As many of you know, the Obama Administration proposed the eventual dissolution of GSE's (Government Sponsored Enterprises) Fannie and Freddie. The shift of mortgage credit would go to the private sector/markets.
Larger Down payment requirements is part of this proposal. Without government backing and bailing out, you can best believe that things are going to get tougher not easier when it comes to getting a loan. But in one way this brings us back to the old days when you were expected to put down 20% on a mortgage. They call it SKIN in the GAME......while that is a large pill to swallow, this is the only way that private investors are going to play this game. They don't want the kind of risks that will allow them to fail like Fannie & Freddie. Who knows what they will require when it comes to appraisals....Could get very interesting!
As part of the proposal it calls for replacing Fannie and Freddie with a federal guarantee. FHA, Dept of Agriculture and the Dept of Veterans Affairs are proposed to be the only agencies to offer a federal guarantee. Another option would be for FHA and a federal government backstop to offer guarantees only in economic stress. Another option is for a federal backstop to be in place no matter what the market conditions.
Banks will be asked to hold more capital to increase their resistance to recession and housing ups and downs.
FHA is considering increasing down payments from 3.5 to 5%, but this would require Congressional Approval. FHA backed mortgage loans will likely decline. Due to declining home values and the increased FHA loan limits over the years, FHA is insuring the lions share of the mortgage market and according to financial experts and analysts, this is NOT a good thing as they are experiencing negative equity. They need to scale back on loans, but they need to do it carefully due to the large numbers they have insured in the past and the expectations in the market for FHA backed loans.
So what does this mean for all of us in the Real Estate market, looks like more tough times are ahead. We are far from being out of the woods. Only those who can adapt to change and figure out a way to make their business thrive will indeed come out ahead.
So keep your wits about you, plan for the worst and hope for the best and above all be informed!
Hang in there everyone!
** When loans become more difficult to come by, NOW more than ever you need to insist upon an expert in your area to perform the appraisal, especially when it comes to Lake Lanier and Golf Course property!!