Project 2025 has a lot of very unpopular, easily understandable proposals wrapped up in it, as Navigator Research revealed in early July. Such as these, with percentages opposed:
- Allowing employers to stop paying hourly workers overtime (87%)
- Allowing the government to monitor people’s pregnancies to potentially prosecute them if they miscarry (85%)
- Removing health care protections for people with pre-existing conditions(82%)
- Eliminating the National Weather Service, which is currently responsible for preparing for extreme weather events like heat waves, floods, and wildfires (82%);
But some of the things in Project 2025 are a bit more obscure—though over time they could bite just as hard—or even harder. One of them is their plans to make homeownership more difficult, actually putting it out of reach for who knows how many Americans—particularly in the working class.
“So uh on top of decimating HUD… Project 2025 is proposing to kill the 30 year mortgage. good luck ever buying housing again,” Mike Eliason, a Seattle-based climate-adaptive architect noted on Twitter. He went on to note that in Seattle it would increase the monthly mortgage on a median townhome from $4,850 to nearly $5,640 a month, adding “Nothing says ‘wealth building’ like a sweet little >20% increase.”
Well, it’s actually “only” 16+%, but that’s scant comfort. The rationale for all this is that Project 2025 says it’s supposed to increase wealth-building: “FHA should encourage wealth-building homeownership opportunities, which can be accomplished best through shorter-duration mortgages.”
Naturally, we wanted a local perspective, so we turned to real estate broker Carl Clark, who writes regularly for Random Lengths. Here’s what he said:
“The statement that “they” are trying to eliminate the 30 year mortgage is possibly correct in the longer term. The immediate attack is defined as an increase in the mortgage insurance premium, which is effectively a surcharge increasing the monthly cost of a HUD-guaranteed mortgage for home purchasers who have been unable to save up the 20% down payment. That 20% is considered by lenders to be sufficient ‘skin in the game’ to prevent low down payment purchasers from walking away if they can’t make the payments. I am not aware of any research proving that home owners are more or less inclined to try to retain their home dependent upon the size of their down payment.”
So it’s not as bad as Eliason said—for now. But, what would it mean here in San Pedro, if things unfold along the lines suggested? Clark provided calculations to explain what would happen to low down payment buyers using a HUD guaranteed mortgage. There would be a similar 16+% increase from $5,471 to $6,376 a month for a median priced single-family home. Prices are higher in LA generally, and exceed FHA limits for a single-family home. But for a duplex the similar 16+% increase would be from $8,102 to $9,442 a month.
And it’s credible to think this might happen down the road, given the underlying rationale. As Clark explained, “This is the key statement from the Mandate for Leadership, page 510 (under Housing and Urban Development):
”FHA leadership should increase the mortgage insurance premium (MIP) for all products above 20-year terms and maintain MIP for all products below 20-year terms and all refinances. FHA should encourage wealth-building homeownership opportunities, which can be accomplished best through shorter-duration mortgages.39”
What could ensure shorter-duration mortgages more than simply getting rid of the longer-duration ones? But the logic is faulty, Clark argues:
“If the goal is to “encourage wealth-building” I can’t agree that “shorter-duration mortgages” are the best way to do that. The real estate industry has through trial and error arrived at a mortgage policy that allows a larger number of potential homeowners to afford the monthly payments necessary to amortize down the loan.”
In short, it’s not as if faceless minions of the administrative state have been handing policy down from on high, as Project 2025 seems to suggest. Regulators work with the industry, they share information continuously and learn what works best over time. But this is not how Project 2025 sees things, as Clark goes on to explain:
“Footnote 40 states “FHA did not facilitate the widespread use of 30-year mortgages until the 1950s when, interacting with Federal Reserve policies, federal agencies began broader adoption of the mortgages, which, despite lowering the monthly repayment terms, result in slow equity accumulation and wealth-building opportunities.’ What it doesn’t say is that prior to the availability of 30 year mortgages, most people in the USA could not afford to own their home. They couldn’t pay rent and simultaneously save up the requisite 20% down payment.”
In short, the federal government, through the FHA, played a crucial role in helping to build the middle class as we’ve known it for the past 70 years. Not coincidentally, union membership was at a historical high in 1950, and wages had risen dramatically from the depths of the depression two decades before. So there was both political and the pocketbook power to make mass homeownership possible, including for much of the working class, which had previously been sharply distinct from the middle class.
Needless to say, reversing these policies would take us back to how things were before the 1950s. Far from helping the working class, as the GOP routinely tries to portray itself under Trump, these policies would once again deepen the divisions between working class and middle class America—divisions that Republicans would gleefully continue to exploit for political power.
That is the long-term prospect for what’s implicit in the Project 2025 plan. It’s what the underlying logic clearly points to. But what if were just the immediate MIP increase plan? Here’s what Clark said about that:
“The size of the impact would depend on the size of the increased MIP requirement. Some percentage of potential home owners would no longer be qualified because the monthly payment would increase beyond a lender’s qualification requirements. So, an unknown percentage of the populace would become forever tenants, with rental rates which typically increase at a faster rate than purchase prices.”
In short, even the immediate plan would mean a growing number of people locked out of the dream of homeownership. It would mean a growing class divide, rather than shared prosperity bringing people together. Clark continued:
“My ’back of the envelope’ analysis of cost increases in the Los Angeles South Bay during the pandemic found that purchase prices jumped in the 20-30% range, while rental prices went up at 40-50%. I don’t know what that would mean in terms of a percentage of the populace becoming homeless, but it would seem to be a given that we would increase the problem of equitable distribution of wealth.”
Which is precisely the problem we ought to be trying to solve. One last thing Clark noted:
“The strange thing is how this only applies to lowest incomes among our citizens. Somehow, the Heritage Foundation seems to have lost track of the idea of charging wealthy people a premium on their purchases to help them increase their wealth building opportunities. Or, perhaps I just misunderstand. Perhaps the premium paid by those with the least in our society is intended to facilitate the growth of wealth by those with the most?”
I think Clark got that last part right. It would certainly be in line with the Trump University plan. And it goes right along with Trump’s newly promised tax cuts for the rich.