The midterm elections are coming up. Here’s what that means for the US housing market.

The US midterm elections are upon us. And elections have consequences for the housing market, according to a new report from investment bank Cowen.

The report, by Cowen’s Jaret Seiberg, noted that the Nov. 8 election will determine which party controls the House and Senate for the next two years.

And the outcome will then affect a range of issues related to housing finance policy, he said.

First-time buyer tax credit gone

Assuming Republicans “will at least gain control of the House of Representatives,” Seiberg wrote, that probably means no Tax credit for first-time buyers.

The tax credit was granted through a revision of the Internal Revenue Service’s tax law for first-time home buyers $15,000 in refundable federal tax credits. The Democrats tried last year to get the tax credit through a so-called reconciliation law, Seiberg noted. But a new reconciliation law is unlikely, he added.

Funds for rehab accommodation are unlikely to be allocated

The original reconciliation package had another large housing component – rehabilitation housing.

The package had billions planned building, renovating, or buying affordable public housing, Seiberg noted, which would help with rental housing. “It’s hard to see how that gets past a GOP house,” he noted.

No reform for Fannie and Freddie

Fannie Mae FNMA,
+0.97%
and Freddie MacFMCC,
+0.70%
are likely to remain under government supervision regardless of the outcome of the election, Seiberg wrote.

Fannie and Freddie are federally-backed mortgage companies created by Congress. They buy and guarantee mortgages from lenders such as banks KBE,
+2.60%
and fintech companies. They then hold the mortgages or sell them as securities on the secondary market.

They are under the direct supervision of the federal government. The government took control of them and placed them under the supervision of the Federal Housing Finance Agency in 2008 when the housing market began to melt on subprime loans.

The Trump administration had wanted to take Fannie and Freddie out of the government conservatory. But don’t expect that to happen any time soon, Seiberg wrote, regardless of who wins.

“The issue is politically controversial. It divides Democrats and Republicans. We don’t see a bipartisan solution,” he noted. “What could happen is more talk of regulatory reform, although it’s difficult for us to see action until after the 2024 election.”

Expect FHFA premiums to be reduced

Regardless of who wins, expect lower premiums for potential mortgage borrowers, Seiberg said.

If a prospective homeowner has a lower credit score or has a smaller amount of money saved for a down payment, they can take out an FHA loan instead of a traditional loan. But FHA loans come with a Mortgage Insurance Premiumthis is an additional payment that homeowners make to secure the loan.

The premium is twofold: an upfront payment and an annual payment.

FHA Borrower currently paying 0.80% per year in annual premiums, according to the agency’s website, for loans up to $625,000 and a down payment of 5% or more.

Lowering the mortgage insurance premium rate could save a homeowner thousands of dollars in a year when buying or refinancing a new home.

For a $150,000 home, the premium is $1,200 per year (or $100 per month).

“President Biden already has his [Federal Housing Administration] commissioner and [Housing and Urban Development] secretary on the spot. For that reason, even a GOP sweep shouldn’t stop Team Biden from cutting FHA awards,” Seiberg said.

“We still expect a 25 basis point cut in the upfront fee and a 25 basis point cut in the annual fee,” he added.

Chaos at the Consumer Protection Agency

In mid-October, a federal appeals court ruled that the Consumer Financial Protection Bureau, a financial regulatory agency, was unconstitutional because of its funding.

If the Supreme Court agrees, this could lead to that Qualifying Mortgage Ruleand the revised one Real Estate Settlement Procedure Act (RESPA), both are invalid, Seiberg said.

According to the Urban Institute, the QM Rule was created by the CFPB, which sets standards for lenders and investors to enable them to do so Protect yourself against lawsuits from borrowers claiming that they were granted a loan that they could not repay.

RESPA prohibits things like kickbacks for business referrals, undeserved fee agreements and so on what is in the interest of the consumer.

And “that could lead to regulatory chaos as lenders are unsure of what rules to follow,” he said. During the annual Mortgage Bankers Association conference in Nashville, Tennessee, this topic was brought up as an important issue to watch among lenders.

When traffic rules are unclear, consumers are more likely to sue lenders for predatory or unethical behavior, and lenders could therefore face increased legal liability, Seiberg noted.

“The solution would be for Congress to approve funding for the agency,” he added, “which could then ratify its previous actions.”

If the GOP only took control of the House of Representatives, such a move could become complicated “since Republicans could either refuse to fund the agency or underfund it,” Seiberg said. “This could lead to a standoff with Biden, who could refuse anything but full funding.”

Do you have thoughts about the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected]

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