A major shift in federal housing policy could see some homeowners and renters get stuck in a “bait and switch” scenario that could leave them stranded and potentially ineligible for a mortgage, experts said.
The president announced last week that the U.S. would lift the “guaranteed rate” on mortgages from 3.85 percent to 4.35 percent, and that the federal government would help low- and moderate-income households purchase their own homes.
The new rules would make it easier for people to qualify for a $500,000 down payment on a home that’s not on the market right now.
However, those homeowners could be left behind.
They would also have to make an upfront payment on their mortgage to make the new loan available.
The Obama administration estimates that if all homeowners get the same $500k down payment, more than half of all mortgages will be unaffordable for many households.
The federal government has been working on ways to ease the housing market and provide relief to low-income families.
While the new guidelines allow more loans to be available to homeowners in need, they will not go far enough.
A group of advocates and business leaders have warned that allowing borrowers to foreclose on their homes would be a boon to unscrupulous lenders.
“The federal housing guarantee program is designed to keep borrowers from being priced out of homes that are affordable to them,” said Mark Krikorian, president of the National Association of Home Builders, in a statement on Monday.
“If the government allows foreclosures to go unchecked, we will see this system collapse, which will lead to further foreclosing and the homelessness of families that are already struggling.”
While some of the changes to the housing loan process are aimed at helping the under-banked, many more borrowers may be left out.
Under the Trump administration, the housing bureau is expected to eliminate the mortgage interest deduction and require people to pay interest on their loans.
That means the typical borrower would have to pay more to get a loan that is still affordable, but will likely take longer to pay off.
“People that were previously under-insured will now be at risk of foreclosure, while the people that are insured are more likely to be able to make a down payment,” said Kevin Kelly, executive director of the nonprofit Homeowners for the Common Good, in an interview with Fox News.
“So it will be more of a Catch-22 situation where people will be making payments that are more expensive than they were before.”
For the past decade, more and more people have found themselves in the same situation as many of their neighbors.
A growing number of households are struggling to make ends meet.
Some are renters who have lost their homes or owe money on mortgages, while others are homeowners struggling to keep up with rent and a mortgage.
The average homeowner in New York, for example, lost her home and $3,200 in rent in the past year, according to real estate website Trulia.
The Trump administration announced that its plan would allow people to deduct their mortgage interest expense from their income tax return, but it does not offer the same relief to the underbanked.
The plan also would not allow people who are elderly or disabled to deduct mortgage interest expenses, as they would be required to pay for the interest.
“I don’t see any other way that people would be able afford their mortgages that’s affordable,” said Kelly.
People who qualify for the mortgage loan relief are generally able to find a home quickly, but many are stuck in limbo, said Kelly, who has worked on helping homeowners.
They need a home to afford their rent and for their children to have a secure place to live.
In some instances, they are forced to move out of their homes, making it difficult for them to continue to live independently.
“We’ve got to get this thing on the ground and people are getting frustrated because the system is not working for them,” he said.