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The Obama administration is gathering public opinion on how to improve the housing finance system, including the operations of Fannie Mae and Freddie Mac and the federal government’s role in the system.
The Treasury Department released questions last week seeking comment from the public, and Inman News asked real estate professionals to weigh in on some of these questions. Responses to one of those questions follows, and other questions are addressed in separate articles.
How should the housing finance system support sound market practices?
Sam Roth
Principal broker
Century 21 Best Realty Inc.
Coos Bay, Ore.
Congress should stay out of the real estate lending business and let the lenders decide what is in their best interest as far as creating a secure loan. The risk should be on the backs of the lenders making the loans not on the federal government.
With regards to the financing issue it seems that the requirements for the lenders are changing constantly and have all the lenders extremely nervous. The tax credit for first-time homebuyers did increase sales the first time around. This second tax credit hasn’t done much for us. I guess that one could say, "If you pay people to buy a home or buy a car, they will."
We are seeing about 24 percent of all our sales being distressed sales, either short sales or foreclosures. I really don’t have any idea what percentage of homeowners owe significantly more than the property is worth. My guess would be in excess of 50 percent. These underwater properties are causing serious financial distress for the owners.
When an underwater (home) is sold short sale or foreclosed upon, in many instances there are serious consequences tax-wise and/or deficiency judgments, which further aggravate the problem. These issues tend to make the patient (the homeowner) terminal. They are not allowed to take their financial loss and go on with life.
Lenders really need to allow the patient to get on with life after taking a serious financial (hit). Rather than cram down mortgage balances, I would prefer to see them eliminate tax consequences and deficiency judgments due to losing property. The cram-down concept was another dumb idea of Congress and totally irresponsible and unfair to those who continue to pay on their loan.
Pamela Dela Cruz
Broker-owner
Pamela Dela Cruz & Associates LLC
Walnut Creek, Calif.
This question appears to be a "preventative" measure on how to avoid corruption in the future, so, plain and simple, my response is to avoid stated income loans, avoid appraisals that will overvalue the property, and mandate a sold homes comparison report by both representing brokerages to show recent sales in the neighborhood.
These are all administrative tasks, but can prove to be effective in maintaining a stable market without overvaluation and therefore will reduce risk.
One measure that may work is to extend the time for the adjustable-rate mortgage loans to adjust. In other words, keep the rate fixed for another two to five years automatically. This has to be done without submitting all income and financial documentation. In other words, automatic extension of terms and fixed rates. Homeowners should not have to request this; it should be done automatically.
Loren Sanders
Owner
Coastal Home Finder LLC
Carlsbad, Calif.
One of the dangers that is rising from some of the reforms taking place in the real estate and mortgage industries is the systematic displacement of smaller players in the marketplace. Are the big banks gaming the system to remove competition?
The new appraisal regulations (Home Valuation Code of Conduct) that went into effect to create a distance between lender and appraiser have not addressed the intended issue, in my opinion, but instead are squeezing out smaller local firms.
I don’t believe the lender talking to the appraiser was an issue that lead to the downfall of the housing market. If the regulators really believed that when they put HVCC into place, why is the FHA or VA not using this system?
The best way to create a healthy real estate market is to keep the playing field level so the independent, small company can compete with the big guys. Some of the rules put in place in the guise of protecting the public will really remove options for the consumer and cost them more in the end.
Steve Wiley
Broker-owner
Smarter Choice Real Estate
Lincoln, Neb.
This is a larger question than the role of the housing financial system. It is about the larger whole — our national fiscal management policy, and more specifically, the role of government regulation.
Agreeing on what constitutes reasonable financial regulation of banks (commercial and investment) is the starting point. If that had been in place, large investment banks would not have teetered and threatened to take down the U.S. and world economies.
Appropriate due diligence by competent government regulators is a must. Banks must not ever be allowed to again grow to "too large to fail" status. When the overall good of the economy and the financial health of the nation and its people is at risk, congressional representatives and senators must put their personal interest, tied to special-interest campaign finance, in second place to that of their constituents and the electorate.
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