Roger Schlesinger

As long as we are talking about the problem, what about those who took out their loan, qualifying without tax returns (self employed) and have made their payments diligently? They aren't "underwater", they have good credit scores, and they even have some money in the bank. They are just forced to pay higher rates because the rules of the game have been changed in the middle of the game (December 15, 2008). These people aren't allowed to be helped. Really! Again, if they don't catch a break, their loans are still owned by Fannie Mae and Freddie Mac. I, myself, would think Fannie and Freddie would be better off by offering them a lower rate.

2. The goal of the government is to help turn the housing market around with friendly encouragement to those who lend and those who buy and sell. Nobody can encourage like the government and it should be used to get real estate moving in the right direction once again. This would put equity back in the pockets of the homeowners and increase the value of "toxic loans", which would lead to "loan to values" decreasing. Lenders would see their income increase, spurring more hiring, and homeowners would probably start spending again.

Those hypotheses make sense, but what is actually happening doesn't make sense. Every time a loan is originated, it must have an appraisal, even if it is a new home. To decide on the value of a house, an appraiser must identify comps, recent sales of houses in the subject house's neighborhood of similar age, size and utility. The appraisers would compile the data and arrive at a "fair market value" for the subject property. As reasonable a process as could have been devised, this process has now been amended.

Appraisers in "declining" markets, as designated by the lenders, must now time weight the comps and adjust them downward to reflect the market. If a comp sold 4 months ago, it must be reduced by the amount of the decline reported in the area over the last 4 months. This supposedly gives the lender the current value of the house under review. An example would be a house that sold in November for $300,000 being adjusted down to $288,000. Think about this rule: if you have to adjust down the comps, which sold at a price certain, in order to reflect the falling market, how can you ever stop the market from going down until you reach zero? Could this be another ingenious way for lenders to not lend?

3. I have heard no end of comments that the housing prices are still too high and that they need to come down to a level where people can afford them. Many believe that you shouldn't buy a house unless you have 20% down, which on the average house price of $174,000 would be over $34,000. I dare say that this can't happen as the average American does not have anywhere near $34,000 in available cash to buy a house. But that isn't enough money anyway. Fannie Mae and Freddie Mac charge certain fees in order to acquire a loan from them. If your credit score is 699, you will be charged 1.5% with 20% down to get the loan. That would be $2,250 on a $150,000 loan. If your score is 659, you will pay 3 points (%), which is $4,500. It doesn't make sense, but that is the good news. It appears in April these fees are increasing. Really! (For those who don't know, Fannie and Freddie are owned by the government). As an aside, didn't the government used to be us?

You have now viewed a bit of the "good news" that the government has sent us to help turn the real estate market around, and hopefully the economy as well. The cost for the real estate approach is $75 billion, which, compared to the rest of the money to help other sectors, is really minimal. We have given AIG twice that amount, and so far, with not so good results. I have my opinion on the money we are going to spend on the real estate side, but more important than my opinion is your opinion. Is it yea, nay or perhaps another way?

Roger Schlesinger

Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.


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