“U.S. Backs Off Tight
Mortgage Rules” screamed the top headline on the front page of The Wall Street Journal last week. For Metairie mortgage shoppers, it could scarcely have been
better news. Probably.
‘Probably’ because any change is not yet a done deal, but
it’s hard to see what will derail the likely full reverse of the federal
establishment’s years-long tight home loan policy. Why is this suddenly in the
cards? The full answer is complicated, but here is a quick (admittedly
over-simplified) summary of what’s been happening to Metairie mortgage applicants—and what probably lies ahead.
The ongoing real estate recovery has been less of a boon to
banks (including Metairie’s
mortgage originators) than to other participants because of tightened lending
guidelines. Since the economic meltdown had been triggered by the crash of too
many ‘easy money’ mortgages that had been repackaged and sold to Wall Street
investors, regulators created mortgage guidelines that were much stricter.
Although borrowers found it harder to qualify for mortgages,
at the same time, the Federal Reserve held interest rates at such bargain-basement
levels real estate sales hummed. But first-time borrowers found it hard to
qualify.
But lately, observers of the national scene have been worrying.
Over the past months, the gradual cooling of real estate activity may have been
welcome in the sense that the torrid rate of activity had slowed from an
unsustainable pace—but some economists began to fret. Even though there was
still some growth, now there wasn’t enough—and
that could stall the recovery for the whole economy.
Washington has decided to listen to the worrywarts: hence last week’s
WSJ headline story. It reported on the
first speech delivered by Mel Watt, the new boss of Fannie Mae and Freddie Mac,
the mortgage giants whose policies largely guide what happens when you apply
for a Metairie mortgage.
Among a number of other rules, there had been in place a
basic guideline calling for minimum 20% down payments (and punishing
repercussions for banks who didn’t agree). But one result came as a surprise to
regulators: lenders were newly fearful of requirements that might penalize them
for even reasonable loans that went bad, so they became even tougher than the
guidelines! Real estate loans began to dry up. It had been hoped that private
lenders would take the place of Fannie and Freddie, allowing the government to
gradually back out of its leading role. But the lenders sat on their wallets.
Of his decision to lighten up on credit barriers, Mr. Watt
explained that he hoped “that lenders will start operating more inside the
credit box that Fannie and Freddie” provide. In other words, that mortgage
originators will add to the easing effect by hewing to the guidelines instead
of exceeding them. If so, we can expect an influx of long-frustrated first-time
homebuyers.
If you have been thinking of offering your own Metairie
home for sale anytime soon, that should be a most encouraging development!
Terez Harris NOLA Real Estate Group
(504)297-2619
Harris.Terez@gmail.com
Keller Williams Realty New Orleans 8601 Leake Ave. New Orleans, LA 70118 504-862-0100
Each office independently owned and operated. All brokers licensed in the state of Louisiana.
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