Killing Us Softly: Washington's Real Estate Revenge

Killing Us Softly: Washington's Real Estate Revenge

As we look over the horizon to the New Year, isn’t it quite amazing to observe how far we’ve come since 2008 --- that time of great uncertainty in the real estate industry? While it took a combination of factors to lift us out of that deep, dark place, it’s impossible to overlook the contribution lent by our government’s financial underpinning post-Lehman. With mortgage availability severely restricted from the Wild West days of 2006, several key initiatives gave us access to higher conforming loan limits --- courtesy of the government sponsored entities (GSE’s), lower rates --- courtesy of the Fed, and later a burgeoning jumbo loan market that saw private capital regain its faith in real estate. The record for 2013 will reflect that we, as industry professionals, mastered the available resources then went about making the most of our lemons.

A lot of this is about to change. An obliviously complicit majority in Washington has other plans, and they hold a vision of an economic recovery somehow decoupled from a strong housing market.  In their fictional land of milk and honey, Uncle Sam can once-and-for-all wash his hands of this tremendous fiscal burden. Here are the ships they plan to sail over the edge of the earth in search of that Eureka:

Dodd-Frank

You wanna talk about locking the gate after the horse has left the barn? How about putting up a brand new Berlin Wall around the town where the barn existed, then arming the gates with 9-year old boys? Basically in Dodd-Frank you’ve got a set of highly restrictive but misdirected regulations that will handcuff the good lenders that remain. You’ll then have an ever-shrinking pool of qualified borrowers foot their massive compliance tab with currency exchanged at a rate of fewer loan options of higher cost. Five years on, that oughtta learn Countrywide.

I Take My FHA Marginalized, Thank You

When the Wall St. house of (mortgage-backed security) cards fell, recall that it was the FHA that emerged to pick up the slack. If you had a borrower with a smaller down payment, iffy credit, or some other qualification quirks, FHA was your gal. Oh sure, you have to take off 2013’s rose-colored glasses and peer back to a time when you couldn’t pay people to offer on your listing. If your 10% down payment is being laughed out of the running today, hearken back to when sellers were jumping over ANY offer. It wasn’t that long ago, my friends. Changes to FHA, mostly a comical ratcheting higher of mortgage insurance premiums, and a recent reduction in the high-balance limits, have again relegated FHA to the cheap seats. Not the first time in history a savior has been crucified, I suppose.

Exit the Fed

One thing I always pinched myself about through the lean times was, hey, this could all be going down at 18% interest rates. Instead, the Federal Reserve’s largesse helped 30-year fixed rates in the 3% range come to pass. Crazy stuff. OK, it only took several rounds of quantitative easing and a few billion of freshly printed greenbacks to get us there, but give us mortgage pros credit for knowing all along it would some day end. It’s a memo that hasn’t reached the stock market yet, but when it does, maybe the bullet-riddled messenger will be found clutching a second note that explains something about how much a robust housing market contributes to GDP, and to the wealth effect, and ultimately to consumer spending behavior. A rising tide may lift all boats, true. The boats must not be underwater for this to happen. Also true.

G Whiz

The Federal Housing Finance Agency (FHFA), in its infinite wisdom, has decided to increase the guarantee fees (G-fee) charged by the government sponsored entities, Fannie Mae and Freddie Mac. Net result, your next conforming loan will be more expensive. Now never mind that "conforming" happens to practically be synonymous to "Qualified Mortgage," aka, the Dodd-Frank teacher’s pet loan. So for those of you keeping score at home, Dodd-Frank defines, for all reasonable purposes, the only type of loan they want to see lenders make (a "QM"). Next, the agency that oversees the making of those loans increases their cost through their fee structure. The goal? To discourage the making of the loans they want to see made. Everybody clear on that? Good.

It may never have been in vogue, but I have been a fan of the "F’s." Fannie, Freddie, FHA and the Fed. They’re easy to slant but they deserve a lot of credit for the good they’ve done. And yeah, they are being targeted by the changes above. Our buyers, sellers and borrowers must understand this and take it into consideration.  The hour is nigh.

Am I still optimistic about the year ahead? Yes, though I do think navigating these waters will require great skill and a nose for the changing wind. Collectively, the pros among us learned a lot from the last crisis and have worked only to make things better. In stark contrast, our lawmakers appear to have stumbled over the same lessons, become disoriented and advanced their march backward. "I’m from the government and I’m here to help." Reagan joked when he said this. I wish I could too.