Estate report, 31% of Black renter households were classified as severely cost burdened in 2018, compared to 21% of white renter households, and Black renter households often spent more money for inferior units. Having accrued a disproportionate level of deferred rent debt over the past year, Black households are at particular risk of eviction and homelessness.

Oversupplying luxury

According to the recent ULI/PwC report, the rental market will likely pick up in 2021 after hitting a low point in the pandemic-altered 2020. But current rules and regulations make luxury units the most viable type of new construction.

New rental supply is geared to so-called “renters by choice” who have higher incomes. This supply, however, is not suitable to all renters from a design perspective. One-third of all renters are families, but the average new apartment comes in at 900 square feet, hardly big enough for a household with kids.

Demand for owner-occupied units also affects the rental market. Young families with moderate incomes often rent first, then save up to later climb a rung of the so-called “housing ladder” when they own a starter home. Eventually, they might move to a larger property before finally downsizing when their needs change as empty nesters.

The system works when every time someone moves up a rung, someone else gets on the ladder. When a family with a young child buys a starter home, it vacates a rental unit, creating new supply without the construction of any new rental units. But families often can’t save enough for a downpayment and don’t move out of their rental units. They stay put and so do vacancy rates.

And even if they had savings, many renters would struggle to buy a home due to soaring prices. The for-sale single-family housing market is booming, with price-to- income ratios on home sales hitting new highs in one-third of large U.S. cities.

Supply and demand pressures don’t operate in a vacuum but within a framework of rules and regulations that can create inefficiencies and even market failures — as is the case here. A working rental-housing market would have developers building lower-cost units for lower-income tenants, aligning the supply side with pent-up demand. But that’s not happening and it can’t until the framework shifts.

Multifamily units could play a role in homeownership. Townhomes, duplexes and condominiums can be perfect starter homes.

Getting on track

There are some obvious rule changes that would create a rental market that works for people at all income levels. Consider zoning. Major cities typically lack enough rental units to meet demand because neighborhoods simply say “no.” So, as the population and workforce grow, rents go up.

It will take political will from city councils to implement zoning-based solutions. These policies could unleash a wave of new supply, providing market-based rent relief nationwide.

By shifting zoning policies away from restrictions on use and density, and by allowing for greater definition regarding the scale and form of buildings, cities could enable more townhomes, low-rise apartments and duplexes to be added to historically single-family home neighborhoods. As a result, cities could rapidly increase their rental supplies. Accessory dwelling units in backyards or driveways, sometimes called “granny flats,” could add significantly to the rental stock in Washington, D.C., and other major cities.

Multifamily units could play a role in homeownership. Townhomes, duplexes and condominiums can be perfect starter homes. Greater density can enhance available ownership options for moderate-income renters for whom a traditional, detached single-family home is just out of reach. This also would reduce pressure on older rental stock, a process known as filtering, that helps to lower median rents.

Longer-term fixes also are clear. Discrimination based on source of income should be prohibited, making more units available to those with housing vouchers. Governments at the local, state and federal levels should expand voucher programs to include more than the 40% of eligible households served through the Section 8 and low-income housing tax credit programs.

These changes would improve racial and economic integration, too. Banning housing-voucher discrimination would enable more lower-income and minority households to access high-performing neighborhoods with better schools, health care services and the like.

Cities have, thankfully, started to address redlining legacies that create de facto segregation. In Kansas City, Missouri, for example, leaders want to improve the parks and open spaces in predominantly Black neighborhoods while ensuring that residents of multifamily housing have access to these parks and natural resources. The resulting neighborhoods could provide attainable rental options in previously low-density areas.

The pandemic may have shown that serving middle-income renters is a good business bet. While rents for luxury properties in large coastal cities have declined during the pandemic, vacancy rates have stayed low and rents stable among properties that serve moderate-income households — those earning at or slightly below the area median income.

● ● ●

Likewise, in the future, developers that serve the middle class — and the commercial mortgage brokers and lenders that finance their projects — will find a market robust enough to provide a steady supply of reliable renters over the long term. Rental housing can work for everyone as long as developers, lenders, brokers, and local and federal policymakers create the conditions for a building boom. ●

The post Solving the Rental Puzzle appeared first on Scotsman Guide.

Gordon has a history of involvement with housing regulation, specializing in federal policy related to homeownership, community development and the residential finance system. She managed the single-family policy team at the Federal Housing Finance Agency (FHFA) from 2011 to 2012 and was part of the team that reviewed the Department of Housing and Urban Development (HUD) and FHFA during the transfer of power to the Biden administration.

Currently, she serves as president of the National Community Stabilization Trust (NCST), a nonprofit supporting neighborhood revitalization and affordable homeownership through rehabilitating residential properties in underserved markets.

Previously, Gordon has served as the senior director of housing and consumer finance at the Center for American Progress, as well as senior policy counsel at the Center for Responsible Lending. She also has worked in the civil legal aid sector and as a litigation associate and pro bono coordinator at the law firm of WilmerHale. She received her bachelor’s degree in government from Harvard College and her J.D. from Harvard Law School.

Mortgage Bankers Association President Bob Broeksmit praised the nomination.

“Her previous experience, which includes senior roles at the National Community Stabilization Trust and the Federal Housing Finance Agency, provides her with a unique perspective on the issues facing our nation’s housing and mortgage markets,” he said.

Uejio, meanwhile, has served as acting director of the Consumer Financial Protection Bureau (CFPB) since January. His nomination may mean that the White House is optimistic that Federal Trade Commission (FTC) head Rohit Chopra, its initial choice for full-time director of the CFPB, is ready to be confirmed by Congress; his confirmation has been waylaid so far both by a partisan snarl in the closely divided Senate and by Democratic concerns that moving Chopra to a new post without naming his successor would leave the FTC in Republican control.

Prior to becoming CFPB acting director, Uejio served several leadership posts under its umbrella, including acting chief of staff, lead for talent acquisition and, most recently, chief strategy officer. He has a long track record in government service, starting in 2006 as a Presidential Management Fellow at the National Institutes of Health (NIH). He has also served in human resources capacities at the NIH, the Office of Personnel Management and the Office of the Secretary of Defense.

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Key Points

Fundamental changes to commercial mortgage lending

• During the pandemic, lenders have been reevaluating their policies and tightening their underwriting.
• Distressed properties have been tied up by extended foreclosure and eviction moratoriums.
• Some lenders are treating long-term loans more like short-term bridge loans.
• The reliance on technology to close deals has been accelerated by the pandemic.
• Lenders always react quickly to market shocks, but tighter underwriting and other changes are usually only temporary.

What is changing, however, is how commercial properties and associated loan transactions are underwritten; under what circumstances and conditions they are approved; and how loan closings are conducted. These uncertain times are reshaping the lending process and this affects how easily commercial mortgage brokers can secure financing for deals. Some of these developments are positive and will be long-lasting.

Importantly, the pandemic has resulted in significantly limited foreclosure and eviction proceedings around the country, which is tying up distressed properties while the health crisis continues. Initially, these restrictions started as executive orders handed down from governors in multiple states. Some states, such as New York and California, turned these executive orders into law. Other states are expected to follow their lead. These moratoriums prevent lenders from acquiring collateral in a timely way via the foreclosure process and they prohibit landlords from evicting a tenant.

This puts lenders in an awkward position, creates a domino effect and changes how credit should be extended for new deals. If a tenant fails to pay, they stop paying their landlord. If a landlord is not collecting rent payments, they cannot pay their lender. With no federal relief for property owners or lenders, this leaves conventional and private lenders alike holding the bag, with no recourse as they had in prior years.

Tightening credit

Given this situation, private lenders will likely continue to tighten their criteria in the coming months or possibly longer. Some lenders are treating long-term loans more like short-term bridge loans by collecting prepaid interest or interest reserves during this period of uncertainty. For example, collecting an interest reserve for the next four to six months is not unusual under the current circumstances.

Lenders also need to place more scrutiny on how they structure deals. Since the recent foreclosure moratoriums and eviction laws directly affect commercial real estate and the tenants occupying it, some lenders are only lending to entities and also are placing a Uniform Commercial Code (UCC) lien on the borrower’s equity interest. The lien essentially allows the lender to lay indirect claim to specific collateral, such as real estate. 

In this way, the lender can typically complete a UCC foreclosure despite any moratoriums and dispose of the property in a public sale. This increases leverage for the lender at a time that legal restrictions have tilted leverage in the borrower’s favor.

The logistical challenges posed by the COVID-19 pandemic also have made the typical loan process much more difficult, from performing appraisals to attending in-person closings. Appraisers often must inspect the real estate in a socially distanced manner while borrowers and lenders don’t want to crowd into a conference room to conduct face-to-face closings.

Fortunately, technology has been up to the task. As the pandemic has stretched on, everyone involved in a deal (lenders, mortgage brokers, buyers, sellers, etc.) have generally been able to overcome the hurdles via Zoom and other communications platforms. Meanwhile, virtual tools are making some tasks easier and faster to complete. 

Too often, Wall Street hands down restrictive credit-box requirements that are then disseminated by note aggregators and investors to originators across the country.

Virtual world

Appraisers, for example, are using drones and other virtual-inspection tools to survey and examine properties. They are relying more on desktop reviews, tapping into the vast information available online. The use of e-signing and e-notarization document services allow deals to close while adhering to health and safety guidelines.

Although laws in many states have not caught up with the times, the adoption of new technologies (such as the use of drones in e-appraisals and e-closings) are likely here to stay. In many places, it’s simply a matter of cementing temporary executive orders into permanent laws.

Lenders are learning how much faster it can be to reach the finish line and many are rooting for the permanent adoption of these improvements to execute loan closings. With many tools already in place, change will come quickly and eventually become commonplace. This is obviously a highly desirable outcome that should be around long after the pandemic ends.

Given the additional risks in this environment, lenders have been asking for more guarantees when making loans. What these guarantees look like depend on the lender’s preferences and the deal type. Some lenders may ask for higher interest reserves, the creation of special-purpose bankruptcy remote entities, additional collateral, the use of a UCC loan structure or lower leverage levels. Some lenders also have been opting to work with their borrowers to allow repayment deferrals as a way to avoid bankruptcy or foreclosure proceedings.

Although these new lending parameters may sound extreme compared to previous downturns, private lenders must find ways to protect themselves and their investments. The provisions mentioned above often become the norm as the market enters a downturn. Your clients will typically understand why these changes are necessary during this period of uncertainty for the market.

Moving forward

It’s also important to remember that changes to private lending are cyclical. Lenders react quickly to market shocks. These adjustments are not necessarily permanent, but they are essential for making deals happen during periods in which lenders are tightening their belts, and when the law does not extend protections or relief to these lenders.

Even with all the changes to commercial mortgage lending ushered in by the COVID-19 pandemic, it’s important to remember that these shifts did not begin with the health crisis. Many of the issues affecting commercial mortgages were merely accelerated by this unprecedented event.

A greater reliance on technology would have come naturally, especially the adoption of virtual closings to ensure that borrowers and lenders close faster and more efficiently. Meanwhile, for many brick-and-mortar retailers and some office properties, COVID-19 was simply the final blow in a slow decline.

As the country moves past the pandemic, lenders and borrowers should anticipate continued changes in lending guidelines and requirements. Commercial mortgage brokers need to speak regularly with their lenders to learn about credit-box criteria and also to let lenders know what they’re hearing from prospective borrowers.

Too often, Wall Street hands down restrictive credit-box requirements that are then disseminated by note aggregators and investors to originators across the country. Originators then wind up looking only for deals that fit neatly into these boxes.

As competition for loans increases, feedback from borrowers to mortgage brokers, from brokers to lenders, and then up to aggregators and Wall Street leaders could expand these credit parameters. This could make for a more diverse group of closed loans, which will increase the transactional activity for all companies and individuals involved. This can only be accomplished with open communication between originators and their funding sources.

These innovations were always expected to arrive in the commercial mortgage industry — the only question was when. The COVID-19 pandemic simply forced them to be implemented earlier than many in the industry expected. ●

The post Winds of Change appeared first on Scotsman Guide.

Rep. Earl Blumenauer, D-Ore., and Rep. Jimmy Panetta, D-Calif., introduced the “First-Time Homebuyer Act,” which creates a tax credit worth up to 10% of the purchase price — or $15,000 — for the purchase of a home. To be eligible for the full credit, a buyer may not have owned or purchased a home within the prior three years. Eligibility is also income-based, with homebuyers needing incomes at or below 160% of their area’s median income and the home for purchase at or below 110% of the area’s median purchase price.

“As housing prices and demand continue to rise to historic levels, we need to do more to create opportunities for those who’ve been locked out of homeownership by creating incentives for first-time homebuyers,” Blumenauer said. “This legislation is just one element of the big, bold housing agenda that we are promoting to combat the housing affordability crisis and address centuries of overtly racist and discriminatory housing policies that have left massive wealth, homeownership, and opportunity gaps between white communities and communities of color.”

A statement from Blumenauer specifically highlighted the struggles of racial minorities with regard to buying homes. The Congressman’s office noted that homeownership rates for Asian American and Pacific Islander communities lag those of white communities by more than 10%, while Black and Hispanic communities do so by more than 20%.

“The homeownership gap especially impacts families of color, who for too long have been disproportionally deprived of building wealth through homeownership,” said Panetta. “Families need help purchasing their first home, so they can fully achieve the American dream.”

The bill introduced by Blumenauer and Panetta is separate from the one published last week by a group led by Rep. Maxine Waters, D-Calif. That one would provide a grant of up to $25,000 to first-generation, first-time homebuyers in the form of downpayment assistance available at closing.

That proposal is not a tax credit, unlike the one First-Time Homebuyer Act would provide. Tax credits toward first-time homeownership have been received well before; when the Housing and Economic Recovery Act of 2008 provided for a first-time homebuyer credit of $7,500 (that increased to $8,000 in 2009), an estimated 1.5 million borrowers took advantage and purchased their first homes.

Sunny Shaw, president of the National Association of Housing and Redevelopment Officials (NAHRO), applauded the new bill.

“The refundable tax credit proposed in the bill would increase homeownership among low- and moderate-income Americans, especially those from marginalized communities with historically low homeownership rates,” said Shaw. “As part of its larger Diversity, Equity, and Inclusion Policy Framework, NAHRO supports efforts to fund equitable homeownership programs, and the First Time Homebuyer Act of 2021 would build wealth within communities that face systemic exclusions in the housing market. We look forward to the bill’s evolution and progression.”

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