"Yes we Can" Get this Market Going Again

Real Estate Agent with Realty Group Inc.

A  good deal of time has been spent talking about homeowners who are "underwater" and in need of relief ,but no one has addressed the backlog of solid potential home, and investment property buyers, priced out of the market at today's (relatively) high interest rates.  Might I suggest we hold that torch for a moment and take a slightly different tack on our excess inventory?  Since we the tax payers now own much of the banking industry why not offer a 6 month "FHA mortgage stimulus package" and reduce mortgage rates to a stimulus rate of 4.5%. (This is about the same rate as the market enjoyed the last time the Fed rate was at 1%.)   The "stimulus rate" would be applicable to new first time home buyers and borrowers in need of refinance-relief.   A borrower who can afford a $200K loan at today's par rate quoted by Chase Home Finance of 6.5%, could, applying the same payment, increase his buying power by nearly 25% to $249,500 by applying the "stimulus rate" of 4.5%.


 From its inception, through much of the 1980's FHA mortgage rates were set by HUD.  Why not revert to this system for the next 12 months?   A substantive rate reduction would get a lot of buyers off the sidelines.  (I have buyers lining up for "next spring").  It could help a lot of at-risk borrowers currently flirting with default.  Lenders, currently working with borrowers already in default, would have a starting rate for negotiations.  If the program when announced were limited to 6 months it would offer a "hurry-while-supplies-last" incentive and if successful slow or reverse the current downward spiral on home prices.   If successful, the program could be extended at the same or higher rates as deemed necessary. 


In addition (and no one is talking about this) financing for small investors has been all but non existent since the beginning of this year.  Last quote I had required a 20-25% downpayment and rates were above 8%.  An FHA Investor Program requiring 15 % down at a rate of perhaps 1% above stimulus rate would encourage individual capitalism (a borrower could be limited to say 2 of these loans).  I have small investors who would love to step in right now, while prices are attractive, and have an investment property or two.  If we do not do something about this soon we will be addressing a shortage of rental housing in the years to come.


These suggestions, if implemented, could provide affordable housing for new homeowners and increase in our rental housing supply.  It could help put a floor on the current housing price declines and give many first time buyers the leg-up they need to get started in life.   If this "YES WE CAN" solution still doesn't work, we can always light a torch to the excess inventory as Jim Cramer suggested, tongue in cheek, on his show Mad Money this week. 


Amy Fisher, Realty Group Inc.

Comments (2)


From the web site http://www.realestateabc.com/rates2.htm

 Most economists and industry heads are predicting continued stormy weather ahead for the financial markets as well as for consumer incomes and spending. For instance, Lynn Franco, director of the Conference Board Consumer Research Center commented this month, "The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence...Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening. Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season."

Because businesses and individuals are increasingly feeling the pinch of tightened credit markets and constricted disposable income, the pressure on mortgage backed securities investors has also been to sell, forcing mortgage rates higher. Unfortunately, with little positive economic indicators expected soon, mortgage interest rates may continue on their upward climb into November. 

What happens if someone gives a party and nobody comes? What happens if we lower mortgage  interest rates and no one takes advantage of them? My guess is that the new administration is going to do something, but will they put their priority on housing or something that has a bigger effect on jobs.  When President-elect Obama held his first economic summit, I did not see any mortgage types in the room.  My guess is that we are going to have to gut this out for quite a bit longer.  




Nov 08, 2008 04:22 AM
Mike Beatty

What is the percentage of mortgages that are ARMs that are getting ready to blow up in peoples' faces?  If credit is impossible to obtain how do those loans get refinanced?  Interest rates have to be kept at a manageable rates, otherwise, banks are going to have very busy REO operations, just like in the early 90's when the CRE market melted down.  THAT will be the time for investors who have kept their powder dry to buy distressed properties from the banks.  The other thing that BHO should but probably won't address is the hugely distorting effect of too much USG involvement in the credit markets.  Fannie and Freddie should be dismantled.  Franklin Raines and Jim Johnson and others belong in jail.  Lenders who made NINJA loans should be allowed to fail and the liars who took them out should lose their homes.  We're sliding into the squishy socialism of western Europe where nobody is allowed to fail and noone is allowed to really succeed, and progress comes to a slow, grinding, boring halt. 

Nov 10, 2008 01:36 PM