When we commented on Mel Watt's Einsteinianly-insane plans to reform FHFA, allowing bad creditors to buy houses (again) with only 3% down-payments (again), we expected nothing but echoes as the "it's everyone's 'right' to own a home"-meme gets played out for all to see in this goldfish-like societal memory that has entirely lobotomized the actions (and impact) of when this idiocy was trued before. However, a funny thing happened this week... called an 'election'. And The Republicans have been quick to take note of Obama-appointee Mel Watt's (replacing acting director Ed Demarco - who had some less-politik plans for real reform) plans with House Financial Services Committee Chairman Jeb Hensarling exclaiming he was "extremely concerned," about Watt's "efforts to force taxpayers to back high-risk mortgages with ultra-low down payments," concluding this plan "must be rejected."
Demand in today’s market is also limited by former homeowners who found themselves unable to keep up with their mortgage payments during the financial crisis, including many who lost their jobs during the recession or faced reductions in their income. Many of these individuals not only lost their homes, but also seriously damaged their credit. Many filed for bankruptcy. Although some of them may be back on their feet in terms of income, their impaired credit records constrain their ability to return to homeownership.
A less quantifiable factor on demand is the psychological impact of the housing crisis across the country. Many people watched their friends or loved ones lose their homes or suffer financial hardship in the housing crisis, and this has deterred them from entering the homeownership market.
Bottom line, there is no lack of rational explanations for why demand for homeownership is down, and these explanations will continue to change and evolve in the months and years ahead. While things will not change overnight, it is my hope that many creditworthy individuals and families who are currently renters – but have the ability to pay a mortgage and become homeowners – will have the opportunity to pursue homeownership and will decide to do so.
A shift in this direction will not only be beneficial for our economy and overall housing market, but homeownership and paying down a mortgage remains a way that many individuals and families can save and build and retain wealth over time
the fact that home prices are still low in many locations, and the fact that interest rates are low, now is a great time for realtors to be actively encouraging their customers who can afford it to become homeowners.
I also announced recently that the Enterprises are working to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent. As I said earlier, there are creditworthy borrowers in today’s market who have the income to afford monthly mortgage payments but do not have the money to make a large down payment and pay closing costs. Purchase guidelines that allow for 3 percent down payments will provide an opportunity for access to credit for some of these borrowers.
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House Financial Services Committee Chairman Jeb Hensarling Friday criticized Federal Housing Finance Agency Director Mel Watt for supporting a plan that alters some housing finance industry lending standards.
In a speech Friday, Watt said Fannie Mae and Freddie Mac will seek to back loans with down payments as low as 3%.
"I am extremely concerned about Director Watt's efforts to force taxpayers to back high-risk mortgages with ultra-low down payments as little as 3%," Hensarling said in a statement.
"Such loans are inherently risky because the borrower has almost no financial cushion against a personal or economic downturn, vastly increasing the likelihood they will walk away from the loan once it gets significantly underwater," he added.
Hensarling continued to assail Fannie Mae and Freddie Mac as poorly functioning relics of an earlier age in mortgage finance.
"Since their spectacular collapse in 2008, Fannie Mae and Freddie Mac have continued to exist only through the massive financial support of taxpayers and a strict focus on sound underwriting. To abandon that focus now is an invitation by government for industry to return slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy," he said.
Hensarling said the chief statutory obligation of the FHFA is to ensure the safety and soundness of the Fannie Mae and Freddie Mac.
"Clearly, this initiative is directly contrary to that mission, and must be rejected," Hensarling said.
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We suspect this will not be the last we hear of this... but there does appear at least one sane mind in Washington.