A Tale of Government Stimulus
July 30, 2009
On August 1, the new federal rules regarding disclosure by lenders to borrowers will go into effect. These rules are designed to inform the borrower about the actual cost of the loan and the cost associated with the purchase of a home. The rules are awesome in the amount of constraints that they impose on all lenders in the home loan business - banks, mortgage brokers, etc. There seems to be a belief amongst lawmakers that if borrowers are better informed, they will have less fear of entering the real estate market to purchase a home and that these better informed borrowers will help to up the sales statistics. Unfortunately, these new rules will probably increase the complexity of a real estate transaction.
But let's see what existing stimulus packages have done to stabilize the real estate market.
1. The Federal $8,000 tax credit. In all probability this tax credit has had a positive effect as first time home buyers have become a significant portion of present real estate sales. It seems clear that this tax credit did what it was designed to do - encourage buyers to purchase now.
2. The California $10,000 credit for purchasing new construction. This also seemed to work as new home sales increased substantially and the monies set aside for this credit have been reported to be depleted.
3. The stimulus funds for loan modification. This is still a questionable benefit to underwater homeowners. Just this week, the Obama administration announced it was putting some pressure on lenders to be more aggressive in making loan modifications and in approving short sales. If lenders have been allocated a pool of money from the federal government to offset their losses, why does a short sale take 6 months? Why have so few loan modifications been made?
4. The Home Valuation Code of Conduct. This set of rules for lenders and appraisers went into effect on May 1, 2009 and by all reports has created a nightmare. The intention was to distance appraisers for anyone who had a vested interest in a property appraising at the selling price. The result has been somewhat chaotic. The most difficult part of the appraisal process is the appraisal review that occurs just before the final step in a lending process - the funding of the loan. A "desk review" is conducted and this individual who has never seen the property has the power to change the appraised value - mostly down. This process has seemingly prevented prices from recovering even though buyers and willing and qualified to pay more. Rather than protecting buyers from overpaying, it has had a dampening effect. It has also delayed closings.
It would seem that direct money credited to buyers works far better than regulations that have unintended consequences.
On August 1, the new federal rules regarding disclosure by lenders to borrowers will go into effect. These rules are designed to inform the borrower about the actual cost of the loan and the cost associated with the purchase of a home. The rules are awesome in the amount of constraints that they impose on all lenders in the home loan business - banks, mortgage brokers, etc. There seems to be a belief amongst lawmakers that if borrowers are better informed, they will have less fear of entering the real estate market to purchase a home and that these better informed borrowers will help to up the sales statistics. Unfortunately, these new rules will probably increase the complexity of a real estate transaction.
But let's see what existing stimulus packages have done to stabilize the real estate market.
1. The Federal $8,000 tax credit. In all probability this tax credit has had a positive effect as first time home buyers have become a significant portion of present real estate sales. It seems clear that this tax credit did what it was designed to do - encourage buyers to purchase now.
2. The California $10,000 credit for purchasing new construction. This also seemed to work as new home sales increased substantially and the monies set aside for this credit have been reported to be depleted.
3. The stimulus funds for loan modification. This is still a questionable benefit to underwater homeowners. Just this week, the Obama administration announced it was putting some pressure on lenders to be more aggressive in making loan modifications and in approving short sales. If lenders have been allocated a pool of money from the federal government to offset their losses, why does a short sale take 6 months? Why have so few loan modifications been made?
4. The Home Valuation Code of Conduct. This set of rules for lenders and appraisers went into effect on May 1, 2009 and by all reports has created a nightmare. The intention was to distance appraisers for anyone who had a vested interest in a property appraising at the selling price. The result has been somewhat chaotic. The most difficult part of the appraisal process is the appraisal review that occurs just before the final step in a lending process - the funding of the loan. A "desk review" is conducted and this individual who has never seen the property has the power to change the appraised value - mostly down. This process has seemingly prevented prices from recovering even though buyers and willing and qualified to pay more. Rather than protecting buyers from overpaying, it has had a dampening effect. It has also delayed closings.
It would seem that direct money credited to buyers works far better than regulations that have unintended consequences.
posted by shirley harry at 8:28 AM
1 Comments:
Every investment has risks and drawbacks. The important thing is to recognize them, to be aware of what can happen to your investments, and to make sure you aren't exposed to risks you can't afford.
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