Over the next few years home mortgages may look totally different. It seems like everyday I see another possible change from eliminating Fannie Mae and Freddie Mac to needing 20% down and 30 year mortgages disappearing!!
Congress is looking at ways to eliminate Freddie Mac and Fannie Mae. If that happens, we may see fewer 30 yr fixed rate mortgages and more adjustable rate mortgages. Without Fannie and Freddie, banks will want shorter terms and that means 5-7 year ARM's and possibly balloon mortgages.
Federal regulators are also looking at proposing new regulations that would require 20% down for the best conventional interest rates. They are saying that anything less than that is a "risky" loan and will cost more. FHA loans would not be subject to these rules. Those that are opposed to these new possible regulations say it would be a huge burden on the middle class working family.
Another proposal by the Federal Reserve is that lenders will be required to make sure that the borrower has the ability to make their mortgage payment. This rule is required by the Dodd-Frank bill and will tighten some of the lending standards. In Minnesota, this rule was passed a couple years ago for all mortgage brokers but didn't apply to banks. Basically this means that lenders will have to verify income, assets, employment and the amount of debt that a borrower has. Most of us are already doing this as stated income loans have disappeared.
I just saw an article yesterday that someone proposed that FHA be eliminated also. I can't see that option happening but you never know!
One of the concerns out of all of this is that if you make home ownership more difficult, it will hurt the economy and it's fragile enough as it is. We can have a stable home mortgage market with reasonable rules and regulations, interest rates and down payments. Or we can have a housing market that will be nearly risk free from foreclosures, but will have higher down payments, higher interest rates and tighter credit standards. But you can't have both of those.
We don't know how many of these changes will happen, but if you are concerned about any of them, talk to your house and senate representatives and suggest different changes. Hopefully the regulators will get the rules correct and we can have a good housing market!! For now, interest rates are terrific and home prices are near the bottom. It is a terrific time to buy a home!!
