The American Dream: A Home for Every Family
Having been involved with real estate for several years, each time period offers a unique set of challenges. It seems now we are facing mortgage challenges as one of the biggest hurdles in our present business, whether it's avoiding foreclosure by helping financially strapped sellers sell before it happens, or counseling them about options available to them, or getting willing buyers approved for a home they wish to purchase. Our ability to close real estate deals today is challenged by the mortgage process itself in today's market (my opinion).
This past week I have been involved with 4 purchase contracts, and will be lucky if half of those make it to the closing table.
Previously, I felt comfortable to sit down and do a prequalifying discussion on an FHA or conventional or VA or rural development loan with the understanding that anything I did was simply a very rough estimate to be confirmed by a lender. Today I won't even attempt to do that but often make my first client meeting at the lender's office. The rates and rules seem to be changing daily so it's unrealistic for real estate agents to keep up; and may not be the best use of our time either. I try to stay in touch with trends in communities like Active Rain and Twitter, but leave the details to the mortgage professionals.
Last week I attended a training session on "Navigating the Waters of Short Sales and Foreclosures" funded by National Association of Realtors to educate those of us in the trenches as to what's happening nationwide and how to counsel our clients to cope. Louisiana foreclosure rate is 34th out of 50 (Good). I came away feeling blessed to live in Baton Rouge, Louisiana where we are untouched compared to places like California and Florida where property foreclosures are high, job loss is severe, and values are dropping below mortgage payoffs. The high number of foreclosed properties has brought out a different type of buyer, the investor, who hopes for a deal that will appreciate in value in the future.
When we look at the present 30y fixed interest rates ranging from 5.0% to 6% which are at historic all time lows and stimulus bills like a $8000 first time homebuyer tax credit which is an unprecedented move to encourage homebuying,and state programs like Louisiana's bond offering an advance of $5000 of that credit to use a closing, why are we not seeing a better recovery rate? I think from what I see it is an ever increasing tightness of mortgage lending that keeps getting more and more difficult. For example, here in Louisiana this summer our state bond program allowed credit scores of 580 and above at higher interest rate with documentable income and a history of job stability for the buyer. In September that minimum score jumped to 620 leaving even some preapproved buyers stuck without a loan that could close. Now rumblings in the mortgage market talk about raising that score to 650 and above and some institutions have implemented it already. That's a minimum credit score jump of 70 points in less than 6 months. And we have gone back to many self-employed again being unable to secure mortgage financing even with high credit scores. Some of this is adjustment from 2002 thru 2005 where everyone was able to obtain a loan. Whether they could pay it back unfortunately wasn't examined in many cases. Are banks suddenly unwilling to take any risk in a scramble to make up for all the bad loans, thereby penalizing the average American citizen? And at what cost to the American economy? Has the pendulum swung too far to the conservative side? And I hope someone can correct me, but has commercial lending almost disappeared altogether??
And with the FED announcing that beginning Jan.1st they will stop buying mortgage backed securities, the interest rates will go up. In 1980 the average national intrest rate was 16.63% so we can slide upward a long way, folks.
And the U.S. congress is struggling with what to do. So far band-aids like the $8000 tax credit have given some help to a few, but is it short term relief while the "sticker still festers?" Claudette Millette of Active Rain alerted us to the New Housing Bill to Force Loan Modifications. Now in the foreclosure class we learned that the success rate on loan modifications is low...only 25%, meaning 75% still go on into foreclosure at some future time. But at least 25% did get to stay in their homes and banks avoided costly foreclosure on those! These actions garner mixed reviews, but if the banking industry doesn't act on it's own to help with this problem, it seems certain that the government will step in and do something...Anything!
So what have we learned in the past 2064 years?
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
- Cicero - 55 BC
(Source of statistics: Grant Simon, GRI, Instructor "Navigating the Waters of Short Sales & Foreclosures" and RealtyTrac)