TheMReport — News and strategies for the evolving mortgage marketplace.
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24 | M R EP O RT FEATURE Housing and Urban Development to reinstate a rule about hous- ing discrimination that had been relaxed under the Trump admin- istration. These moves are likely just the beginning of a broader push to increase the nation's stock of affordable housing, which has seen shortages exacerbated by the pandemic and recession. There are various ways President Biden could use housing policy to encourage borrowers to enter the market in 2021. 1. Tax credits. Biden could reestablish the $15,000 first- time homebuyer tax credit that originated under the Obama administration. With home prices in the U.S. at an all-time high, many younger people are struggling to scrounge together down payments or cover clos- ing costs. The credit could be the help they need to make the leap to home ownership, giving a boost to loan volumes. 2. Student loan forgiveness. Though it's less likely than a tax credit, forgiving student loans is another way the Biden administration could encour- age more people to buy homes. One study found that for every 10% increase in student debt, the likelihood of a person owning a home decreases 1.5%. Removing or lessening the debt burden on first-time homebuyers would likely increase mortgage demand. 3. Affordable housing investment. With housing markets in flux in most major metropolitan cities, the Biden administration could also seize the opportuni- ty to repurpose vacant proper- ties into public housing, going through government-funded programs to relieve debt. During his campaign, the president said he would expand the Low- Income Tax Credit and add to the national Housing Trust Fund, both of which incentivize the construction and reha- bilitation of affordable housing. Increased government spend on affordable housing would be a net win for lenders, as it would bring more participants into mortgage markets. Loosening Regulations Could Promote Tech Adoption T he most important potential policy change could involve changes to mortgages themselves. In 2021, we could see fundamen- tal changes to the structure of mortgage originations, parallel to the changes to small business lending we've seen due to the CARES Act. The CARES Act re- laxed certain eligibility standards so that small business loans that would usually take months could be underwritten, approved, and funded in a single day. Enabling an equally fast turnaround for new mortgages would deliver a welcome boost to mortgage markets. The FHFA has already taken the first steps toward this goal by loosening some restrictions on mortgage loan origination. President Biden could accelerate this trend by making the FHFA's COVID-19-related policy changes permanent and relaxing other regulations that make it difficult for lenders to streamline their processes with technology, for example, by automating some credit decisioning. By making the mortgage application process faster and easier, these innova- tions would lower switching costs and empower consumers to shop around with multiple lend- ers for the best deal, ultimately increasing market transparency and fairness. Technology could also increase mortgage access in other ways. For example, the Bureau of Labor Statistics (BLS) estimates that over one-third of the U.S. workforce was involved in the gig economy as of 2017. That's 55 million people whose full income doesn't appear on pay stubs, and who may struggle to get approved for a mortgage through traditional pro- cesses. Lenders can use technol- ogy to gain a better understanding of these nontraditional borrowers' cash flows, for example, by di- rectly ingesting payroll data from gig economy platforms. Finally, wider technology adoption could also support fairer lending practices. Despite laws against mortgage discrimina- tion, studies show that racial and gender biases continue to impact human loan officers' decision- making. While algorithms can also have biases, they're much easier to correct, supporting fairer and more impartial decision- making. Revitalizing Mortgage Markets L ast year was unpredictable, and it's still hard to predict what will change this year. While vaccine rollouts continue, we still don't know when remote workers will be called back to the office, reinvigorating demand for urban real estate. And while the Biden administration has made some moves on housing policy, it's hard to know at this point which changes the president will priori- tize going forward. If current trends continue, we'll see lenders continue to streamline mortgage processes with technolo- gy to some degree, increasing ease of use, promoting fairness, and bringing more borrowers into the market. The question is whether that trend will be accelerated by relaxed government regula- tions and widespread vaccination against COVID-19, or hampered by the lack of them. . SIPHO SIMELA is the Head of Mortgage Strategy at Ocrolus. Since joining the team in 2019, Simela's efforts have rapidly expanded Ocrolus' customer base and optimized the company's product offering for mortgage lenders. He is a member of the Mortgage Bankers' Association and an active industry advocate. He is passionate about sharing technology that drives efficiency and provides a competitive advantage to clients and business partners. Together, the shift toward increasing tech adoption and loosening regulations will make the mortgage process faster, easier, and more accessible to more borrowers, giving the mortgage market the boost it needs in 2021.