Sunday, January 18, 2009

Bad News for Buyers, Sellers & Owners?

On the surface, it appears that more bad news for condo buyers, sellers and owners is on its way. But at least one industry expert we contacted sees a silver lining. The news, as reported by Mary Umberger in Sunday's Chicago Tribune:

"It's about that condo you're thinking of buying—or refinancing: The price is going up.

"I'm not talking about the sale price, but the latest fee that will nick you unless you're making a sizable down payment. With many lenders already casting a wary eye on condo loans because of their default rate, Fannie Mae has upped the ante by adding a fee of .75 percent of the loan amount of a 30-year fixed mortgage, for borrowers who put down 25 percent of the purchase price or less, effective April 1.

"For a condo priced at $300,000, with a mortgage of $240,000 (a 20 percent down payment), if Fannie will be purchasing the loan from your lender, it will assess the buyer an additional $1,800.

"Mortgage broker Dan Green of Mobium Mortgage predicts that many of the affected condo loans will stroll over, instead, to another governmental outlet, the Federal Housing Administration.

"The FHA insures low-down-payment loans; after being relegated to the sidelines during the housing boom, the FHA is soaring in popularity because it's the only recourse for many borrowers. So, while that may be a relief for buyers, it merely shifts the risk from Fannie to the FHA.

"Green says the fee will affect the majority of condo buyers these days, and it will particularly ding the pocketbooks of first-time buyers, many of whom are drawn to condos.

"The fee is starting to show up on lenders' rate sheets, even for closings scheduled before April 1, because of the time lag between closings and the packaging and sale of the loans to Wall Street, which might not be until after April Fools' Day."

* * * * *

Asked to comment on the news reported in the Tribune, industry experts we contacted responded as follows:

Dave Hanna, president of the Chicago Association of Realtors:

"First and foremost, it is the end cost of a loan a borrower should be looking at. A conventional loan, with a fee of under a point, may very well still put a buyer with a good credit score and reasonable down payment into a condominium home at a great interest rate and monthly payment, especially in relation to the net cost of loans in the past 24 months.

"FHA is a competitive alternative, letting a borrower with good or challenged credit get a low rate and put less down. The ability to use less money to get into a home, especially for first-time buyers, is a key component to getting them into the market now, when they can capitalize on high inventory and prices under their high point of 2005-2006.

"Historical perspective and current market conditions say this is a time for smart buyers to be in the market."

Jim Merrion, regional director of RE/MAX:

"Obviously, any increase in the acquisition cost of real estate is detrimental, especially in our current market.

"Unfortunately, we are currently seeing the residue of Fannie's having been stung previously with mortgage lending abuse, so they are moving to protect their loans, perhaps too agresssively, but that is what happens as the pendulum swings. Ultimately, this factor should drop.

"As far as the FHA option goes, my recollection is that the condo building has to be pre-approved in order for that unit to qualify, and that other FHA criteria may eliminate that as an option for some properties."

Mario Greco, a top-producing Rubloff agent:

"Much like the effect that Cook County's ill-advised attempt to foist an additional $3/$1000 of purchase price onto buyers in Spring of 2007 (later switched to sellers), this new fee will cause many people to jump into the market initially and cause closings to be moved up to 3/31/09 or sooner. So, short term, it will accelerate sales.

"If it stays in place, it may slow the market down a bit--but remember, rates are below 5% on a 30-year fixed mortgage, so that will hopefully offset any potential negative effect that this new fee may have.

"All of that being said, the timing and thought process behind the new fee is suspect at best."

Rubloff President Jim Kinney:

"Well this is certainly not a step in the direction of affordable home loans but it is understandable that now the taxpayers are responsible for the losses on these mortgages that the onus is being placed more on the borrower and less on the general population to carry that burden. Unfortunately, it will have a damping effect on the already troubled housing market."

Lauren Mitrick, president, Women's Council of Realtors & agent at Real Tek Realty:

"Just another bump in the road that we need to adjust to and overcome. I'm not surprised we are hit with another change in the lending guidelines. It is all about coaching and educating our clients. We need to stop dwelling on the negatives and realize that interest rates are at historic lows.

"Adding a fee under a point will not break the bank for most, especially since buyers are getting such great rates to begin with, but it certainly does not help in the short-term. Buyers will find a way to overcome, however. They may ask for already-hurting sellers to "chip" in.

"Since the default rate was so high, I can understand the cautious nature and although it does not make our jobs easier, I believe it will help in the long run. We are forgetting that putting 20 percent down has been the industry norm for decades; it may help people realize that you need more than just a pulse to get a loan."

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