Mortgage Overhaul and What it Means for You

Mortgage Overhaul and What it Means for You

By the time you read this, the new 2,300 page financial reform bill is likely to be making the headlines. The Senate has already approved the new bill and President Obama is expected to sign it into law this week – despite the fact that many of the provisions related to specific regulations have yet to even be written. If that sounds faintly disturbing, don’t worry, your concern is noted and shared by many experts throughout the nation. However, there are sweeping changes that are already apparent despite the lack of specific details.

Although broad in scope, home buyers and sellers are likely to be among the first impacted by the new provisions. They represent one of the most comprehensive – top to bottom changes to the finance, valuation, types of mortgage products offered and how lenders are compensated to take place in decades.  In fact, there are even new rules for real estate investors that provide capital for the purchase of mortgages.

A few of the most important points likely to make immense impact to buyers, sellers and investors is the language dealing with any type of mortgage outside of the “traditional” or “plain vanilla” category.  Unfortunately, regulators have yet to fully define what will constitute a “traditional” mortgage under the new plan but it is clear that the line will be drawn to reduce the number of sub-prime borrowers as well as offerings of owner finance and other alternative forms of finance.  Experts predict an immediate and severe impact on many minority and low-income borrowers; many who have already been impacted by far less severe measures.  For example, according to FHA, rejection rates for African American and Latino borrowers have substantially increased among non-FHA loans.

The new FDIC and other regulatory oversight standards contained in the bill are expected to provide safer mortgage instruments but at a higher cost and more stringent requirements for both banks and individuals.  It is estimated that only five banks currently control more than 65% of the current mortgage market; the new bill is expected to further consolidate this trend by favoring big banks over small.  In part, this is due to the belief that big banks are easier to regulate.  However, at the same time, new controls and rules regulating private investors are also expected to take another two to three years to fully define – leading many to believe the bulk of mortgages will still be backed by the United States government for the foreseeable future.

© 2010 Marco Santarelli

Norada Real Estate Investments

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Mortgage Aid for the Unemployed…

Let me start out by saying that I generally try and stay away from political comments. I prefer to stay on topic and discuss the facts, but this time I have no choice but to comment on politics. This latest round of political games has my blood boiling and I can’t hold back any longer.

Congress just passed another $1 billion dollar emergency homeowners relief fund. You can read all about it on MarketWatch, here is the link:

Were shall I start?

I guess I will start out with the phrase “emergency homeowners relief”. Emergency, really??? The emergency was almost two years ago when they pasted the TARP funds to help, if you remember, homeowners and bail out the banks and financial institutions, but once the TARP funds were approved by congress, they decided it would be better to just buy stocks in the companies they chose to keep solvent. It didn’t seem to be that much of an emergency to congress in 2008, otherwise they would have spent that money on what they told us was the reason in the first place to pass the TARP funds. I think the only reason it is an emergency right now, is because the midterm elections are in 4 months.

So now that we understand the congressional definition of an “Emergency” we can then start to talk about the facts. They are as follows:  

S&P/Case-Shiller Home Price Index for May 2010 Fact #1) According to the National Association of Realtors, the median sales price in June 2010 was $183,700 compared to June 2009 which was $181,800, that’s and increase of 1% and the S&P/Case-Shiller Home Price Index states that home prices have moved Sideways in the past year.

Fact #2) With all the bailout money the banks have been receiving over the last two years, they are able to foreclose on a property and hold a large percentage in what has been termed Shadow Inventory, that they have been able to create a seller’s market when it comes to bank REO’s and virtually, or should I say artificially increasing the property values which has had the overall effect of increasing the national median sales price by 1% over the past year because of the 1st Time Homebuyers $8,000 Tax Credit.

Fact #3) The First Time Homebuyers Tax Credit ran for almost 1 year. It was originally suppose to expire in November 2009, but congress extended it to April 2010. That had the effect of keeping real estate values higher than the normal market would have accepted for over a year. And who is paying for that, if you are reading this blog post, then you already know that you are, you just don’t know how much you will have to pay for it yet, or even how long you will have to keep paying for it. Now that the tax credit has expired, the real estate market has virtually stopped. Sure there are some transactions going on, but very few compared to the 1st quarter of this year.

Why has the market stopped? That’s a good question, and anyone with half a brain who has been paying attention to the market can figure that one out. You guessed it, the true first time homebuyers who could qualify for the tax credit already bought and the true real estate investors have been sitting on the side line watching the feeding frenzy created by congress. Now that the feeding frenzy is over, and the guppies are happy, they are just sitting there saying how wonderful their government is and can’t wait till the midterm elections to vote the incumbents back into office, hoping for more free programs, which congress will only be happy to oblige them for being such wonderful constituents.

The true investors, the ones who have the money, the credit, and the skill sets to fix the real estate market have been effectively benched and are still sitting on the side lines waiting for their opportunity to get back on the game field and show the coach what they are capable of. The problem, the coach, his staff and all the administrators know what the true investor is capable of, but doesn’t want the audience to see them in action for fear that the audience will realize that the coach was wrong to bench the investors in the first place. If the audience sees what the true investor is capable of doing, they may realize the benefits of capitalism and fire 1/3 of the coach’s staff and administrators in November during the midterm elections.

So why is it an emergency to provide funding so that unemployed or underemployed homeowners can avoid losing their houses to foreclosure? Simple, the coach has called for a hail mary play to distract the audience’s attention to the fact that the team is losing and the coach’s best players are still sitting on the sidelines. Oh yeah, there is one more very meaningful reason the coach has called for the hail mary play right now. Remember those midterm elections that will be coming up in about 4 months? Well the coach doesn’t want to lose 1/3 of his staff and administrators in November. He doesn’t want capitalism to have a chance so that he can blame the very people and system that he sidelined. It’s a perfect solution to a very distorted and perverted outlook on our country.

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