Having been in the real estate/finance industry since 1983, I've ridden many waves over the years in the mortgage industry. With interest rates on fixed rate loans in the high teens when I entered the lending world, adjustable rate mortgages were becoming the "new thing", from the Graduated Payment Mortgage loan not so fondly dubbed the "Fungus Loan" due to its ever expanding loan balance in spite of the monthly payments being made to the early versions of the "Option ARM" loans offered by Home Savings of America, Great Western Bank and World Savings & Loan.
One of the things I've learned in stagnant real estate cycles is the entry level price range properties must move if the move up buyer is going to be freed up. In cycles where there are numerous lender owned properties on the market in this price range, moving them is even more critical. I believe the more tools we have to help this process along, the better off everyone is. That is, tools that make sense, of course. I have worked with buyers who used many tools geared toward this entry-level buyer:
- Community Reinvestment Act incentives to help low-to-moderate income borrowers and/or borrowers purchasing in high minority/low-to-mod income population areas, incentives such as lower rates or premium pricing which I in turn passed along to the buyers to help buy down their interest rates or to offset closing costs when they were buying in a "seller's market" cycle. If we're going to have the continued consolidation of available mortgage sources to only a few Federally subsidized Big Banks, then they should put more emphasis back on these banks to provide these CRA incentives
- Mortgage Credit Certificates which gave low-to-moderate income borrowers and/or borrowers purchasing in high minority/low-to-mod income population areas a direct dollar-for-dollar tax credit for a portion of the mortgage interest they paid, thereby increasing the residual income they could apply toward their mortgage payments. Oregon only has a pilot program in Portland and is limiting lender participation to a few select lenders. With the Oregon Bond Program unable to offer an alternative to FHA or USDA, maybe it's time that Cities and Counties take matters into their own hands and look at establishing an MCC program?
- Down Payment Assistance from many different sources, although the sources I have always preferred were through programs offered through employers and zero interest "silent seconds" offered through Cities & Counties funded through Community Block Grant Funding as the focus of these sources was toward the "greater good" of the community vs. monetary compensation. Like the mortgage credit certificate, with the Oregon Bond Program having suspended its CashAdvantage program and unable to offer conventional alternatives to program participants, maybe instead of the Housing Finance Agency with Mortgage Revenue Bond programs directing funds for the $8,000 first time home buyer tax credit, Community Development Block Grant programs can be used for matching funds for down payment assistance.
- Homebuyer Education programs, programs that were always mandatory in order for buyers to use any of the aforementioned tools. I believe it is time to make attendance mandatory again for anyone participating in these programs.
Somehow, here I am in Southern Oregon, it's 2009, and one by one the tools in my chest have been whittled away. Oh wait a minute - President Obama approved the $8,000 first time home buyer tax credit, right? A true tax credit that the Housing Finance Agencies may use, so eligible Oregon Bond Loan CashAdvantage buyers may get the $8,000 funded for down payment/closing costs assistance AND a low 4.5% interest rate, WITH the option of paying their mortgage insurance in a low one-time expense.
Woohoo... yippee... hurrah......first time home buyers are going to help by buying up the entry level properties, get the lender owned properties in those price ranges off the market, and free up some Sellers to move-up, right?
Whoosh! Wind goes right out of my sails when I receive notification from OHCS today that their mortgage insurance carrier will no longer insure Oregon Bond Loan buyers who qualified for the 3% low mortgage insurance options. They now HAVE to go FHA with 3.5% down payment and pay their mortgage insurance premium monthly and for what will likely be a longer time than they may have on a conventional loan. God forbid we help promote sustainable, responsible homeownership AND help people be fiscally responsible with rewards for this.
I have been told by representatives at private mortgage insurance companies and from State representatives that buyers "aren't sophisticated enough" or "don't get" the many details associated with some of these programs, so "simpler alternatives" need to be made available to them. The heck with that! If President Obama and our U.S. House and Senate can have the "audacity of hope with a $1trillion economic rescue package" we ought to have the audacity to get as many tools in to the hands of the people as we possibly can, not take them away, and teach them how to use them! Then, we'll start to see this real estate market stabilize.
So, qualified first time home buyers are going to be able to use their $8,000 tax credit, but they may have to use it on a program that requires a larger down payment. But, they had better hurry because more and more buyers are using HUD programs, like FHA and USDA Guaranteed Rural Housing, whose funding allocations are being depleted due to the lack of alternative funding sources with Private Mortgage Insurance companies and Fannie Mae and Freddie Mac paralyzed. The opportunity to buy at values that make your mortgage payment equivalent to your monthly rent is a pretty big opportunity - don't let it pass you by.
See you at the closing table!
Karen Cooper - OR/CA Mortgage Consultant - www.Quality4Loans.com
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