Friday, March 4, 2011

FED PROPOSES HARD LINE ON MORTGAGES.....OUCH!

I'm not sure what Warren Buffet was smoking when he made his latest predictions about a housing turning point but I would really like to have some and maybe use his rose tinted glasses.  His Clayton home division doesn't seem to be bothered by new proposals by the Obama Administration to curb mortgages because he finances a majority of Clayton's home sales through his own private mortgage company.  This new Fed proposal would actually help sales at Clayton lots....Hmmmm!

For the rest of us, we have to play by the rules set out by the government.  So hang on, death may be coming on a fast horse.

A proposal to phase out Fannie Mae and Freddie Mac, the government-controlled enterprises that for decades have underpinned the American housing industry, is in draft form right now.  New home buyers could see higher borrowing costs in the next year or so, along with a more limited number of financing choices.

The 30-year fixed-rate mortgage, the plain-vanilla option favored by buyers for decades,  might become harder to find and more expensive, because without agencies like Fannie and Freddie to buy these loans, banks may be less willing to extend credit at a fixed rate over such a long term.

The plan, which calls for winding down Fannie and Freddie over the next five to seven years, was drafted by the Treasury Department, the HUD and the White House, and was sent to Congress on Feb. 11. It proposes three options.

The most extensive of these options makes banks and other private lenders responsible for the entire mortgage industry, with the government helping only veterans, rural consumers and the neediest of borrowers.
 
Another option proposes limited assistance and government guarantees, in the form of borrower-paid fees or taxpayer-financed insurance, for most mortgages, in the event of a financial crisis like the subprime meltdown that began in 2008. The third envisions more government oversight of the mortgage industry and provides investors in home loans with “catastrophic reinsurance” in the event of a crisis.

The phase-out proposal also calls for a more limited role for the FHA, the insurer of low-down-payment mortgages that have grown popular among first-time buyers and those with weak credit or low income. It suggests raising the minimum down payment to 10 percent from 3.5 percent, and imposing that 10 percent minimum for Fannie and Freddie loans.  

F.H.A. is raising the mortgage insurance premium already — it is set to increase next month, to 1.1 or 1.15 percent of the loan amount for 30-year fixed-rate loans. The agency was considering a jump to 2.25 percent.

The proposal also calls for lowering the size of loans that Fannie Mae and Freddie Mac can insure; the limit, for loans in high-cost areas, is already set to drop, on Oct. 1, to $625,500 from $729,750. Larger, “jumbo” loans typically carry higher rates.

Is this the end of the house building as we know it today?  Time will tell.

In the words of the infamous American hero, Charlie Sheen.... "Winning!"

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