The Home Buyer's Korner

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October 26th, 2014

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Home Ownership Maybe Getting Easier

Home Ownership Has Just Gotten Easier AgainIt would appear that the powers that be and regulate the housing industry have realized our economy will not reach full recovery, without a serious conversation about housing. Regulators are pursuing efforts to revive the ailing housing market, which suffered heavily during the mortgage meltdown in 2008. Six federal agencies have collaborated and introduced a new set of policies, which could increase access from millions more Americans and none too late.

Last week, the Federal Housing Finance Agency (FHFA) announced new rules which would exempt home buyers from a 20 percent down payment for conventional loans and  will relieve most home buyer the huge burden they would otherwise have to pay simply to realize the American dream of home ownership.

Additional we should begin to see an ease in underwriting as banks, mortgage lenders and other Wall Street firms no longer will be obligated to the Dodd-Frank five percent risk-retention requirement. The provision in the legislation created great concern within the lending industry and why underwriting home loans have been so stringent for a number of years now and prevented millions of American from being approved for a mortgage.

The 2010 Dodd-Frank Act had required lenders to receive a 20 percent down payment from home buyer or hold five percent of the total value of mortgages they sold to bond investors. In the event mortgages go bad, lenders would suffer because of their five percent ownership and in an effort to reduce their liability added numerous lender overlays.  In short, lenders simply were cherry picking, which home buyers they would approve.

With the 20 percent requirement on home buyers eliminated, lenders no longer have to assume the five percent risk retention, so long as home buyer’s debt-to-income ratio does not exceed 43 percent. Home buyers who might have not qualified or were turned down for a mortgage prior to the new regulations would be wise to re-apply.

The FHFA also announced that government-sponsored enterprises, Fannie Mae and Freddie Mac, have entered an agreement with major lenders which should increase mortgage lending to would be home buyers. The agreement comprises events that would trigger a bank buy back of any loan sold to mortgage finance giants, Fannie Mae and Freddie Mae. One such event is misrepresentation.  In the past the GSA’s have overburden lender with buybacks for almost any misrepresentation, regardless if it had a material effect for the loan default and simply created to much risk for lenders and why we had seen the extreme tightening in lending standards and quality control measure that simple all, but shut down mortgage loan opportunities to millions of potential home buyers. Clarification of such an event now enable bank to exhale and should create more opportunity for both lender and home buyers.

The easing of mortgage-lending guidelines is in response to the ever growing criticisms by lenders as well as home buying and consumer advocates, who asserted that the former stringency placed on lenders explains why housing credit in the US has plunged and hurt the overall recovery.

According to some experts, the new rules will restore confidence in the financial services industry and enable lenders to provide high-quality mortgages to home buyer. Moreover, they contend that new rules will provide housing finance services to home buyer left out by banks as a result of the buyback clause.

Critics of the new rules maintain that easing lending might spur a situation, which led to the housing bubble in 2008. This blogger however, believes the housing bubble was brought on more by Wall Street and its creation of sub prime lending practices; we simply need not allow to come into play again. Home buyers should always avoid instruments like the 80/20 Mortgages, Option ARM Loans with Negative Amortization and Stated Income Programs. Keep in mind, if it sounds to good to be true it probably is.

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