2011 is going to be an interesting year to buy a house. Fannie Mae and Freddie Mac, the two government back mortgage institutions, are buckling under debt. The Obama administration is determined to find a solution between total privatization of the mortgage market (no government backed loans) and total nationalization (all loans government backed).
Right now, federal control of the market is close to 90%. The administration would like to see that reduced down to about 20% or less. What that means could be a serious jolt to the housing market for buyers. In order to do that, the government will have to make their loans less attractive and more difficult to obtain. Guidelines will be stricter and buyers will be encouraged to find non-government backed loans with better terms.
Some specific ideas being considered:
Higher interest rates for FHA and other government loans
Higher down payment requirements. Currently FHA loans require 3.5% down. Under consideration is a requirement for 5% down payment.
Higher funding fees to buyers. FHA loan fees went up last year. They will likely go up another quarter of a percent this year as well.
Cutting the maximum loan limit for FHA loans in high cost areas from $729,500 to $625,500. Some are even pushing a return to the traditional FHA maximum of $417,000. That change would adversely affect areas like Monterey County beach communities and damage the move-up buyer market that counts on reasonably low cost jumbo loans. This means the “upper-middle” class could be in for some high interest rate loans soon. This will likely cause an already declining market to accelerate that decline faster.
Lower allowed closing costs credits. Currently guidelines allow the sellers to credit buyers up to 6% of the purchase price on FHA loans to cover the buyer’s closing costs. It’s expected that FHA will change that to only 3% closing cost contributions from the seller allowed.
This means buyers will have to have a lot more cash to use these loans and they will have to pay a higher interest rate as well.
Right now, FHA loans account for almost 30% of the home purchases nationally. The government is determined to revert to the “historic” average market share of 10 to 15 percent. These changes will help them do that, but home affordability will also suffer. Clear message: buy now! A 1% increase in interest rate means a 10% decrease in buying power. As always, you are encouraged to email me at kharvell@rwnetwork.com
You are familiar with “buyer beware”, right? Well that term is especially important when you look for properties to buy and rent on Craig’s List.
It seems criminals have discovered how easy it is to convince someone that they can uncover “incredible” deals on the internet. The latest scam I’ve been dealing with on Craig’s List works like this. I list a new property for sale and soon afterward that home appears on Craig’s List as a “rental”. The thieves simply take my photos and home address and advertise a terrific rent.
Of course renters get excited and many rush out to “drive by” the rental. They suddenly get confused by the presence of a “for sale” sign and that’s when I get the phone calls asking about the home.
It seems that people will get so desperate to grab that great deal, that when they follow up on the ad, they will be advised that many others are interested and if they want to be the one chosen, they need to:
Supply personal info like bank statements and other financial documents.
Or:
Quickly wire a deposit amount to hold the property.
Of course you’re wondering why people would do that, but let’s face it. Who wants to see that great deal get passed up? It’s sad, but it’s important to find out factual information these days. Such as, who is the legal owner of the property? Why would an owner attempt to rent or sell a home if they are out of the area? (oh, we just moved to Europe and didn’t have time to get a renter in there…..)
Make sure you don’t get taken in by the scammers.
Well I lost an escrow this week. I started kicking myself because I’ve had such an excellent record of closing this past year. As soon as I began talking to other agents about it, I realized I’m not the only one struggling to get buyers through the loan process.
Banks and asset management companies are going through some tremendous changes right now. Remember all those bank mergers last year? Well the big banks are just now starting to realign the banks they bought. Departments are being phased out, managers are being replaced and companies are going through the inevitable "downsizing". All of this adds up to chaos and confusion for real estate agents trying to buy and sell their properties.
Patience is the buzz word in this situation. Escrows are going to take longer. Some deals that should be slam dunks are going to crash out. I’m educating my buyers that escrows are going to be more bumpier than normal. The winners will be the buyers who have the fortitude to ride out this storm and stay the course.
