ON KIDS AND LAWNS
The National Association of Realtors is deploying sweeping new policies that address an ongoing problem in the housing market: the drop in homeownership due to student debt burdens.
Nationwide student debt stands at $1.4 trillion dollars. 40 percent of first-time homebuyers have student debt burdens. In a survey of millennials, defined by the study as people born between 1980 and 1998, a frankly frightening 83 percent cited student debt as the primary reason they were unwilling or, more often, simply unable to buy a home.
WHAT’S TO DO?
NAR conferred with Fannie Mae (which still sounds like a stage direction from “Oklahoma!” to me, as opposed to America’s largest trade association establishing policy direction with the Federal National Mortgage Association, but it’s the second thing) and established a slate of new policies that they hope will empower more people, above all more young people, to buy homes and get the property market moving upwise.
First, several vital and frankly obvious changes are being made to the calculation of the debt-to-income ratio (DTI).
What with the whole “it’s 1.4 trillion freaking dollars” thing, folks other than Realtors have taken steps re: student loans.
Notably, a growing number of third parties, particularly employers but also grad schools and federal work programs like AmeriCorps, have made student loan payment part of their compensation plans. New NAR policy states that any payments being made by a third party should not be included as debt in the DTI calculation.
Second, many government programs establish lower payment plans for low-income recipients of student loans. Programs like these are expected to grow more commonplace – college ain’t getting cheaper – and NAR policy now calls for DTI to be calculated on the payment amount after assistance, rather than before.
Third, when it comes to underwriting a mortgage, debt-to-income rate has historically been capped at 45, with very occasional exceptions up to 50. NAR policy now calls for a universal 50 rate cap.
The third-party payment and federal assistance exceptions have been in place for some time, and the cap increase went into effect at the end of July 2017.
BIG CHANGES, BIG MONEY
What matters now is implementation. NAR has been studying these issues since 2014, and obviously it’s got its policies in a row. But policy only leads to change when people are proactive — NAR calls for exactly that, advising Realtors to reach out to potential customers in the pipeline, or prospects who couldn’t quite clear the old numbers but might meet the new standards.
With more customers involved in the process and a less restrictive approach, the new NAR policies could represent a major move toward breaking the “eternal renter” millennial stereotype and getting more people, especially young people, into housing.