Why is it? With rates falling to record lows (Lower Rates), the housing market recovering and the economy supposedly improving, why is it necessary to bring back the conventional 97% LTV loan and drop the FHA annual premiums by 50 bps so people can afford to buy a home?
The industry is all in a tizzy about these changes. Everyone believes this will attract more first time home buyers, resulting in increased home sales and more loans for lenders. Sounds good, everybody gets to own a home and everybody makes more money, right?
Let’s not forget that this is how it all started not so long ago. The government pushed to increase home ownership among minorities and those with low to moderate income. They provided direction to the Agencies to develop programs to meet this goal. New programs were created to allow more people to qualify for loans; maybe some who should not have purchased a home in the first place.
Unintended consequences were: more defaults, losses for lenders, the Agencies, the secondary markets and FHA, with many consumers’ credit being ruined and a near total collapse of the housing markets.
So, it was decided to eliminate these programs, raise the FHA premiums and create new laws. These stemmed the flow of defaults and foreclosures, reduced losses, help to stabilize housing and started to help rebuild the FHA reserves. An unintended consequence of these changes created some road blocks for the first time home buyers and those with low to moderate incomes. We need to find some middle ground!
Let’s not leap before we look this time. Yes, these programs will help more people realize their dreams of home ownership and present opportunities for Realtors and lenders to make more money. But, they will also increase the risks of defaults and losses, as we experienced in the past.
Regardless of low rates, less down payment and lower FHA premiums, home buyers need to be qualified and prepared to own a home. This may offend some, although not intended to do so, but some people just shouldn’t own a home; and some, like the Millennials, are not quite ready yet to jump into home ownership.
Please let us learn from the past and do it right this time around. Make sure these first time home buyers are ready to own a home and they fully understand the responsibilities of doing so. Although they may meet all the criteria, do they know what they are getting into, do they have the income and experience to afford the home and some reserves available for when they run into problems, which they will.
Let’s not have these loans turn into losses and their dreams turn out to be nightmares.