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Vol. 15 No. 18- February 25, 2015

REAL ESTATE

From big mortgage chill to big mortgage meltdown

 

It’s only February, but the mortgage regulations are going from chilly straight to meltdown, and the temperature has barely broken 75.

In November I wrote a column broadly outlining anticipated changes in Fannie Mae and Freddie Mac’s mortgage guidelines. At that time, Fannie and Freddie had just announced plans to expand credit to borrowers with weak credit and low down payment funds. These changes were a response to the slow growth in the housing market, as well as pressure from organizations like the National Low Income Housing Coalition to make mortgage funding available to a broader range of buyers.

Since then, Mel Watts, with the Federal Housing Finance Agency that oversees Fannie Mae and Freddie Mac, testified before the House Financial Services Committee outlining new guidelines effective at the end of March. He stated they expect to raise the guarantee fee charged lenders to back loans designed to cover the credit risk on loans guaranteed by the federal mortgage agencies. Presumably, they are anticipating that there will be more mortgage loans available in the future that will have additional risk attached to them.

Two significant changes were made by Fannie Mae and Freddie Mac, which supports the assumption that riskier loans are forthcoming. In December, Fannie Mae re-launched the 30-year, fixed-rate mortgage offering a 97 percent loan-to-value loan requiring only 3 percent down. This type of loan was suspended in 2013 by request of the federal regulators as a response to both Fannie Mae and Freddie Mac going bankrupt after the housing meltdown and having to be bailed out by the taxpayers.

In addition, in early January the president announced that the Federal Housing Administration will begin lowering annual mortgage insurance premiums to make mortgages more affordable and accessible. This means that mortgage insurance, which was generally required on high loan to value mortgages, will be reduced allowing more moderate and low income families to qualify for financing. Great idea in theory, but what this does is sets up these marginal buyers for failure when they can’t meet their monthly payments if they experience even a minor financial setback.

At the risk of sounding like a broken record, this is exactly what happened when the bubble broke. In fact in 2011, the Securities and Exchange Commission brought civil lawsuits against six former Fannie Mae and Freddie Mac executives charging they defrauded investors. The charge specified that they knew and approved of misleading statements about Fannie Mae and Freddie Mac’s exposure to subprime loans, loans that they “encouraged” private lenders to make. The most recent information I could find on the status of this lawsuit was from 2013, when the courts ruled against the executives who were attempting to have the lawsuits dismissed.

Just as a point of information, homeowner rates have actually fallen to their lowest level in 20 years. As of the fourth quarter of 2014, the rate was 63.9 percent, a rate last recorded in 1994. The rate at the end of 2013 was 65.1 percent. I believe that a falling homeownership rate has more to do with a sluggish economy than tight mortgage regulations. Opening up mortgages to buyers who really can’t afford it will lead to another financial crisis that the American people will again be bailing out.

So there you have it. We’ve gone from feeling a little chilly to full blown meltdown, and no one in Washington seems to be feeling the heat.

Real Estate Transactions
November 2014

Sponsored by Alan Galletto Island Real Estate

Sold Date | List Price | Sold Price | Address | Provision | Property Style

Anna Maria

01/16/2015 439,000 400,000 407 Spring Ave 1192 50x150 2 Br/1.5 Ba SFR
01/22/2015 999,000 932,500 521 Magnolia Ave 2818 75x115 5 Br/3Ba SFR
01/30/2015 1,495,000 1,290,000 111 Maple Ave 2800 100x100 5 Br/4 Ba SFR 01/15/2015 260,000 250,000 522 Pine Ave 2D 822 2 Br/1Ba SFR
01/30/2015 1,250,000 1,000,000 201 S Bay Blvd 3940 50X181 7 Br/5Ba SFR

Bradenton Beach

01/09/2015 484,000 425,000 1435 Gulf Dr N # 25 1524 3 Br/1.5 Ba Condo
01/15/2015 330,000 325,050 1001 Gulf DR S # 1 896 2 Br/1 Ba Condo
01/28/2015 375,000 375,000 1007 Gulf Dr N # 214 1259 2 Br/2.5 Ba Condo
01/30/2015 489,900 465,000 1800 Gulf Dr N # 213 952 2 Br/1.5 Ba Condo
01/02/2015 599,900 580,000 301 17th # 15 1722 3 Br/2.5 Ba Condo

Holmes Beach

01/15/2015 449,900 415,000 503 59Th St 1066 2 Br/2 Ba SFR
01/21/2015 494,000 455,000 7214 Holmes Blvd 1900 3 Br/3 Ba SFR
01/23/2015 509,900 469,900 509 65th St 1852 3 Br/3 Ba SFR, Bank Owned
01/30/2015 495,000 475,000 508 74th St 1584 3 Br/2 Ba SFR
01/16/2015 550,000 510,000 214 S Harbor Dr 1603 3 Br/3 Ba SFR Bank Owned
01/16/2015 559,000 525,000 217 N Harbor Dr 1716 60X110 3 Br/2 Ba SFR
01/16/2015 649,900 615,000 212 N Harbor Dr 2456 4 Br/3 Ba SFR
01/30/2015 674,900 655,000 507 75th St 1845 90X117 3 Br/3 Ba SFR
01/06/2015 824,000 796,000 211 65th St HB 2184 3 Br/2.5 Ba SFR
01/07/2015 799,900 800,000 415 Clark Dr HB 2571 3 Br/2 x 1.5 Ba SFR
01/23/2015 895,000 835,000 208 77th St HB 2700 4 Br/4 Ba SFR
01/26/2015 279,999 250,000 3701 E Bay Dr # 8 1544 2 Br/3 Ba Condo
01/05/2015 449,900 436,000 3802 6th Ave 3802 1725 3 Br/2 Ba Condo
01/30/2015 1,049,000 989,000 6700 Gulf Dr # 3 1513 3 Br/2 Ba Condo
1/23/2015 1,599,000 1,500,000 6430 Gulf Dr 1 3192 4 Br/4 Ba Condo
01/09/2015 589,000 551,500 4103 Gulf Dr 3458 50X100 Duplex, Bank Owned
01/19/2015 385,000 325,000 5710 Carissa St 57 X 105 Duplex
01/09/2015 474,900 450,000 306 Clark Dr # A & B 2080 100X100 4 Br/4 Ba Duplex
01/23/2015 200,000 175,500 440 62nd St 1176 2 Br/2 Ba Duplex, Bank Owned
01/13/2015 274,900 250,000 449 63rd St 958 2 Br/2 Ba Half-Duplex
01/26/2015 519,900 419,000 210 75th St 78x90 Lot
01/20/2015 369,000 300,000 212 82nd St 2536 90X90 Lot

Source: Mid Florida Multiple Listing Service


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