This question is central to both anxious home buyers and investors who are on the fence waiting for an economic recovery. Even with historically low rates and with the first-time buyer tax credit which the government hoped would inspire buyers to take the plunge — the number of new home purchase loans is expected to fall 4.6% this year, according to the Mortgage Bankers Association, a trade industry group.
Banks are still caught in the undertow of the mortgage crisis, and are under pressure from bank regulators to clean up the earlier mess and under pressure from stock holders to boost profits. This pressure is increased by the government’s attempts to stem the growth of foreclosures and bring about recovery from the Great Recession.
You would think that healthier banks would be lending more. However, consumers aren’t seeing increased mortgage lending because of tight underwriting standards associated with Fannie Mae, Freddie Mac and the Federal Housing Administration. The banks are not really in direct control of the underwriting standards of residential mortgages. These firmer lending standards seem to be a return to what it was like to get a mortgage before the housing bubble. If you couldn’t get a mortgage in 2000, you probably won’t get one now.
For lending to increase, some experts say the government will have to play a role in softening the standards – at least slightly – of getting a mortgage through Fannie and Freddie, which typically require a minimum 20% down payment. This requirement is one reason why FHA originations – which require a 3.5% down payment – have gone from 2% of the mortgage origination marketplace in 2006 to 35% in the present market.
There is a bright spot which helps the Highlands and Cashiers market. That is a mild loosening of jumbo-mortgage lending relative to price. The jumbo mortgages have a couple of advantages for lenders. The banks are allowed to set the standards for the loans, and the loans can go on their books. The most immediate link between a financially healthier bank and increased lending will likely be seen with these mortgages since banks have full underwriting control over them.
It is expected that moving forward, mortgage lending will remain a significant portion of the large banks’ business; the Mortgage Bankers Association expects new mortgage originations to climb 14% in 2011 up almost 10% from this year.
For questions about real estate in Highlands and Cashiers NC, ask the experts at Meadows Mountain Realty, your best source for up to the minute information about your best investment.