CNC Mortgage Blog

Towards the end of 2008 there were rumors coming out of Washington that there were going to be 4.5% 30 year fixed mortgages for home buyers. A lot of potential borrowers, not necessarily purchasers, heard this news and are still sitting on the fence, waiting for that rate.

But nothing further has been said about that rate.

Establishing that rate as a floor now for home purchasing mortgage rates would help to move the housing market and stabilize prices.

Of course, some of these measures will promote some fraudulent intra family sales just to get the new rate.

I think that an aggressive lending program of 4.5% financing for people who have at least 5% of their own money ( even 4.5% of their own money) with acceptable credit scores ( 680 or above) would move the housing market.

Making clear that the rate of 4.5% is for purchasers, not those who refinance will move the refinancers to get into those rates that are now near 5% on 30 year fixed mortgage. Lower payments on mortgages are a constant stimulus of $100, $200, $300 or more dollars per month that are in the consumers wallet.

A letter written to Time:

Dear Time,

RE: Let’s get serious about housing, Time February 23, 2008

I would like to point out that there are two markets for houses that are closed at this moment and could generate an immediate volume of three to five million units. There are probably 12 to 20 million persons in the country who could move into their own homes quickly.

UNDOCUMENTED RESIDENTS

The political hot potato with illegal residents seems to have been put on the back burner by the Obama administration. If there are between 12 and 20 million illegal residents in the country they could buy between three and five million homes. Fewer and fewer banks are offering loans to this community with the Individual tax identification number (ITIN) so that market has also dried up.

Residency for these people and their families needs to be legalized. Farmers, builders and industry need that source of less expensive labor. Once it is legalized it will be less prone to be abused.

I can’t speak to other urban areas but the neighborhoods in Minneapolis and St Paul , Minnesota, that were depressed and have received large numbers of Hispanic immigrants are flourishing.

These potential customers could start to buy houses immediately. A down payment of 5% could be required, don’t be to choosy on finding the source for that down payment, accept and confirm their employment or income documents, accept income from boarders who could rent rooms in the house as contributing to the borrowers income and let these people buy houses. Initially they will move in to the most depressed, affected, less expensive neighborhood sand contribute to their resurgence.

FOREIGN NATIONALS

Foreign nationals are persons who live outside of the United States and would like to buy a second home in the US mostly to have a vacation home but, just in case, for safety reasons. These are people whose income and employment are outside of the country but could provide at least a 25% down payment on a home. Income and assets would be mostly documentable, credit scores would be meaningless and long time residence not possible. Fannie and Freddie had programs for them until last year but they removed them.

The market for foreign nationals would reactivate the real estate market in areas that are hard hit such as Florida and California. Mortgage rates in the US continue to be very attractive with rates of 6% to 7% on 30 year mortgages. I see some South American countries have rates of 18% on a 15 year mortgage with 30% down, even adjusting for exchange rate risks, that is very steep.

A few days ago I had a call from a potential customer who bought a house in Brooklyn Center, MN. three years ago.

He has a mortgage at 6.375%, sufficient income and good credit. He would like to take advantage of todays rates of around 5% on a 30 year fixed mortgage. He would be saving around $200 per month on his interest payments.

He bought the house for $230,000 and made a down payment of $50,000. He took out a loan for $180,000. When I called the appraiser I use he told me that that area of the Twin Cities has been especially hit by the housing values and that the house is probably only worth $180,000. He lost his $50,000, I can't help him to refinance unless he brings about $9,000 to the closing table so that I can get him a loan for 95% of the value and pay the 5% mortgage rate plus mortgage insurance. He doesn't have $9,000 and if he had it, is not sure he wants to put more money into his house.

Is he better off than his theoretical neighbor who bought the same hose for the same value at the same time but got 100% financing? The main difference is that the second homeowner is making higher payments but really hasn't lost any equity because he didn't put any money down.

The first man wants to stay in his house, and wait for home values to come back. The second man can just walk away from his home and leave it to the bank with minimal financial implications aside from a big ding on his credit history.

Could the TARP money be used to help these borrowers?