Qualified tuition plans, also known as 529 plans, are among the most successful government programs ever.  The plans help families save money for college and private school tuition.  Parents can save up $10,000 per student by contributing to a qualified plan.  The earnings on the savings will are not taxed at the federal and state levels in many states.  

Over the past 15 years, total investments in 529 plans have increased over 400 percent, to $373.5 billion.  By the end of June 2020, the 529 plans were helping 14.6 million students pay for school.

Qualified Down Payment Plans

Spearheaded by the National Association of Real Estate Brokers, efforts are underway to create a similar program for down payments.  

• Family and friends of first-time homebuyers will be able to contribute to qualified down payment accounts that are registered and regulated by states, similar to 529 tuition savings plans.
• Either donors or buyers can withdraw funds tax-free to make down payments up to 20 percent of a home's cost and pay for closing costs.
• Accounts would be limited to a total of $102,080 per homebuyer in the program's first year, an amount that would be adjusted annually to reflect changes in the cost of living.

In early August, Senators Cory Gardner (R-CO), Doug Jones (D-AL), and Sherrod Brown (D-OH)  introduced legislation to create the program. Congressmen Gregory W. Meeks (D-NY) and Al Green (D-TX) introduced a companion bill in early September. The legislation is called the American Dream Down Payment Act of 2020 to differentiate it from the American Dream Downpayment Assistance Act passed by Congress in 2003.

"When we talk about the American dream, we often hear the adage that insists people must pull themselves up by their bootstraps to attain a better quality of life. Unfortunately, many in underserved communities have neither bootstraps nor boots. The American Dream Down Payment Act provides boots via tax-exempt savings accounts that will help people save for a down payment on a home, and with bootstraps, home loans that make homeownership more accessible. This legislation provides the boots and bootstraps necessary for many to transform the American dream into a reality," said Congressman Green.

Industry-wide support

The down payment woes that first-time buyers confront is nothing new.  Since FHA's birth in 1934, low down payments have been a critical tool for younger buyers and minority buyers who have been victimized by such illicit practices as red lining and block busting. 

The sad fact is that not much has changed.  Low down payments are not just a priority for groups like NAREB, which represents Black agents and brokers, but to the entire industry.

"However, due to historical gaps in accessing and accumulating wealth, it's much more difficult for African-Americans to obtain substantial financial assistance from family members. Therefore, increased access to federal down payment assistance based on a certain income threshold is vital, particularly for African-Americans," said Chief Economist Lawrence Yun in NAR's commentary on how to increase African American homeownership.

After 86 years, it's clear that more than FHA is needed to increase minority homeownership.  So it's not surprising that the new legislation is supported by a broad spectrum of the housing industry, from the Mortgage Bankers Association to the National Community Reinvestment Coalition.

In addition to NAR, NAREB, and NCRC, the bill is supported by the Asian American Association of America (AREAA); Mainstreet Alliance; Mortgage Bankers Association; National Association of Affordable Housing Lenders (NAAHL); National Business League; National Fair Housing Alliance (NFHA), and National Housing Conference (NHC).

Getting in the front of the line for next year

With bipartisan sponsorship and broad support, why was the legislation introduced very late in Congress's current session—much too late for action this year?

I asked Antoine Thomas, executive director of NAREB, that question in the Down Payment Report's October issue. "Introducing a bill late in the session allows people to look at the issue so that it can set the tone either in a lame-duck session this year or at the start of the new Congress, and you can hit the ground running, he said.

The timing makes sense for another reason. Perhaps the Biden-Harris housing plan's most innovative idea is a new low down payment plan that looks remarkably similar to the new legislation.

Biden's plan calls for a new tax credit worth up to $15,000 that would be available to buyers.  Homebuyers would receive the tax credit when they make the purchase instead of waiting to receive the assistance when they file taxes the following year.  The tax credit could fund a sizeable percentage of a 3.5 percent or 5 percent low down payment loan. 

When the new Congress gets to work next February, the stars might be aligned for a new program that uses the tax code—either in the form of a tax credit, tax-exempt savings, or both― to give first-time buyers an additional leg up on homeownership.