I was recently contacted by an executive from Fannie Mae, the nation’s largest buyer of existing home mortgages and supplier of funds available to lenders for new mortgages. He asked that I pass along clarifying information about a new ruling that seems to be confusing many consumers.
Cash-out refinance mortgages are still available under our new guidelines, he said. The only difference is a slight fee increase for transactions that qualify as cash-out refinance loans. Beginning this month (February), Fannie Mae will only accept cash-out mortgage loans that include the following:
* It will only pay off the outstanding principal balance of an existing first mortgage.
* It can also pay off the principal balance of any subordinate mortgage that was used in whole to acquire the property.
* It can finance the closing costs (including prepaid expenses) and provide cash back to the borrower in an amount no more than the lesser of 2 percent of the balance of the new refinance mortgage or $2,000.
The fact is that a borrower still can access the equity built up in their home for any reason, and for any use. Our new requirements only mean a slightly higher fee about $3 more a month on a $100,000 loan for the transaction, the Fannie Mae spokesman said.
2003: a Good Real Estate / Mortgage Year
This year is shaping up to be another good and stable period for the real estate and mortgage market. Or at least that’s the prediction of most analysts, who necessarily must use a lot of educated guesswork in projecting a future market in such a potentially volatile industry.
Mortgage interest rates will remain low, but will rise a bit during the year. There will be no bursting of a housing price bubble resulting in a dramatic drop in values. Both the residential and commercial real estate market should enjoy a good and healthy year a productive year for real estate and mortgage brokers and bankers.
Those continuing low interest rates and modest growth in the economy will keep home sales on a strong footing and give commercial real estate a boost in 2003, according to a report from the National Association of Realtors. Interest rates are expected to hover in the 6.2 to 6.8 percent range, up about a percentage point from the 40-year low they had reached briefly late last year.
The projected rates are low enough to keep money flowing into home sales but at a pace more sustainable than the record rate of last year, the NAR report stated. Sales of both existing and new homes hit all-time highs last year, despite sluggishness in the broader economy. This year, sales are expected to hit 5.3 million for existing homes and 900,000 for new homes.
To a great extent, continuing low mortgage interest rates will offset the effects of uncertainty over the economy, said David Lereah, NAR chief economist. Commercial real estate transactions were quite constrained last year, somewhat dampened by flat business spending. But even then, trend lines were beginning to point upward from levels attained in the previous year, thanks in part to small and medium sized companies looking to take advantage of low rates to own their own real estate.
The entrepreneurial middle-market user is more interested in owning now than leasing, based on capital structure and low interest rates, said Garry Weiss, national director of Integrated Industrial Solutions, a division of First Industrial Realty Trust. Residential and commercial property markets are expected to benefit this year from continuing poor equity yield in the stock market.
With key stock indexes struggling against steep price declines, consumers and investors will keep looking to real estate as solid, well-grounded assets with stable price growth. That will keep capital flowing into real estate even as interest rates rise. At the same time, neither the residential or commercial markets are likely to see major price swings downward this year, most analysts agree. Home prices will probably rise by about 4 percent (national average) this year. That’s down from 6.8 percent last year.
There is a strong case against some scattered views by analysts that housing is following the stock market into a speculative bubble. Plain and simple, people are buying homes to live in, not to speculate with, Lereah said.
For both residential and commercial markets, job creation holds the key to business this year and beyond. On that front, the signs are fairly positive. Unemployment is expected to ease. The strengthened employment picture will help drive the higher interest rates, which could slow sales. But it will also increase economic stability and lay the foundation for solid performance in all property sectors this year.
Overall, prospects for a strong real estate market this year are excellent.
HUD CRACKS DOWN
Most mortgage lenders and brokers, along with appraisers, are honest and reputable professionals. But there always seems to be a few in every market who step beyond the legal or ethical boundaries. The government is cracking down on the mortgage lenders, appraisers and property sellers who attempt use unethical or illegal methods to artificially pushing up appraised home values.
Predatory lending results when home purchasers become unwitting victims of lenders, sellers and appraisers, often working together, it was stated in a report from the Department of Housing and Urban Development (HUD). The unsuspecting homebuyers either purchase homes with sales prices far in excess of fair market value, or are substantially overcharge with costs associated with obtaining a mortgage. Predatory lending has no place in today’s market, sub prime market or any real estate transaction.
HUD has proposed a new rule (Lender Accountability for Appraisals) that will make lenders accountable for the quality of appraisals performed by appraisers the lenders hire. The rule has been reviewed by Congress and has been published in the Federal Register.
The rule will strengthen regulations concerning responsibility of lenders in the selection of appraisers when they perform property appraisals, particularly related to mortgages insured by the Federal Housing Administration (FHA). It makes lenders strictly accountable for the quality of appraisals and specifies that lenders who submit appraisals to HUD that do not meet FHA requirements are subject to sanctions by HUD’s Mortgage Review Board.
Our new rule will help assure that homebuyers will receive accurate statements of appraised values on homes they purchase using FHA mortgage insurance. The proposed rule will be revised after the consideration of public comments into final form for implementation, the HUD report concluded. Comments can be submitted until March 14.
The new rule is expected to have a positive impact on lending and appraisal practices involving all types of mortgage loans. Another current HUD proposal would reform the regulatory requirements of the Real Estate Settlement Procedures Act. This proposal would make the process of buying and refinancing a home significantly simpler and potentially less expensive, according to a HUD spokesman.
Also, HUD has established a Homebuyer Bill of Rights, requiring greater disclosure of costs associated with buying a home. It allows consumers to have more choices in choosing providers of closing services, limits excessive settlement fees and encourages competition in the marketplace, the spokesperson noted.
All these consumer benefiting developments are designed to give home buyers and mortgage borrows a greater sense of confidence and security when entering into what is probably the largest financial transaction of their lives. And it will benefit the vast majority of real estate brokers and mortgage lenders who consistently provide honest and ethical services.
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Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers. He also writes freelance features on real estate related subjects.