March 11th, 2011 8:27 AM by Preston Ware
Judging from activity in the South Florida housing Market, FHA is the program that is keeping the housing market alive. Our government announced last month that Fannie Mae and Freddie Mac will be shut down in about seven years. This is quite a gamble and we can only speculate what our housing market will look like by that time.
About a month ago our government announced plans to start winding down Fannie Mae and Freddie Mac. Just about every person you speak with agrees that this is a stupendous mistake. Making loans easier to get is what fueled our mortgage frenzy in 2004 thru 2006, and making loans more difficult is one factor that is making our current real estate market more lifeless.Three proposals have been put on the table by our leaders which leads me to believe our leaders have no plan at all. The authors propose a government re-insurance program to "backstop" private investors. The degree of back stopping is unclear and there needs to be safe guards for maintaining interest rates in the low ranges. If our government is "safeguarding" a private money guy or a hedge fund, those safe guarded rates will be in the 10-15% range. It does us no good what so ever to have a liquid mortgage market at 10-15%.Stepping back to this decision one has to try to look a little deeper into the changeover plan. FHA has certainly been the astronomical loan program that has kept our housing market together. FHA rates are now better than Fannie and Freddie rates. FHA only requires 3.5% down where Fannie Mae and Freddie Mac usually require 5% or 10% or 20% percent down (to avoid mortgage insurance) depending on your cash to close and what level of PMI you want.Phasing out Fannie Mae and Freddie Mac would also take away yet another product offered by mortgage brokers who have been streadily thrown under the bus by the guys inn Washington. Guys who paved the way for mortgage brokers to lend money to expand the economy and loved it but know suffer from selective memory as to who created those programs.The only positive that I can see from forcing Fannie and Freddie to cease to exist will be that it may help the small banks. Small banks can open a niche and start lending again. Small local banks are getting clobbered these days by the third phase of the mortgage meltdown that is going on right now which is the commercial meltdown. Residential loans would create a new vehicle to meet and greet the public and get customers walking in the door again and maybe depositing some money or doing other loans. I recall the early days of my mortgage career, I worked for a local bank "SunBank" now Suntrust that did quite a bit of CRA loans. Community Reinvestment Act loans enabled extremely low income customers to get a 95% mortgage with no mortgage insurance. Underwritten by the banks, backed by a local government programs and serviced by the same lending institution. The bank was able to create a lot of good business and support local communities. (What banks are supposed to do in the long run)My current employer has the ability to bank as well as broker so I guess I will keep an eye on things.
Sincerely, Preston Ware
Equity Source Home Loans http://www.prestonware.com