The old saying goes, “Those who cannot remember the past are condemned to repeat it.” A recent study done by the American Enterprise Institute (AEI) revealed some very telling information. First-time homebuyers are not being shut out the market as previously reported (Study).
It had been previously reported that with the implementation of the QM and ATR rules under Dodd-Frank, many first-time homebuyers were being shut out of their shot at the American Dream. Something had to be done and it had to be done fast. Underwriting criteria was too strict, lenders were running scared. What’s a mother to do?
Riding to the rescue, Fannie Mae came with their renewal of the low down payment loan and FHA by reducing their annual insurance premiums. All would be well. The damsel in distress was saved. It would go down in history that once again the hero prevailed.
Uh-oh, wait just a minute there, could it all be a big hoax? According to AEI, the prior reports of the demise of the first time homebuyer were greatly exaggerated. Their studies show there has been little change in the first time homebuyers share in primary home purchases over the past 2 years. This is in direct contrast to a survey conducting by the National Association of Realtors which reflected a sharp drop in the first time homebuyer share for the period from July 2013 through June 2014, relative to the prior year. Something just doesn’t seem right. Is the historical data inaccurate?
Read the article (Study). The AEI study shows that the risk to the agencies and FHA is increasing as the result of their increase in guaranteeing these riskier loans to the first time home buyers. Is this all bad news? No, I don’t think so. But, it is food for careful thought.
The industry got into trouble by expanding the box for lending a little too far and boy did we get our hands slapped. Lenders must be very careful when lending in this first-time homebuyer arena. By its very nature, it is risky business. This is not business that should be avoided but very risky nonetheless.
Heed the warning signs. We’re headed down the same path that got us into trouble in the past in the name of increased business and more income. But for how long?
If we screw up this time there may be no one left to bail us out. Think of where we’d be if not for Fannie, Freddie and FHA. I’d rather not!
Let’s not have history repeat the fiasco of 2007-08. Please lend responsibly.