Saturday, October 18, 2008

Fannie, Freddie, and OHFA. Oh my...

Can anyone buy a house anymore? You’d think not with the indication that credit markets are frozen and the media suggesting that “main street” can’t get loans. Just in the past few days, the Ohio Housing Finance Agency (OHFA), an agency that focuses on helping first time homebuyers around the state, temporarily suspended its down payment assistance program. The reason given was that the agency could not sell bonds on the open market to cover the grants (see the OHFA website for more information). While this is very likely a short-term issue, it nonetheless illustrates how everything related to housing is being looked at with disdain.

We’ve all heard about the trials and tribulations with Fannie Mae and Freddie Mac, but the basic concern is what’s the impact to those looking for a new home and how long will the situation last. The primary impact is that the riskier loans that were bought or guaranteed by these two entities will no longer get backing, which effectively eliminates them from the public at large. I would not expect that to change in the foreseeable future (but, as the saying goes, never say never).

That said, there are still plenty of lenders providing funds to would-be buyers. While Fannie and Freddie are still conducting business, the guidelines for purchasing or guaranteeing mortgages have tightened considerably. 100% loans and stated-income loans are now a thing of the past. We are returning to the days of having 10 - 20% down, good credit, and stable income. Many have suggested we should have never have abandoned that approach in the first place.

Investors may be a bit more impacted by the Fannie / Freddie debacle. Lenders are beginning to restrict the number of properties that a single investor can hold for mortgages. At least one bank in the area is requiring investment property mortgages to be more than $125,000 to qualify for financing.

Federal Housing Adminstration (FHA) loans are being used in many cases where buyers have limited funds for down payments, but even there things have changed a bit. Privately funded down payment assistance programs through entities such as Ameridream and Nehemiah have gone by the wayside as of September 30, 2008. Additionally, the amount required by the buyer as a down payment will increase from 3% to 3.5% effective Jan 1, 2009.

Bottom line: there are many good deals in the current housing market and those individuals that are well capitalized and good savers are in position to take advantage. For others, there’s no free lunch anymore and the goal of owning a home has returned to being an aspiration, not a right.

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