I sat with two of my children on a patio at Glorias in Dallas in Uptown with my good friend John Mauldin one warm summer night in July, 2007. He said, “kids remember this moment in your life. Tomorrow a bunch of banks are going to make some announcements that will affect all our lives forever.” That was a landmark moment in my life as the economic crisis unfolded before my eyes. I had just sold a home with a sub-prime loan and paid the pre-pay penalty in June 2007 and ‘dodged a bullet’ as it were.
Today, as I sip my coffee, I feel that today is another one of those significant days in our economy in my opinion. December 1, 2014 is the date that an agreement with Fannie and Freddie to relax lending standards takes effect. According to the Wall Street Journal, the new guidelines resulted from an agreement in October meant to clarify when lenders would be penalized for making mistakes on mortgages they sell to Fannie and Freddie. This paves the way for more applicants to qualify for loans, which will have a positive outcome for our economy, regardless of the current oil price wars. According to the WSJ report, lenders are preparing to further ease standards for borrowers after the release of new guidelines by Fannie and Freddie.
According to the WSJ report, relaxing the lending standards potentially could make it possible for hundreds of thousands of additional consumers to get mortgages. This is significant across the board in my opinion. The Urban Institute Director of Housing Finance Policy Center says, the moves are “going to be big,” but she added that “it’s going to take time” to see the full impact of the changes. The Urban Institute, a Washington think tank, earlier this year estimated that as many as 1.2 million additional home loans would be made annually if mortgage availability were at “normal” levels.
According to the reports out there, lenders also are expected to widen the scope of the types of borrowers they will accept by reducing credit-score requirements and giving greater leeway to consumers whose credit history suffered because of one-time events, such as a job loss or big medical bill. The conjecture out there according to multiple reports is that the big banker guys believe that this shift is going to be substantive and meaningful. Not all lenders are on board yet. Some of them learned a tough lesson a few years ago.
All that being said, and that is great news, this is a great time to invest. Mortgage interest rates have done some interesting adjusting recently. The benchmark 30-year fixed-rate mortgage slipped to 4.08 percent from 4.1 percent last week, according to the Bankrate.com national survey of large lenders. One year ago, that rate was 4.44 percent. Four weeks ago, it was 4.1 percent. This is the third weekly decrease in a row. The mortgages in this week’s survey had an average total of 0.29 discount and origination points.
- Over the past 52 weeks, the 30-year fixed has averaged 4.36 percent. This week’s rate is 0.28 percentage points lower than the 52-week average.
- The benchmark 15-year fixed-rate mortgage fell to 3.29 percent from 3.3 percent.
- The benchmark 5/1 adjustable-rate mortgage fell to 3.19 percent from 3.21 percent.
- The benchmark 30-year fixed-rate jumbo rose to 4.14 percent from 4.13 percent.
“Rates should be going up because all you have to do is look at the revision to third-quarter GDP number. The U.S. economy is growing,” said Joel Naroff, founder and president of Naroff Economic Advisors as reported on www.bankrate.com. “Why they’re where they are is because of the rest of the world.”
This translates in lower than expected market mortgage rates at a time when the market is about to open to first-time, entry-level or even re-entry level buyers, like myself. I have been in the leasing game since they stopped lending to us ‘fringe’ credit scores. For investors, now is a prime time to invest in building and/or refurbishing existing single family homes, duplexes and four-plexes in the prime areas in Austin or anywhere in the Central Texas area actually. This is an exciting time to be in the real estate business. I look forward to seeing how this unrolls on all ends, from helping my investor clients find that perfect little morsel before December 31 or helping those like myself back into home ownership.