In 11th Hour Affordability Pitch, Trump Signs Executive Order on Housing Ahead of Midterms

It may not be an October surprise that can change the outcome of the midterms next month, but the latest executive order from the White House aimed at tackling housing affordability could eventually benefit those looking to buy a home or refinance their mortgages.

The order, titled “Decreasing Housing Costs for the American People,” was signed by President Donald Trump on Thursday. Whether the relief will be felt quickly enough to make a difference at the voting booth won’t be clear until Election Day on Nov. 3.

Bose George, managing director at the investment banking firm KBW, says in a research note that while it’s “unsurprising” that the White House is taking these measures ahead of the midterms, “the impact on the mortgage companies and on the mortgage market more broadly is likely to be limited.”

Keep reading to learn what the executive order means for mortgages and how it could impact the housing market as a whole.

Before getting into the details, it’s important to know how an executive order works. The White House isn’t able to directly make changes to loan requirements or programs, but it can direct federal agencies to act within their existing legal authority. That being said, the order has wide-reaching goals for improving affordability.

Here are a few examples that could have a tangible impact for consumers:

The order directs the Federal Housing Finance Agency to expand a pilot program aimed at eliminating the need for title insurance on low-risk refinance loans. Steven Parangi, founder of the mortgage brokerage Alpine Mortgage Services, says that this provision is “likely to have the biggest impact” on consumers.

“A refinance may not be worth doing if a homeowner has to spend thousands of dollars on title work and lender fees,” Parangi says. “If they can eliminate thousands of dollars of extra costs from that transaction that could make refinancing viable for more homeowners when rates eventually move lower.”

The order also asks FHFA to consider waiving appraisals, income re-verification and documentation requirements for certain refinances that lower the borrower’s monthly payment, similar to the streamline refinance options that are available for government-backed loans through the Federal Housing Administration and Department of Veterans Affairs. Adoption of the looser guidelines may be uneven, though, says Jon Brooks, housing market analyst and co-founder of the real estate brokerage Momentum Realty.

“Federal agencies can eliminate requirements, but lenders still have their own underwriting standards and investor guidelines,” Brooks says, adding that “the real test is whether savings actually appear on borrowers’ closing statements.

Finally, the order asks for a reconsideration of loan-level price adjustments, which are risk-based fees charged by Fannie Mae and Freddie Mac, as they apply to conventional refinancing mortgages. The elimination of LLPAs, while requested in the order, would potentially take away a source of revenue for the government-sponsored enterprises at a time when the White House is already aiming to privatize Fannie and Freddie.

Under current laws, lenders must cancel private mortgage insurance, or PMI, once a loan’s principal balance reaches 78% of the home’s purchase price, but that doesn’t account for the rapid equity gains seen in recent years. Until now, homeowners had to request PMI removal if they believed they had at least 20% equity in their home, which requires them to track their home’s value, contact their lender and possibly pay hundreds of dollars out of pocket for an appraisal.

The order asks FHFA to create a pilot program in which lenders will use automated valuation models to identify loans that qualify for PMI removal, essentially taking the burden off the homeowner. George, of KBW, estimates that 40% of current mortgage borrowers have accumulated enough equity to meet the 20% threshold thanks to home price appreciation.

However, the change to PMI removal procedures would only apply to mortgages originated after the pilot program is established, so it wouldn’t automatically benefit existing homeowners who are currently paying PMI. For them, George recommends checking their home’s value and reaching out to their mortgage lender to remove PMI if they believe they’ve reached 20% equity.

The order instructs the Department of Veterans Affairs and Department of Agriculture to lower mortgage rates on direct VA and USDA loans used to finance single-family homes. However, USDA and VA direct loans are only a small portion of the mortgage market, with only a few thousand loans originated directly from the agencies each year. Far more government-backed loans are guaranteed and issued by private lenders, so they would not be impacted by this executive order.

In addition to changes to the financing side of the equation, the order also establishes a task force to standardize the permitting process for manufactured homes. This effort was already underway as it was included in the 21st Century Road to Housing Act passed by Congress in July of this year. It became law without President Trump’s signature.

Some of the actions outlined in the executive order have the potential to reduce costs over time. But in terms of solving the current affordability problem of high home prices and high mortgage rates, the changes are unlikely to bring immediate relief, experts say. Here are a few of their takes as to how the executive order might pan out for housing affordability.

“Most of this is a long play,” says Jason Madiedo, CEO and co-founder of SimplyPMG, a national mortgage lender that works mostly with first-time buyers. “People will see the benefit of the mortgage insurance piece years from now.”

“The order addresses legitimate inefficiencies, but reducing the cost of getting a mortgage isn’t the same as reducing the cost of owning a home,” says Brooks, of Momentum Realty. “Until monthly payments fall relative to incomes, affordability remains a problem.”

“Saving a borrower a few thousand dollars in refinance costs or eliminating a monthly PMI payment can be helpful. But none of those changes by themselves make a $600,000 home affordable to a household that could comfortably afford $450,000,” says Parangi, of Alpine Mortgage Services.

In the meantime, mortgage rates are expected to stay elevated well above 7%, which is likely to keep housing activity restrained. Despite efforts from President Trump to deliver affordability ahead of the midterm elections, the executive order will have limited impact on interest rates.