Wednesday, May 4, 2011

NEW RULES COMING FOR FREDDIE MAC AND FANNIE MAE

For decades, Fannie Mae and Freddie Mac supported the housing industry by providing a secondary market for mortgage loans. However, the push is now on to wind down these two agencies and as that "push" gains speed, there will be changes in the mortgage market.

One of the first big changes will occur on October 1st of this year. On that date, the size of the loans that Fannie and Freddie will guarantee will drop from the jumbo limit of $729,750 to $625,500. This is a very substantial drop and anyone hoping to take out a jumbo mortgage might want to buy their house sooner rather than later.

Also, your buyers can expect to see higher down payment requirements. When loans were guaranteed by Fannie and Freddie, people could often buy a new home with a down payment of only 3 to 5 percent. When private lenders become the primary lenders of mortgage money, down payment requirements will likely increase to 10 percent or more.  Look for 20% down to become the norm.
So, what does this mean to your home building business?  Harder getting people qualified!

Spring is traditionally the time when a lot of new homes come on the market and prices are still quite depressed which is another nail in the coffin of many new home builders. Rates for mortgages are not at their lowest, but they are still historically very low. Plus, what generally prevents new buyers from entering the market is the ability to save a down payment. If down payment requirements increase from 3 percent to 10 percent, many would-be home owners might find themselves having to wait years to buy.

Finally, if they do decide to purchase a new home, be sure that their finances are in order. Solid credit scores are more important than ever and they should be ready to document the source of all their income and provide records for all investment accounts.

It’s almost as if somebody doesn’t want our industry to recover.

1 comment:

Feinmann said...

While it is unfortunate that it is harder for would-be homeowners to qualify for a home loan, the new rules were set in place with good intentions. When it is too easy for anyone to get a $700,000 loan, the more likely it is for some people to default on those loans. Hopefully, as the economy stabilizes and people get back on their feet the industry will pick back up.