Getting A Home Loan About To Get Easier Getting a home loan is about to get easier. Thats because Fannie Mae and Freddie Mac, the two government-backed residential finance giants that backstop a majority of all home loans, have put new lending guidelines in place that should make it easier for borrowers to secure loans. Not only are the two agencies lowering down payment requirements, but more importantly, they have clarified when lenders will be on the hook if borrowers default. In the past, Fannie and Freddie have been able to force lenders to buy back loans that have defaulted soon after it was issued, if any mistakes were made in the paperwork or if there was borrower fraud. Mel Watt, the head of the Federal Housing Finance Agency, acknowledged that the previous policy made it hard for lenders to understand exactly when Fannie Mae or Freddie Mac would require the banks to repurchase loans. Under the new rules, any loans with no missed payments for 36 consecutive months after they were first issued will be backed by Freddie or Fannie should they default. The agencies will also allow two missed payments in the first 36 months without forcing borrowers into foreclosure. And if private mortgage insurance, which is required for all low down payment loans, is rescinded, say due to errors made in the underwriting process, lenders will not automatically be required to repurchase the loans. According to Lawrence Yun, chief economist for the National Association of Realtors, the buyback issue has been the number one hindrance to residential lending lately. If it disappears, it would be a big boost to residential lending. Freddie and Fannie have also said they will start backing 3% down loans. Borrowers can currently get 3.5% down loans from the FHA, although they require borrowers to pay expensive mortgage insurance premiums for the life of their loans. The new low down payment loans should help boost home buying among low-income and first-time home buyers, who have been conspicuously absent from the housing market over the past year. Lenders already seem to be loosening up a bit. Mark Palim, who oversees economic and strategic research at Fannie Mae, said average credit scores for approved loan applications have dropped slightly over the past few months and lenders are doling out loans with lower down payments as well. Source: CNN/Money Note: We expect to release more details about the Fannie Mae and Freddie Mac 3.0% down programs as they become available. Jobs and Real Estate Most have been disappointed with regard to the slow pace of real estate sales in 2014. Coming into the year, it looked like there was a lot of momentum in the real estate market, but that momentum waned in a very harsh winter and improvements came throughout the year in slow increments. We take another view with regard to the performance of real estate in the past year. A few years back, distressed sales were as high as 30 percent of the total market. And the purchases of distressed properties were dominated by investors, many of whom were purchasing in bulk. During the latter stages of this year, distressed sales fell to under 10 percent of the overall market. The drop in distressed sales represents a market that is getting healthier. Yes, twenty percent of the sales went away. But the fact that total real estate sales stayed approximately level with the previous year means that over twenty percent of the sales were replaced largely by homeowners. What this represents is a normalization of the market. In 2015 we will not have to replace the same level of distressed sales, though the numbers of distressed sales are still predicted to fall. In our mind, real estate sales will continue to rise from todays levels. How fast? Well, that depends upon several factors, not the least of which is the employment situation. Almost two weeks ago, we learned that over 300,000 jobs were added in one month. This put us on a trajectory to add almost three million jobs in one year, the most since 1999. Yes, the slow recovery has meant that it took us a long time to get here from our very deep recession. Yet today, with the level of distressed sales normalizing, it is expected that this increased job creation will lead to further strengthening of the real estate markets. With rents still rising, it is expected that many more will purchase their first home in 2015, especially if interest rates dont rise too quickly. The easing of credit standards are also expected to contribute positively to the market for first time buyers. Meanwhile, you can be sure that the Federal Reserve has taken note of the positive news on jobs and that news will be a top topic of discussion when they meet today and tomorrow.
Posted on: Tue, 16 Dec 2014 14:32:35 +0000
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