A plan to jump-start housing
By Jack Guttentag
Inman News™
Share This Editor's note: This is the third in a three-part series.
Previous articles in this series argued that, absent a liberalization of Fannie Mae and Freddie Mac lending terms, a second round of home-price declines was very likely. Renewed price declines would have a devastating effect on homeowners and the economy, and would also increase Fannie and Freddie losses on both old and new loans.
This makes the liberalization of lending terms a requirement of responsible conservatorship.
The changes needed include a rollback of risk-based price adjustments to where they were before the financial crisis, and relaxation of misguided underwriting rules.
Previous articles focused on the need to modify rigid affordability rules, eliminate income documentation requirements for sterling borrowers, and eliminate the requirement for property appraisals on purchase transactions. This article identifies a few more.
Liberalize lending terms and remove restrictions on loans to investors
Investors buy houses to resell or to rent rather than to occupy. During the go-go years, investors bought houses to resell at a profit, and in the current depressed market they are buying houses either to sell or to rent until the market improves.
Laurie Goodman has shown how important investors are to restoring a supply-and-demand balance in the current market. The problem is that there are fewer investor loans now, when we need them, than there were before the crisis -- when we didn't need them.
The major barrier to additional home purchases by investors is the onerous rules imposed on investor loans by Fannie Mae and Freddie Mac. In September 2006, Fannie Mae charged 1.5 to 2.5 points extra if the borrower was an investor rather than an occupant, and investor loans could be up to 90 percent of property value. Today, the price increment is 1.75 to 3.75 points, and the maximum loan is 85 percent of property value.
Fannie and Freddie also limit the number of loans that any one investor can have to four, with up to 10 allowed under more restrictive lending terms. This restriction has the effect of limiting the home investor market to small players.
The higher prices, lower maximum loan-to-value ratios, and limits on the number of loans an investor can have are all counterproductive in the current environment. Investor activity would be stimulated if 90 percent loans were available at a 1 point price increment and limits on loan numbers were eliminated. When home prices start rising by more than 3 percent a year, the old rules could be reimposed.
Eliminate LTV and appraisal requirements on HARP loans
The Home Affordable Refinance Program (HARP) was designed to make refinance possible for underwater borrowers who are current on their payments and whose loans are owned by Fannie or Freddie. A major problem with the program is a maximum loan-to-value ratio (LTV) of 125 percent, which cuts out a sizable segment of the potential market for no good reason.
I can see why the agencies might have limited the program to borrowers with LTVs above 125 percent. The net loss to the agencies from refinancing is lower for high-LTV loans than for lower-LTV loans because high-LTV loans are more likely to default and lower interest rates will prevent some of these defaults.
The loss to the agencies from refinancing underwater mortgages is the interest loss on loans that would have remained in good standing had the refinance not occurred. This loss is not related to the LTV. The benefit to the agencies is the loss avoided on loans that would have defaulted but don't because of the rate reduction. This benefit is larger for higher-LTV loans, which are more likely to default.
By scrapping the LTV maximum in the HARP program, the agencies would also be eliminating the need for appraisals, which would simplify the program and expedite the implementation.
Concluding comment
There are many more changes in Fannie and Freddie rules that would help to generate increased housing demand, but my internal editor says that more examples are not needed. The overriding need is recognition by the agencies and its conservator that assets are not conserved by acting as if Fannie and Freddie are small lenders with no power to affect the market.
These entities are a major part of the market, and their assets are best conserved by policies that convert the currently anemic market into a healthy one. Once that principle is accepted, I will be happy to flesh out the list, and so will many others.
The author, Jack Jack Guttentag, is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
Showing posts with label real estate. Show all posts
Showing posts with label real estate. Show all posts
Wednesday, October 19, 2011
Wednesday, July 7, 2010
As you may have heard, the real estate industry received a big win today when President Obama signed two important pieces of legislation into law.
The first one extends the closing deadline for the homebuyer tax credit until September 30, 2010, for any transactions that had ratified contracts in place as of April 30, 2010, but have not yet closed. Previous blog was about the Senate approval...Now that the President has signed it is official naitionally. Real estate agents working with buyers who fit into this category, please let them know about the extended deadline.
In addition, the National Flood Insurance Program, which provides flood insurance to homeowners in participating communities in flood-prone areas who could not otherwise obtain coverage due to cost or ineligibility, was also extended until September 30, 2010. As a result, buyers in these areas can now obtain mortgages and transactions can move forward. This bill is retroactive and covers the lapse period from June 1, 2010, to the date of enactment of the extension.
If you or anyone you know is interested in purchasing real estate, please:
Contact Clara at 856-264-1058
FREE: Find home values in your neighborhood...Click on Home Values link
The first one extends the closing deadline for the homebuyer tax credit until September 30, 2010, for any transactions that had ratified contracts in place as of April 30, 2010, but have not yet closed. Previous blog was about the Senate approval...Now that the President has signed it is official naitionally. Real estate agents working with buyers who fit into this category, please let them know about the extended deadline.
In addition, the National Flood Insurance Program, which provides flood insurance to homeowners in participating communities in flood-prone areas who could not otherwise obtain coverage due to cost or ineligibility, was also extended until September 30, 2010. As a result, buyers in these areas can now obtain mortgages and transactions can move forward. This bill is retroactive and covers the lapse period from June 1, 2010, to the date of enactment of the extension.
If you or anyone you know is interested in purchasing real estate, please:
Contact Clara at 856-264-1058
FREE: Find home values in your neighborhood...Click on Home Values link
Tuesday, March 9, 2010
Grants available for Oil Tank removal, installation and leak remediation
Do you have or know someone with an underground oil tank that is currently inactive because they switched to another fuel source or went to an aboveground tank? Grants are available to offset the cost of this expense. Before putting your home on the market for sale, be sure to take the steps in advance to have the tank removed.
New Jersey has a grant to assist with the cost of this process. In addition, some companies, like Merdian Environmental Services, will do the work, provide a "contractor non-leaking certification form", forward the certification form along with all the NJEDA required forms to the homeowner to fill out along with a copy of paid invoices and receipts, as needed. The homeowner can then sign the forms and submit them with copies of their last three years tax returns and a $250 non refundable application fee to the NJEDA. Reimbursement usually takes 4-6 weeks.
NJEDA will reimburse up to $1,500 for the removal of a non-leaking underground oil tank and up to $3,500 for the removal of a non-leaking underground oil tank and the installation of a new aboveground oil tank.
If the oil tank has leaked, there is another grant from the NJDEP UST Fund for any clean up costs up to $500,000 that a home owner would be responsible for, and in the process have the oil tank removal and installation costs reimbursed to the home owner.
This program is available to residents of the State of New Jersey, with a taxable income of less than $250,000 per year and a net worth of less than $500,000, not including the value of their primary residence and retirement savings (401k/IRA/pension). This program is also available to non-profit orgnizations. Other restrictions and eligibility requirements apply.
Please feel free to visit the NJEDA at njeda.com or newtanksnj.org for more information and to download and review the required forms.
Homeowners should verify that they are qualified by using the"Grant Worksheet" to determine if they pass the Financial hardship test. In order to qualify for a 100% grant reimbursement the applicant's annual expenses need to be at leas 51% of their annual taxable income. Some companies like Meridian Environmental, supply these forms with their oil tank removal proposal. Meridian Environmental can be contacted at 732-281-1900 or 609 654-0660 for more information. Let Meridian Environmental know that Clara Lyons referred you.
Click on the Home Values link top right on this page to get FREE information about the value of homes and the services in neighborhoods that interest you.
New Jersey has a grant to assist with the cost of this process. In addition, some companies, like Merdian Environmental Services, will do the work, provide a "contractor non-leaking certification form", forward the certification form along with all the NJEDA required forms to the homeowner to fill out along with a copy of paid invoices and receipts, as needed. The homeowner can then sign the forms and submit them with copies of their last three years tax returns and a $250 non refundable application fee to the NJEDA. Reimbursement usually takes 4-6 weeks.
NJEDA will reimburse up to $1,500 for the removal of a non-leaking underground oil tank and up to $3,500 for the removal of a non-leaking underground oil tank and the installation of a new aboveground oil tank.
If the oil tank has leaked, there is another grant from the NJDEP UST Fund for any clean up costs up to $500,000 that a home owner would be responsible for, and in the process have the oil tank removal and installation costs reimbursed to the home owner.
This program is available to residents of the State of New Jersey, with a taxable income of less than $250,000 per year and a net worth of less than $500,000, not including the value of their primary residence and retirement savings (401k/IRA/pension). This program is also available to non-profit orgnizations. Other restrictions and eligibility requirements apply.
Please feel free to visit the NJEDA at njeda.com or newtanksnj.org for more information and to download and review the required forms.
Homeowners should verify that they are qualified by using the"Grant Worksheet" to determine if they pass the Financial hardship test. In order to qualify for a 100% grant reimbursement the applicant's annual expenses need to be at leas 51% of their annual taxable income. Some companies like Meridian Environmental, supply these forms with their oil tank removal proposal. Meridian Environmental can be contacted at 732-281-1900 or 609 654-0660 for more information. Let Meridian Environmental know that Clara Lyons referred you.
Thinking of BUYING or SELLING?
Click on the Home Values link top right on this page to get FREE information about the value of homes and the services in neighborhoods that interest you.
Contact Clara at 856-1058
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