On the House: Mortgage landscape has shifted

On March 15, 1994, Fannie Mae announced with great fanfare a $1 trillion initiative to create 10 million more homeowners in six years.<br /><br />Six years later, in 2000, Fannie Mae announced that the 1994 initiative had succeeded and that $2 trillion would be committed to add 18 million homeowners to the 10.6 million the first program had created.<br /><br />Don’t bet the farm on a similar announcement anytime soon. Fannie Mae and Freddie Mac are in big trouble, and, from what I’m told, even if they avoid a federal takeover that shifts the burden of paying for their mistakes to taxpayers, the era of “Hey, buddy, need a couple of hundred thou for a house” is gone.<br /><br />Some say they brought this on themselves.<br /><br />”I served for two years on the Freddie Mac Loan Prospector Advisory Committee,” said <span style=”font-weight:bold;”>Fred Glick</span>, a Philadelphia mortgage broker. “They claimed it was so they could hear from bankers and brokers about what they could do with not only [their] automated underwriting decision, but how Freddie could improve.<br /><br />”We, as a group, came up with many ideas. Yet the real reason we met in places like New Orleans and the Ritz in suburban Washington was to promote their agenda,” Glick said. “They sent an armada of their people to the meetings and never really considered what we had to say.”<br /><br />Kevin Gillen, a Wharton research fellow and vice president of Econsult Corp., says he saw it coming.<br /><br />”During the peak of the bubble frenzy, people would always ask me just how bad it could get,” Gillen said. “I always said that some major bank failures and either bankruptcies [or] takeovers of some large home builders, to possibly be followed by a federal bailout of the GSEs [government-sponsored enterprises], would be the worst-case scenario. That scenario has now arrived.”<br /><br />As terrible as that is, Gillen said, it could mean a bottom to the downturn is in sight.<br /><br />Fannie and Freddie should be fully privatized, with the public being issued shares, he said. “If Joe and Jane Taxpayer are going to be asked to bail [them] out during their time of peril, they should also be able to participate and be rewarded in their future recovery.”<br /><br />Joel L. Naroff, chief economist of Commerce Bancorp, explained that “what is going on is [that] a realistic view of the role of regulation has finally sunk in at the Federal Reserve. The subprime problem was not unknown there, but the attitude was that the markets could handle it.”<br /><br />”Well, they can’t, so we will likely see a lot more regulatory activity in the housing and financial markets,” Naroff said.<br /><br />All this, of course, has made getting a mortgage much more difficult, unless you are perfect.<br /><br />”I am currently involved with one specific deal where the appraiser has insisted on making three return trips to the condo being financed and is still contending that minor touch-up paint and tile work be completed before he gives the OK for the bank to release [or] sign off on the loan,” said Mark Wade of Prudential Fox & Roach Realtors.<br /><br />One of the differences between 1994 and now – and, for that matter, even between 2000 and now – is the greater understanding the average American has about the financial system, even if he or she does not put that knowledge into practice.<br /><br />It may have something to do with the Internet and the proliferation of cable news channels providing detailed “information” ad nauseam.<br /><br />Years ago, when I wrote about each initiative, I was besieged by readers looking to contact Fannie Mae about getting a mortgage. It doesn’t work that way, of course.<br /><br />Today, buyers and sellers are a little savvier.<br /><br />Long & Foster agent Cheryl Miller reported that the weekend Fannie and Freddie became the talk of the media, the listing agent of a seller she and her buyers were dealing with appeared to be more willing to negotiate price.<br /><br />”Agents and sellers previously insulated from the changing financial landscape,” she said, “are starting to get the idea that this crisis is, in fact, going to affect them.”<br /><br />”On the House” appears Sundays in The Inquirer. Contact Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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