Federal Government Set To Reduce Cap On Housing Loans
September 31, 2011, borrowers will be able to get mortgages backed by
the government totaling up to $729,750. Although most houses in the US
fall in the $200,000 range, high priced markets such as New York City
and Los Angeles depend on the sale of pricey homes in order to fund
their budgets. Due to the fact that Congress is currently working to
lower the deficit, lawmakers believe that the federal housing loan cap
will help to balance the federal budget.
Many lenders have already amended their applications to include the new rules set to take affect in early October. The main reason that most banks prefer to purchase federally backed loans is because they have the benefit of receiving payments even if the mortgage holders default. With the federal government now owning a considerable portion of Freddie Mac and Fannie Mae, lawmakers believe that they will eventually be able to recoup their costs. However, the poor state of the housing market has prompted Congress to stop back from the situation and take a closer look at the long-term viability of continuing to pump money into the mortgage sector.
Real estate professionals in high priced areas are understandably dismayed by the planned changes. They will make smaller commissions and it will be more difficult for them to find suitable homes for home shoppers that qualify for larger mortgages. In due time, the government will likely remove the federal housing loan caps, but until then applicants will have to make due with the amounts that they have been guaranteed.
More Than 17 Million New Home Loans In Trouble
backed loans are fairly easy to come by if the applicant meets the
standards imposed by HUD, but the changes that the US government plans
on enacting will cause 17 million home loans to fall through. In most
areas, the cap that the government has put on the maximum loan amount,
$625,500, is more than enough to buy a respectable piece of property.
However, home shoppers living in areas with a high cost of living will
be unable to get a home, at least in a safe part of town. The National
Association of Homebuilders estimates that approximately 17 million new
home loans that are in limbo will not be approved by the October 1st
In an industry where every single home sale counts, having 17 million potential homeowners suddenly find that they have lost their earnest money could be catastrophic. The mortgage companies are still permitted to keep the application fees and other monies collected, but these home shoppers must find another way to close on the properties that they are interested in. In California, New York and Florida, home prices can be surprisingly high. It is not uncommon for first time buyers to look at properties valued over $1 million.
Once the new rules go into effect limiting the amount of money that the federal government will back on mortgages, many shoppers will need to look for alternative financing. Even those with proven track records with loan repayments may have to reduce the amount of money that they spend on their homes.
‘House Flipping’ Makes A Comeback In Sacramento
and small companies with enough capital available to purchase
foreclosed homes, make repairs and then sell them for a profit have
always been referred to as ‘house flippers.’ The term was popularized on
a number of short lived reality TV shows, but it seems that investors
are motivated more than ever to get into the real estate business. In
Sacramento there has been a surge of house flippers moving in on the
market. Because foreclosed homes can be had at a fraction of the cost,
investors are certain that they will be able to wait until the market
Unlike house flippers that tried to make their fortunes during the real estate boon, buyers are more realistic. On average, it takes more than five months for a home to be sold in the US. After adding in closing fees, maintenance costs and real estate agent commissions, house flippers know that they have to buy exceptionally low priced properties. They are also aware of the fact that not every sale will be a profitable one.
Some Sacramento house flippers have been in the property market for years while others are just getting started. A number of foreclosed properties were sold to investors last year, and now that they have made the required repairs they are just waiting until home prices start to rise. A well funded house flipper stands to make millions of dollars from the sale of a few dozen homes. Although not everyone is able to get into the industry, those that do are able to dominate the housing market.
Mortgage Company May Have Profited From Duping Investors
another major mortgage company is on the hook for misleading its
investors prior to the real estate crisis. Goldman Sachs once backed a
great deal of US mortgages. In the end of 2006 and the beginning of
2007, the company began to realize that it owned mostly toxic loans.
According to NY investigators, Goldman Sachs began to sell off these
mortgages without letting their investors and buyers know what they were
Everyone knows that the housing market began to crumble at the end of 2008, but few are aware of the fact that these types of deals have prevented real estate numbers from returning to their previous levels. Until investors are able to gain confidence, banks will remain unwilling to extend loans to high risk people. Although the powers that be at Goldman Sachs deny the allegations, they have been scrambling to do as much damage control as possible.
After the Manhattan district attorney executed a search warrant at Goldman Sachs’ headquarters, the truth began to surface. The final outcome of the search warrant is not yet know, but it is clear that Goldman Sachs will have a lot of explaining to do. It is harder than ever for home shoppers to qualify for mortgages, there is a huge backlog of unoccupied properties and housing prices are historically low. All of this should lead to the emergence of a strong real estate market, but so far, nothing much has changed in this depressed housing sector that indicates real growth.