OfflineThe 30-year mortgage is a U.S. consumer institution, affording families a path to full homeownership at reasonable monthly payments (although banks and lenders make out like bandits on the high interest payments.)
But Approved Mortgage, in Orange City, Fla., says big changes are coming in the form of two congressional reform bills that could put the 30-year mortgage out to pasture for good.
Whether that outcome is good for homeowners is debatable, as a company statement calls the two bills a " growing concern " for potential homebuyers.
The bills:
The Housing-Finance Reform and Taxpayer Protection Act of 2013: Also known as the Corker-Warner Pan, this bill proposes to eliminate Freddie Mac and Fannie Mae and generally kick direct government involvement with mortgage loans to the curb. The bill would give private lenders license to run the nation's mortgage system -- not just as loan originators, but also as issuers of mortgage-backed securities.
The Protecting American Taxpayers and Homeowners Act: Also known as the PATH Act, this mortgage reform bill ends the bailout of Fannie and Freddie, which Congress estimates at $200 billion, and phases out the entities within five years. It also calls for a reduction in the government-sponsored enterprise/Federal Housing Authority loan limits, and gives residential borrowers more mortgage loan options.
Here's where the elimination of the 30-year mortgage comes into play. Both bills knock Fannie Mae and Freddie Mac out of the equation and the resulting loss of loan guarantees would change the loan market in a major way. As Approved Mortgage puts it:
Eliminating Fannie and Freddie would mean that conventional loans, like the 30-year mortgage, would no longer be guaranteed. What that means for consumers is that long-term, fixed-rate loans would become too expensive to be an option. And with traditional, fixed-rate mortgages comprising the majority of the market, a loss of guarantee could be disastrous.
The "disaster" would come from the resulting rise in interest rates, Approved Mortgage says, citing data from Bill Gross, founder of the mutual fund giant Pimco. Gross' estimate: Mortgage rates would rise by 3% without government guarantees. That would add thousands of dollars -- potentially tens of thousands of dollars -- to no-longer-guaranteed 30-year mortgages, making them less appealing to lenders and borrowers.
The company notes that any big changes are "years away" -- but that the wheels have already started rolling.
Above article from TheStreet.com
Anyone care to weigh in on this and how it might affect future investment strategies? Here is a chance to form our own Master Mind on this topic.
Well perhaps this is a good thing and some other entity will emerge that will be managed properly and profitable for all involved.
We always have fears and doubts when what is 'normal' ceases to exist but I'm sure we can all agree that the 'normal' that is now is not working.
Wendy
"Faith is taking the first step even when you can't see the whole staircase."
~ Martin Luther King, Jr. (1929-1968)
www.beaconinvestorsgroup.com
Well for starters, if mortgage rates increase by 3% for non-guaranteed loans and you are looking at at least 7%...
$100,000 house at 4% has a payment of $477 PI
With the same $477 PI payment at 7%, the buyer now borrows only $72,000
Might this be a concern if you locked in a long term lease option at what you might have thought would be a safe and profitable $85,000 option price? Or what if you bought a property with little to no equity? How will this affect hedge funds that were banking on appreciation?
Wholesales might have to come up with different strategies to get deals if this takes place.
Reynold Orozco
Rey, I don't think wholesaling will be affected that much because wholesaling is short term. You're in and out quick.
that's where the mortgage interest rates were not too long ago... homebuyers with a 20% downpayment wouldn't pay the PMI.
Home prices would not appraise as rapidly (crazy) as they did during the 2000's...
Homebuyers would have to be able to afford a home mortgage payment in order to get approved for a loan... maybe it would make banks be more cautious and responsible when making loans...
Valerie
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I think the wholesaling of rent to oun buyers will go up.but that is only my gess.
stnley
I feel privileged to have initially learned real estate investing from a man who started investing in 1945 at the end of World War II. That gives quite a perspective on change--he always said that the best time to be investing in real estate is "Good times, bad times, and in-between times." In other words, there is never a bad time to be an investor, only changes in strategies due to changes in the market, the regulations, the interest rates, etc.
"Privatizing" the mortgage industry makes it subject to the rules of the marketplace with less manipulation by government. The biggest benefit is that businesses have to balance their checkbooks, while government does not. I also personally like the idea that it sort of quaffs the entitlement mentality that has become the most infectious disease in America. That entitlement plague has also extended into the mortgage industry, and many of us feel frustrated that lending institutions are rewarded more by turning their foreclosures over to government than by putting them out into the open market. Changes to the things mentioned above could be refreshing.
I also would want to be involved with investing when these changes begin to take place because existing low-interest long-term mortgages will be a very marketable commodity, and seller finance deals will become extremely popular as they were during the time when mortgage rates jumped to 15 or 16% many years ago, and when the non-qualifying assumable loan came to an end. That can create some real fun in the open market for the investor.
I would feel bad for some young couples who would find it more difficult to get into first time home loans, but I also trust that competition in the marketplace would evolve into some private first-time homebuyer loans.
The down side that I would not enjoy is that lenders would be able to increase their move toward keeping everyone mortgaged. They do not like having loans out there in the final two thirds of their amortization schedule, and will have not only the marketing capability but the market control to shift loan terms in the direction of a new loan every five years. I think I'll make sure I have at least a few properties with long-term fixed mortgages that I don't refinance just to be spiteful. That works, right?
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
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I guess my main strategy of rent to owns will be even more sought after!!! I can give out 30 yr notes with less down than the banks want down, collect for yrs with interest just like the bank n leave what's left of the notes to my heirs:)))
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Good idea jbtoggs. Owner financing has certainly grown in market appeal as many buyers do not qualify for bank financing. Writing a 30 year land contract, though appealing over the long-term, will rarely mature since the holding period averages around 7 years. Either way, you or your heirs will receive steady income and/or a nice payoff.
I think you are spot on with your analysis, and I like your thinking. I can't say that I think the FHA loan program has been a bad thing, it has helped many people over the years to purchase properties. But it hasn't been all roses either, and there are some problems with these government programs that are long overdue for a change. I choose to look for opportunity in change, and I see that you do too. I hope others who read this information will do the same. Long Live Real Estate Investing!!
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
I love this, learning so much here. I would like to hear more from people here.
Tony
Go faster do more! GFDM!
From reading this article it seemed to me that the changes would affect the regular home buyers as opposed to the investors. Sure this may sound great for an investor, because we can think of different strategies to make more sales during this time...but what about the families that don't run into investors and are going to the banks at that time? They may feel that they can not get a home because of this...if it becomes difficult for the banks to loan out money or if this makes the banks become more "cautious" when giving out loans...then this could limit alot of people that want to purchase homes but do not have the funding right? I mean, this would give investors more potential clientele I feel..but I am not sure...I think I'm on track with this! lol...
It's my opinion.
~NickandGen
~Blessed beyond measure and enjoying life to its fullest!~
Nick and Gen: I agree that it would be unfortunate if a more privatized approach denies future generations of home buyers from purchasing their own home. I also mentioned above that I do believe this process will establish some competition and since lenders have to make loans in order to get paid, they will establish some attractive loans for first time home buyers, similar to the FHA program.
What we currently have is sort of government-sponsored monopoly. We saw a similar break-up of a monopoly with the ATT breakup years ago. Everyone was worried that we wouldn't be able to afford phone service if the government wasn't involved, but we have more people with more phone service now than would have been possible under a government program. Perhaps I am an optimist, but as I said earlier, there will be some good and some not so good results, and the best that each of us can do is look for an opportunity to help ourselves by helping other people to buy and sell properties. That includes people who might otherwise not be in a good position to buy their own home.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
As interest rates rise, demand may weaken, but supply may as well. The home prices of many non-distressed borrowers probably can't be cut enough to entice more buyers to enter the market. The only people selling will be those that must. A day will come when the housing market returns to somewhere near normal, but that day still appears to be quite far off.
http://www.theatlantic.com/business/archive/2011/07/how-rising-interest-...