AJC 2015 MAR 22
by John Adams
I hate Daylight Saving Time. In fact, this whole clock thing needs a major overhaul.
It’s time for the geniuses at the General Assembly to put aside their partisan wrangling and address something that truly matters: like leaving my alarm clock alone.
As a concrete example of the problem, this morning I woke up at 5:03 AM DST. I was unsure if that meant it was actually 4 AM or 6 AM – an important distinction. I became confused and disoriented and went back to sleep.
All this leads inevitably to my point: spring has arrived. And with it, three glimmers of hope that the sluggish housing recovery may finally be preparing to reach some form of conclusion.
Glimmer Number One: The good folks at Fair, Issac & Co. have decided that medical debts are less indicative of your overall credit worthiness than, say, past due credit card payments. This is great news for homebuyers.
According to credit repository Experian, some 64 million consumers have a medical collection on their credit report. The change means that, once paid, that particular item will no longer affect your FICO score. And in the meantime, unpaid medical debts will have a lesser negative impact.
As a result, credit scores will rise automatically for many consumers, making it more likely that they will qualify for a home loan.
Glimmer Number Two: Banks are easing loan qualification guidelines, making it more likely buyers will be approved.
According to a survey conducted by the Federal Reserve, more than two-thirds of loan applications for “prime” home loans were approved in December of last year. That is the highest level recorded by the agency since 2011. Lenders reserve their best loan programs for this group of consumers.
And this easing is not only for the most highly qualified. Banks are reducing credit score requirements and lessening hurdles for FHA, VA and USDA home loan programs.
This is important because FHA loans offer a low 3.5 percent down payment, making this program especially attractive to first-time buyers. It is these entry-level buyers which fuel resales and drive the housing market.
As a little icing on the cake, FHA recently lowered its mortgage insurance premiums (often called PMI) for all 30 year programs, making these popular loans even more affordable for buyers without large cash down payments.
Glimmer Number Three:
After the economic downturn hit the housing market, loans to investors dried up. Bank regulators decided that “speculative” real estate loans were evil, and pressured banks to stop making them.
As a direct result, it became almost impossible for an investor to do what investors do: buy abandoned and damaged houses, repair them and make them acceptable for the general market, then either rent them or resell them at market value.
This type of activity was critically needed as the tide of foreclosure swept over metro Atlanta in recent years. But only those with huge cash reserves were able to participate. As a result, vacant, run-down houses crippled literally thousands of metro Atlanta neighborhoods, driving down property values.
Current tax laws punish investors who buy, fix and sell, so most investors choose to hold their purchases as rentals for at least several years. And with no long term financing available, rehab activity declined dramatically.
But here’s the good news: private equity firms are entering the market offering long term mortgages to affluent investors who want to buy real estate for rental purposes. And unlike Fannie Mae and Freddie Mac, both of which set arbitrary limits on the number of loans an investor may have, these private equity firms carry no such restrictions.
These loans are currently aimed at fairly high-level investors, with applicants seeking a minimum of $500,000 per loan. But if these firms experience success, I guarantee that banks and government-sponsored enterprises (FNMA, for example) will open the spigot for smaller borrowers.
The bottom line here is clear: the long-awaited housing recovery has been starved for liquidity for several years. I, for one, am hoping that these early signs of “easing” will signal the beginning of the end for this housing nightmare.