It was enough to make any mortgage observer recall the old joke about the light at the end of the tunnel turning out to be a train. A steady drip of positive news lately was overshadowed by the news that lender GMAC Financial Services was closing 200 retail offices and laying off 5,000 employees. The move was designed to scale back the firm’s mortgage lending presence in reaction to losses in that sector.
Still, while this story grabbed the headlines, home buyers and mortgage shoppers should not lose sight of some of the more positive news:
While the GMAC story was a reminder of why economic recoveries can take so long to develop, the underlying fundamentals suggest that conditions may be getting better for the housing market.
For prospective homebuyers, these symptoms of long-term consequences of the mortgage crisis signal that waiting for the storm to blow over may not be the best strategy.
What’s striking about recent mortgage news is how much of it is dominated by stories about investigations and indictments related to mortgage scams. Federal authorities have announced a nationwide crackdown, and local authorities have been active in many communities as well.
There were other, less dramatic stories on the mortgage front:
Reducing capital requirements on lending giants Freddie Mac and Fannie Mae from 30% to 20% could provide an additional $200 billion to the ailing mortgage industry. These funds can be used for refinancing sub-prime loans and for making mortgage loans according to Freddie and Fannie’s recently increased loan limits.
On the surface, this is great news, as anything that boosts the depressed housing market could be good for the US economy. On the other hand, let’s proceed carefully and avoid taking on excessive risk. Responsible approval of mortgage applications is essential to cleaning up the meltdown mess and stabilizing the housing market
Treasury Secretary Henry Paulson calls for national licensing for mortgage brokers in an effort to guard against fraud. He also calls for clearer disclosures to borrows on the terms of their home loans.
Fannie Mae and Freddie Mac have raised their loan limits, a move designed to make mortgage funds available and to ease the loan approval process for borrowers living in areas where housing prices are very high.
The new lending limits vary according to region, but typically allow for more borrowing power in areas where housing prices far exceed Fannie and Freddie’s previous loan limit of $417,000. As an example, borrowers in Honolulu, HI may now qualify to borrow as much s $793,750 under the new loan limits.
This is great news, as it evens the playing field for borrowers and mortgage lenders in areas with astronomical home values. The ability to qualify for conforming mortgages can ease the mortgage applicaton process and help borrowers save on financing costs associated with non-conforming jumbo loans.
Being bombarded by the constant (and mostly negative) news on the mortgage industry, many of us are viewing home purchase as a topic not for discussion; however, that approach may not be right for everyone.
The housing market has changed throughout the nation and some areas have been significantly more impacted than others. These fluctuations, on the other hand, have opened up potential opportunities to some buyers who are able to take advantage of the lower housing prices, decreased demand, and their fairly good credit score.
Mortgage application activity was a mixed bag. New purchase applications increased, but refinancing applications — which had been running hot and heavy — slowed down.
A Federal Reserve survey reported that 55% of U.S. banks had tightened their mortgage lending standards.
