Refinancing

Congressman Dennis Cardoza (D-Merced) believes that the new proposal from the Obama administration will end the American dream of home ownership for the middle class. The plan points to the eventual end of Fannie Mae and Freddie Mac. Now this initiative does not go into effect tomorrow. The changes have to pass through Congress. Actually, it could take several years for certain modifications to be in place.

Proposed Reform

Cardoza admits that there are problems with both government-sponsored enterprises (GSEs). He would agree to reforming them but opposes eliminating the GSEs. Cordoza insists that Fannie Mae and Freddie Mac have helped a huge percentage of middle class homeowners to buy homes. In fact, he mentions his own state of California, its high housing costs, and the fact that almost every mortgage is backed by the GSEs.

A former realtor, Cardoza points to the pre-Fannie and Freddie days. At that time, homeowners needed a 50% down payment and repayment time was five years on average. Presently, he is seeking support for his own legislation - the Housing Opportunity and Mortgage Equity (HOME) Act, H.R. 363 – a bill capitalizing on market-based solutions to keep people in their homes.

Cardoza is not shy about expressing his opposition to getting rid of Fannie Mae and Freddie Mac. He was invited to speak at a think tank panel discussion - Underwater Housing and Recovery - sponsored by the Third Way. Cardoza'a Congressional district in California's Central Valley is in the midst of a serious housing crisis. Modesto, Stockton, and Merced have some of the highest rates of foreclosures in the country. Three out of five homeowners are 'underwater' carrying loans more than the value of their house.

"In America, homeownership is at the core of middle class prosperity. In fact, it is the American dream. If the government withdraws assistance to the GSEs that make this dream accessible, average working Americans - teacher, plumbers, and journalists - will no longer be able to get a mortgage to buy a home. We will become a rental society, instead of an ownership society." ~ Congressman Dennis Cardoza

Cardoza: President's Plan the "Most Irresponsible Housing Proposal Yet"

Private Sector

More representatives than Cardoza see problems with the GSEs. A few people even hoped that the administration would abolish the GSEs. Yet Obama's latest proposals were still a shock to many individuals and groups. Part of the new proposal plans a housing-finance system that would rely almost exclusively on the private sector.

Currently, Fannie Mae and Freddie Mac back private mortgages. Consumer advocates worry about the proposed changes. If the government does not get behind these mortgages, maybe more lenders could back away, and consumers will have fewer options. Of course, it is not advisable to help people get into houses if they cannot afford a home.

Balanced Approach

The past housing crisis is evidence that a situation can get out of control. Yet government must provide a balanced approach. Often people need a helping hand. There is a promise, however, that this new proposal will not eliminate all help for low-income families. Apparently, there will be programs to help with housing even if they are not the familiar Fannie Mae and Freddie Mac.

Why You Should Buy That Home Now

What Do You Think Of Obama's New Housing Plan?

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Many potential home owners in Canada are reeling from recent mortgage changes introduced by their federal government. Yet the Canadian administration believes that the modifications will make a positive difference in people's financial health. The regulatory changes are meant to save consumers from themselves in terms of debt load. The government is hoping to discourage potential home owners from taking on debt that they cannot handle in reality. As well, the regulations aim to discourage unwise use of home equity lines of credit.

Helpful Advice

Now many people will argue that consumers should not be prompted in one way or another; they should make their own decisions and live with the consequences. Of course, too little regulation can also cause financial woe. Consider the recent U.S. dilemma. Mortgage approval might have been too easy in some instances; many consumers became homeowners but lacked the financial means to handle the commitment.

Mortgage Changes

(Canada)

According to Canadian Finance Minister Jim Flaherty, effective March 18, 2011, the term of government-backed mortgages has been lowered to 30 years from 35 years. As well, the maximum amount of equity for refinancing will drop to 85% from the previous 90 per cent.

Many hopeful first-time home buyers are not pleased with this recent development. Yet the government insists that they are helping consumers. Eventually, homeowners will be faced with a rise in interest rates. This latest intervention is designed to discourage buyers who will not be up to the challenge.

Massive Debt

According to recent statistics, Canadian household debt has soared to 148% of disposable income. Of course, shopping trips and house sales fuel the economy but there is an 'elephant in the room' with such a high percentage of debt. The Canadian government has chosen not to ignore the massive amount of debt carried by many home owners.

Beginning April 18, the Canadian government will stop insuring newly issued home equity lines of credit (HELOCs). An ever-increasing number of home owners in Canada are using these lines of credit. In fact, HELOCs account for 12% of consumer debt.

Home Equity Lines of Credit

Actually, 50% half of these variable-rate loans are spent on consumer goods including new cars and boats. Only one third of the loans go towards paying down other debt. Therefore, the Canadian Mortgage and Housing Corporation has reconsidered its practice of insuring home equity lines of credit.

Government Regulations

With recent mortgage changes, the Canadian government claims to have considered the best interests of consumers. Of course, distancing themselves from the inevitable future rise in interest rates might be a wise move for this government – especially with a possible election in the near future. As well, in 2006, this government allowed the Canada Mortgage and Housing Corp. to lift its 25-year limit on mortgages and insure up to 40 years.

In 2008, Flaherty rewound the 40-year term back to 35 years. Maybe this latest move is an attempt to distance themselves further from that original rash decision of extending limits to 40 years. The Canadian government, however, has to be prepared for their new regulations to have a few undesirable effects on the economy. Almost one third of Canadian mortgages in 2010 were for 35-year terms.

Mortgage changes sensible

Do You Think The Canadian Government Made Sensible Mortgage Changes?

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While Fannie Mae announced that mortgage rates had increased this week to 4.46%, refinancing rates experienced a drop. Signs of an improving economy, however, are inspiring people to buy homes. Yet with an increase in interest rates, home refinancing falls out of favor.

Refinances Fall

Last week, applications for refinancing dropped below 75% of all mortgage applications. During the late summer of 2010, refinancing seemed to be the choice of many home owners. In early August, loan applications for refinancing accounted for more than 80% of all applications.

Only once before in recent years had applications for refinancing come in above 80 per cent. Micheal Fratantoni of the Mortgage Bankers Association points to the 80-plus percentage "in 2003, for one week, when the rate on 30-year mortgages fell below 5% for the first time since the 1950s." In 2003, the total amount of mortgages issued was almost $4 trillion – with $2.5 trillion (60%) in refinancing.

Refinancing numbers fell temporarily for a single week during October 2010. Yet afterwards, refinancing statistics stayed the same until November 19. Since June, there has not been a fall in refinancing numbers that compares with the recent drop.

Mortgages Rates Rise

According to a survey (including higher-interest jumbo loans) released by the Mortgage Bankers Association, the average 30-year contract rate tops 4.5%. Increased mortgage rates (especially above 4.5%) will bring about a decrease in refinancing numbers. Indeed, there would be less refinancing except some homeowners wanted to act now before the next increase in mortgage rates.

Anxious Homeowners

Of course, rising rates are not the only factor responsible for low refinancing numbers. Many homeowners would like to choose a refinance. Yet they cannot go that route because of reduced home equity or a decrease in income. Both circumstances result from the economic downturn.

Indeed even if people have home equity, they are less likely to use it in a recovering economy. Most homeowners have to be confident about the economy before they will use their home equity to take out cash. Chris George, president of CMG Mortgage in San Ramon, explains how homeowners think about refinancing in uncertain times compared to booming periods.

"In '04, '05 and '06 it was all about leveraging your home equity.… I would say back then three-quarters or better of the people refinancing were pulling out cash. Now it's the opposite — people are de-leveraging, saving for a rainy day," says Chris George, president of CMG Mortgage in San Ramon.

Home refinancing applications drop as interest rates rise

Reasons to Refinance

Home owners refinance for varied reasons from tapping into equity to shortening term to maturity. Yet the main reason is to save money. If refinancing is to make sense for home owners, they have to save on payments. If homeowners can see only minimal savings, the industry cannot expect to see maximum numbers in refinancing.

Of course, some homeowners are choosing a refinance. The Mortgage Bankers Association suggests that refinancing will account for almost $1 trillion of the entire mortgage market in 2010. Michael Fratantoni detailed the predictions of the Mortgage Bankers Assn. for refinancing numbers in 2011.

"Purchase loans are expected to increase a bit, to $600 billion of the total, with loan refinancing at $400 billion, or 40%, as rates rise above 5% by the end of the year, " says Micheal Fratantoni of the Mortgage Bankers Association.

Will You Be Applying For A Refinance?

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