Are you or anyone you know thinking about buying a home? If so, the next few months may be the best time for a long time. Get past media stories of distressed properties and falling prices. This is a market that filled with great opportunities that may not be around much longer.
With phenomenally low mortgage rates, a large inventory of available homes for sale, the lowest prices in years and the existence of lending programs that can get qualified buyers into a home for little to nothing down, housing is on sale.
Of course, as president of the New Smyrna Beach Board of Realtors, I’m expected to tout the great market and encourage people to buy and sell. Head cheerleader, right?
In this article, no. I am writing this from the perspective of one who is watching Washington, D.C. and not liking much of what I see that is in the works to hurt a buyer’s ability to obtain home financing.
Through a series of government actions, primarily at the Federal level, home ownership, including tax breaks and available financing, are under direct attack. Threats exist all the way from approved legislation that is now having the bureaucratic regulations written to pending legislation. They exist in proposals not yet filed as legislation to scary rumor based on credible sources or precedent.
If these actions are not blocked or modified, owning a home may no longer be an element of the American Dream, a privilege now enjoyed by nearly 70% of our population.
Regulations are already being written for the Dodd/Frank Finance Legislation that passed during the 2010 Congress. Included in that are the development of QRM (Qualified Residential Mortgage) underwriting standards.
Although traditionally mortgages have been made based on credit scores, sufficient and stable income, and debt to income ratios, the QRM standards now under consideration by Federal regulators would make having the cash to put 20% down and pay all closing costs a requirement.
The days of getting private mortgage insurance to guarantee loans with lower down payments could be gone in most cases.
Currently in the pipeline, legislation has been filed and up for debate in Congress to discontinue allowing mortgage interest as an income tax deduction. This incentive to own a home has been available to Americans since 1913, but it may soon be a thing of the past for all, just as it became a thing of the past for higher income earners in the 1990’s.
Changes are already in process or being proposed that would radically change that good old standby loan: FHA (insured by the Federal Housing Administration) that permits qualified buyers to put just 3.5% down. Ironically, FHA is the only government program that fully pays for itself through buyer paid mortgage insurance premiums, and yet it is to some degree on the chopping block.
The insurance premiums have been increased, and proposals are under consideration to raise the down payment, means-test the eligibility of borrowers, lower the allowable cost of the home, and limit the availability of FHA-insured financing to no more than about 10-15% of the market.
It is way too complicated to talk about the problems with Fannie Mae and Freddie Mac, the agencies that provide a secondary loan market. Known as GSEs or Government Sponsored Entities, we taxpayers have just bailed them out for reckless purchasing of poorly underwritten mortgages and the move is on to reduce their activity in the mortgage market or do away with them altogether.
The outcome could curtail the use of or even spell the end of the 30-year fixed-rate mortgage, something we all have known and relied on for generations.
Some of these proposals are the hangover from the housing boom of several years back. I characterize them as over reaction to former irresponsible lending policy and programs, including sub-prime loans, and the resulting high number of foreclosures and the taxpayer bailout of banks and the secondary mortgage market.
Some come from government looking for more revenue or more control over people’s decisions. Some come from a fading commitment to help Americans build wealth through owning a home.
Be aware of changes on the horizon that could move home ownership out of your or your children’s reach in the near future.
I feel confident that the home lending market will find new ways to make money and help people buy homes. What I don’t know is how much damage the current environment will do or how much time it will take until things get sorted out.
That’s why I’m telling you, if you are in the market for a home now or in the near future, don’t lollygag around. Get busy shopping.
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