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How Will The Recommened Options of the New Federal Report on Home Financing Affect Our 2011 Home Buyers ?

By William Johnson

Industry Observer with Retired

February 23, 2011 10:13 AM

How Will The Recommended "Options" of the New Federal Report on Home Financing Affect Our 2011 Home Buyers ?

In this past Sunday's San Diego newspaper, an article by Kenneth Harney certainly got my attention. As a real estate writer, I think Kenneth Harney is outstanding. One of the things I always find interesting about his articles is that he is usually always ahead of everyone else and he always seems to articulate the details his writings brilliantly.

And his new article on how the new Federal Report will impact homebuyers is no exception to his excellent writing. I was able to locate his article on-line and I think it would be useful for anyone in the real estate industry to read it and consider the ramifications on our Buyers in the months ahead.

Here are some of the recommended options proposed in the 2011 Federal Report.

1. A renewed emphasis on Rental Housing as opposed to home ownership.

2. Interest Rates and very low down payments will likely become a part of history instead remaining a part of procuring home financing.

3. Higher Insurance fees for FHA mortgage.

4.Fannie and Freddie will significantly reduce the maximum mortgage loan amounts they purchase.

5.Minimum down payment amount of 10% for Fannie Mae and Freddie Mac loans.

6. Reducing FHA's footprint in the mortgage market. Currently at around 30% to gradually be reduced to 10%.

7. Increasing fees to lenders who will likely have little choice but to pass them on to Buyers.

After reading this article, I was left with a very clear understanding that the time for purchasing a home is NOW. With financing programs in place, historic low interest rates and more affordable inventory on the market than in the last decade, anyone thinking of owning a home in next few years should consider moving up their time table if possible and take advantage of this current market. There may not be another market like this for decades into the future. Don't wait until rates start to rise or the mortgage market becomes even less hospitable. Take action now!

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Debe Maxwell, CRS

Savvy + Company (704) 491-3310 - Charlotte, NC

The RIGHT CHARLOTTE REALTOR!

Hi William! You know how predictions go these days...they tend to become reality. As for those that you mentioned, we're seeing a bit of that in our market already. Things are just not as simple as they used to be when it comes to homeownership.

However, I remember when I started in the business. For years, I encouraged my first time buyers to have 20% to put down on a house, NEVER to go above the price range that the lender and I calculated for them based upon DTI, and for me to do my level best to find a home that was LESS than what their max range was. It was almost a game for me but, I did it to create happy clients who could pay their mortgage without struggling AND still enjoy life-- vacations, etc. That was the way that I was brought up and I truly emposed that on my buyers.

I don't know why we ever strayed from that plan but, I'm honestly a little glad to see that we're being forced to go back to it! I don't want this madness that is going on to continue, with foreclosures and short sales dominating the market; I'm not saying that at all. What I do want to see is buyers who are happy and comfortable in their homes which they can easily afford and still able to enjoy LIFE.

See, I can find a silver lining in every cloud!

Feb 23, 2011 03:01 PM

William J. Archambault, Jr.

The Real Estate Investment Institute - Houston, TX

William,

"I'm not afraid!" "You will be you will be!" Luke and Yoda as Luke was about to face all his fears. It's just as accurate referring to this post.

They're trying to disarm us. Like was done in 1937.

They are trying to take our cars to be replaced by golf carts suitable for short travel. Distant travel will be Government controllable.

"3. Higher Insurance fees for FHA mortgage."With no provision for N/O/O financing only the Government will have rentals.

"4.Fannie and Freddie will significantly reduce the maximum mortgage loan amounts they purchase."

"5.Minimum down payment amount of 10% for Fannie Mae and Freddie Mac loans."

"6. Reducing FHA's footprint in the mortgage market. Currently at around 30% to gradually be reduced to 10%."

"7. Increasing fees to lenders who will likely have little choice but to pass them on to Buyers."

Show us your papers! Like 1937!

Our fallacy of super low interest loans is part of the problem. If some thing seems to good to be true it probably is!

Buy now while you have choices!

Location, Location, Location, Time, Time, Time,! "Those that don't study history are doomed to repeat it." 5,000 miles and 74 years don't seem to matter.

"2. Interest Rates and very low down payments will likely become a part of history instead remaining a part of procuring home financing."

" A renewed emphasis on Rental Housing as opposed to home ownership." Like 1937.

"not afraid!" "You will be you will be!" "You will be you will be!" "You will be you will be!"

Bill

Feb 23, 2011 04:03 PM

Deborah "Dee Dee" Garvin

C2 Financial - San Diego, CA

C2 Financial

William, Timely post....there are virtually no "solutions" of the past couple years that have truly benefited the home owner or consumer (IMHO). We are just starting to see the effects of the Dodd-Frank Financial Reform and, trust me, none of it is good for the consumer.

There have been so many knee jerk reactions...somewhat like dropping a large meteor in Mission Bay. The ripple effect has not reached the shore yet...but it may result in a mild tsunami. Sorry to sound so pessimistic (I really am not...long term), but the writing is on the wall for the short term.

I really believe we will probably see legislation pulling back some of the over zealous restrictions, but it will probably be several years. The "change for the sake of change" mentality will haunt us all for some time to come.

Feb 24, 2011 05:04 AM

Myrl Jeffcoat

Sacramento, CA

Greater Sacramento Realtor - Retired

William - I had seen similar clippits from this report. I was immediately struck with "1. A renewed emphasis on Rental Housing as opposed to home ownership." I suspect it is a sign the pendelum may be swinging away from trying to put everyone into a home of their own, which some blame for so much of the housing crisis we are currently working our way through. Yet, I feel sad, that emphasis is actually being put there, rather than allowing the market to identify WHO will own property and WHO will rent! It feels like an agenda is being put in place!

Feb 24, 2011 08:36 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Deborah, I actually feel somewhat relieved that I wasn't going a little off the deep end. And I didn't even mention in the post the long range plans for Fannie and Freddie which should just about do the housing industry in for a while. While every one warned that the credit was too loose back when people who could not even fog a mirror were told , " don't worry we all have bad -air days, and then given the loan anyway with no proof of a way to pay it back. LOL

But honestly, some of the new procedures are almost harassment as it told to me from more than one buyer recently.

Sadly lessons can't be learned that it is the extremes in anything that usually cause the problems and correcting entails bringing things back to a level of normalcy not refashioning them to feel like water torture under the guise that anything that doesn't kill you, makes you stronger. :-)

Feb 24, 2011 08:36 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Debe, You didn't change, people's expectations changed and rather dramatically. It is difficult to un-ring the bell that goes off in people's heads. It is difficult to unlearn what experience in past markets taught them. The Internet gives Buyer's the choice to find the home they desire and then expect that everything was artificially priced and their desired home can be had for whatever sum they deem that it should be. While they are part right, the part that is wrong is everything is not priced incorrectly. And there are other qualified buyers for improved property that do in fact understand value. You can't change the some Buyer's expectations that homes that are already improved and they fit their needs exactly aren't always at a price they are willing or able to pay. Usually, a lot of time is wasted and missed opportunities already happened because expectations are no always realistic in the first place. Life goes on and hopefully there will always be enough qualified buyers to take up the inventory.

Feb 24, 2011 08:52 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Bill, In fact I think that is exactly where we are headed. I hope enough others heed the warning signs.

Feb 24, 2011 08:53 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Myrl, I am guessing that your analysis is probably correct. The pendulum is swinging the other way and it does seem to be an agenda that is pulling it that way.

Feb 24, 2011 08:58 AM

Susan Neal

RE/MAX Gold, Fair Oaks - Fair Oaks, CA

Fair Oaks CA & Sacramento Area Real Estate Broker

Hi William - I attended a seminar today where one of the speakers was the chief economist for Freddie Mac. It was very educational. He was asked what about the rumor that Fannie and Freddie would soon be gone, and he said that won't happen overnight, even if it does. He foresees that even if the government decides to eliminate them in favor of another program, it would be done over a 5-8 year period, with something else phasing in at the same time. But since no one knows what that will be yet, their demise is not expected for quite awhile.

Feb 24, 2011 02:39 PM

William Johnson

Retired - La Jolla, CA

Retired

Hi Susan, While I expect that indeed it will be a process that will be completed over a time span, bear in mind that once the decision is actually made, the rules will change and the divestiture can be as painful as not having these two institutions in place operating at full capacity. I think no one should be fooled that the government wants or intends to be in the mortgage business and the banks have demonstrated less than enthusiastic interest in growing their mortgage interests. Private sources, because of regulations, are not so likely to jump on the bandwagon either. Add that on to the greater emphasis for renting and you begin to see what the future of real estate may actually become. If homeowners can not find buyers that have access to funding, what does that tell you about who the ultimate purchasers may be and what the property values will become.

Feb 25, 2011 02:03 AM

Karen Kruschka

RE/MAX Executives - Woodbridge, VA

- "My Experience Isn't Expensive - It's PRICELESS"

William When Arthur and I started 34 years ago the controls that were in place made sense. FHA and VA required reserves so you wouldn't lose you home if a light bulb had to be replaced.

The idea (fostered by the government) that everyone should own a home was stupid and got us in the current mess - common sense was thrown to the wind

I have only one question WHO THINKS FOR ONE SECOND THE FEDERAL GOVERNMENT KNOWS HOW TO FIX IT? Just look at USPS and Amtrak - we can't afford anymore government intervention

Feb 25, 2011 02:43 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Karen,

Excellent points. While I think home ownership was indeed oversold, and equating of the American Dream of Home Ownership as a right and not an earned endeavor , whatever the fix is going to be will be greatly messed up if the government does this alone.

In the state of California, The DRE has an advisory of the best minds in real estate to advise of matters of licensing and issues pertaining to consumers protection. With all the millions of people involved in government, dare I say the expert minds that could advise on issues of home ownership are not to be found there. Sadly, it is more about whose nest is going to be feathered instead of fair and balanced guidelines to oversee the finance , acquisition, taxation and the development of enough housing ( of all nature) to serve our countries needs/

The government with all of it's resources still does not seek out the skill and talent for solutions within the real estate industry. And the relationship of the finance industry with that of real estate has not exactly enjoyed a symbiotic relationship for a very long time.

Feb 25, 2011 03:12 AM

Elizabeth Weintraub Sacramento Broker

Elizabeth Anne Weintraub, Broker - Sacramento, CA

Put 40 years of experience to work for you

I love reading Ken Harney's stuff, too. He seems to follow all the same sources that I do, and he has a good instinct for picking out the salient points. He called me a few years ago when I was in Viet Nam, and I tried to send him a couple of itty bitty dolls inside a package with my book, but somehow they got lost.

Feb 25, 2011 05:54 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Elizabeth, That is pretty cool. I would love to meet and talk with him some time. I have followed him for as long as I can remember. He has such a marvelous insight and I think he is a real credit to both the industry and consumers alike.

Feb 25, 2011 06:02 AM

Teri Eckholm

Boardman Realty - White Bear Lake, MN

REALTOR Serving Mpls/St Paul North & East Metro

William--When we purchased our first home we had to have 20% down. I suppose FHA was an option but no one wanted to pay PMI. And our first home was only $65K too....but it was a pain to save the downpayment either way. I don't think it is a bad thing for people to have to come up with 10% down as then they will have "teeth in the game" so to speak. Zero down did jumpstart the market...maybe in retrospect much more than it should have. I had few buyers that were 100% financed and most of my buyers still own their homes (i.e. not too many foreclosures). So though it is a change...maybe that one is not so bad after all.

Feb 25, 2011 11:56 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Teri, I also think it is imperative to have some skin in the game. The acquisition costs are still very affordable but I am expecting that some of the options n the report are exercised, it will progressively tougher in a slower than normal market will will tend to slow things more and more.

Feb 25, 2011 02:05 PM

Terry & Bonnie Westbrook

Westbrook Realty Broker-Owner - Grand Rapids, MI

Westbrook Realty - Grand Rapids Forest Hills MI Re

Our new normal that we will all have to adapt to.

Feb 25, 2011 03:16 PM

William Johnson

Retired - La Jolla, CA

Retired

Hi Terry, I am certain it will become the new normal at least for a few years.

Feb 25, 2011 03:28 PM

Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES

Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL

Florida Waterfront and Country Club Living

William, I agree that if you don't get off the fence now, you may miss the boat of low interest financing. What works short term does not always work long term and things will change when they are no longer sustainable, hopefully, it will stabilize the market in the long run.

Feb 26, 2011 02:02 AM

William Johnson

Retired - La Jolla, CA

Retired

Hi Sylvia, But stabilization under these terms may mean that many less people ultimately will can own a home. Thus the increase in rentals. It is the longer term that concerns me.

Feb 26, 2011 02:21 AM