There wasn't much fanfare, and it literally happened in the cover of night, but sometime after midnight Thursday morning, the U.S. Congress passed an extension of the increased Fannie/Freddie/FHA loan limits for high cost housing markets to a maximum $729,750.
Big deal, right. Well, Yes.
The higher loan limits for high-priced housing markets were instituted back in 2008, when President George W. Bush signed the Housing and Economic Recovery Act.
At the time, the mortgage market had crashed entirely, and the only games left in town were Fannie, Freddie, and FHA.
They each had a loan limit of $417,000, which knocked an awful lot of potential borrowers out of the game. The move was designed to moderate the credit crunch and promote borrowing and buying.
Since the peak of the housing boom in 2006, home prices are down 28 percent (S&P/Case-Shiller). That means many higher-priced markets aren't quite so high-priced anymore. Of course there are still hot spots, many in California, where the median home price is well over $417,000, but the national median home price currently stands at $178,600 (National Association of Realtors).
More important than home prices, however, are the players in the mortgage market today, or, shall I say, the lack of players in the market. Fannie, Freddie and FHA are originating around 90 percent of all new loans today. Higher loan limits therefore afford higher risk to these entities. The Federal Housing Administration (FHA) reports that loans over $400,000 have a higher risk of default.
Government officials continue to claim they want to increase private sector mortgage activity, and they have to. In order for the Obama Administration to expunge Fannie and Freddie from the U.S. mortgage market successfully, they have to ensure there's a market in existence behind them. Right now there isn't. Investors don't want to touch anything that doesn't carry a government guarantee.
Weitz - 90% of all loans back by government agencies...that is truly remarkable! Sounds an awful lot like Socialism to me. Socialism has a place, and arguably would be more beneficial for our current economic situation. We use socialist policies to bailout companies, yet our government leaves the general public to fend for themselves. Its called crony capitalism. If we're going to act socialist, lets just do it, and send checks to the people as well. Don't get me wrong, I'm a believer in capitalism, but it doesn't work if you don't let it work. The whole premise behind capitalism is that companies/ individuals have to face the risk of failing. If they do not, they will take unnecessary risks that could make them very wealthy...all the while knowing that the taxpayer must bail them out if they fail. (Sound familiar?)
Letting the loan limits drop to the previously legislated $625,000 limit, some argue, would have at least been a little boon to the jumbo market, which is struggling for business right now. But would it really juice the private mortgage market?
Some claim the only way the private market will ever recover is to start rolling back the loan limits, at least slightly, because if we continue the government loan limit status, nothing will change and the government will control 90 percent plus of the mortgage market for the foreseeable future.
The trouble with that argument is that at the present time there are no investors for the loans. (Weitz- because they are still overvalued due to government intervention)
There has been exactly one jumbo securitization in the past year, and it wasn't all that big.
Why?
Because potential investors in potential private label mortgage securities need to know what the new structures of these loans will be; they need comfort that their interests are aligned with the interests of all the players that exist between them and the borrowers (servicers, appraisers, etc.).
The Dodd-Frank financial reform bill did not mandate risk retention by any of the intermediaries, at least not yet. Policy makers have a year to define what exactly is a "qualified residential mortgage." So bottom line, without the increase in the loan limits, a fairly sizeable part of the mortgage market would have ground to a halt.
Lawmakers had no choice.
Weitz:
What does this mean?
The government will continue to back most of the loans issued (under the threshold of 729,000), and we as taxpayers will be on the hook for the losses should they occur. The banks will get paid for originating the loans, and government officials can all pretend that the market is in 'recovery' while we completely move away from a capitalist market place. If that statement seems like an oxymoron, thats because it is.
For more information on your rights in Short Sale or Foreclosure, consider contacting a Kirkland Foreclosure Attorney.
Our Firm:
Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300
weitzlawfirm.com
No comments:
Post a Comment