OKAY.  IT IS APRIL.  TIME FOR THE TURNAROUND IN THE U.S. HOUSING MARKET.  THE WHITE HOUSE AND CONGRESS DID THEIR PART IN MAKING THIS HAPPEN.  LONG OVERDUE CHANGES WERE MADE IN LAWS AFFECTING THE FHA AND FANNIE MAE.  A GOOD NUMBER OF SUBPRIME JUMBO LOANS WERE WRITTEN IN THE PREVIOUS THREE YEARS SIMPLY BECAUSE HOME PRICES HAD CLIMBED FAR BEYOND THE MAXIMUM LEVEL ALLOWED UNDER RULES WRITTEN LONG AGO.  THESE ARE THE LOANS THAT ALLOWED LENDERS TO SHARPLY RAISE INTEREST RATES AFTER A MINIMUM PERIOD.
 
THAT IS BAD ENOUGH WHEN WE ARE TALKING ABOUT A LOAN OF $100,000.  BUT WHEN THE LOAN IS FOR $600,000 AND THE MORTGAGE INTEREST RATE JUMPS FROM 4% TO 12%, EVEN A HIGH-INCOME BUYER CAN FIND IT HARD TO MEET PAYMENT SCHEDULES.  BUT LOOK WHAT IS HAPPENING NOW THAT CONGRESS LIFTED THE LIMITS ON JUMBO INSURED MORTGAGES.  TODAY THE FHA AND FANNIE MAE CAN HANDLE LOANS WORTH OVER $700,000.  AT AN INTEREST RATE OF 6% A YEAR, THERE ARE LARGE NUMBERS OF POTENTIAL BUYERS FOR HIGH-PRICED NEW AND EXISTING HOMES.  BUT WHEN THESE BUYERS APPLIED FOR LOANS, THEY SUDDENLY DISCOVERED A NUMBER OF LITTLE-KNOWN PROVISIONS THAT EFFECTIVELY BLOCKED A HIGH PERCENTAGE OF THESE WOULD-BE BUYERS FROM EVEN APPLYING FOR A LOAN.
 
FIRST, THEY ALLOWED THE BANKS TO SET INTEREST RATES FOR JUMBO LOANS THAT WERE AS MUCH AS 1.5 POINTS HIGHER THAN THE RATES THEY CHARGE FOR LESS EXPENSIVE HOMES – THIS DESPITE THE FACT THAT THE FHA WOULD BE GUARANTEEING THE SAFETY OF THE LOAN PRINCIPAL.  THAT MAKES NO SENSE AT ALL TO MANY EXPERIENCED FINANCIAL PROFESSIONALS.  BUT THERE IS MORE.  EVEN THOUGH THE FHA WAS CREATED TO FINANCE HOMES WITH MINIMAL DOWN PAYMENTS – SAY 3% - THE BANKS ARE OFTEN NOW DEMANDING DOWN PAYMENTS OF 10% AND EVEN 20% ON JUMBO INSURED LOANS.  AS YOU CAN IMAGINE THIS CAN MEAN A DOWN PAYMENT OF MORE THAN $140,000 ON A $720,000 HOME.  NOT AN IMPOSSIBLE ROADBLOCK, ESPECIALLY FOR SOMEONE WHO IS SELLING A HOME WITH THAT MUCH EQUITY AND TRANSFERRING THE MONEY TO THEIR NEW BUY.  BUT IT CERTAINLY IS NOT HELPFUL.
 
IF THE IDEA WAS TO STIMULATE PURCHASES OF LARGER HOMES, WHICH ARE PLENTIFUL IN FLORIDA, CALIFORNIA, NEW YORK AND MASSACHUSETTS, THEN I HAVE TO SAY THE REFORM IS A DUD.  AGAIN THERE IS MORE.  WE HAVE GONE FROM ONE EXTREME TO ANOTHER.  A FEW YEARS AGO, IT WAS POSSIBLE TO BUY A LARGE HOME BY FILLING OUT AN APPLICATION LOADED WITH FACTS ABOUT INCOME, NET WORTH AND CREDIT HISTORY THAT WERE NEVER CHECKED.  IN SOME CASES, PERHAPS IN MANY CASES, UNSCRUPULOUS MORTGAGE LENDERS MADE UP FICTITIOUS INFORMATION AND GOT BORROWERS APPROVED FOR LOANS THEY NEVER HAD A CHANCE OF PAYING, EVEN AT THE LOW INTRODUCTORY RATE.
 
THE LENDERS EARNED BIG FEES FOR GETTING A LOAN APPROVED -SOMETIMES WITH THE HELP OF APPRAISALS THAT WERE WRITTEN TO BACK UP THE LOAN APPLICATION INSTEAD OF PLACING A SET OF TRUE FACTS ON THE TABLE.  TODAY WE ARE LEARNING DETAILS ABOUT HOW SOME LENDERS TOOK PEOPLE WHO WERE ON WELFARE ROLLS AND GOT THEM TO SIGN UP FOR LARGE MORTGAGES ON HOMES FAR BEYOND ANYTHING THEY HAD EVER DREAMED OF OWNING.  THEY WERE TOLD THAT EVEN IF THEY NEVER MADE A MORTGAGE PAYMENT, THEY WOULD GET RICH ON THE DEAL BECAUSE BY THE TIME THE LENDER MOVED TO FORECLOSE THEY WOULD BE ABLE TO SELL THE HOUSE FOR A $100,000 PROFIT AFTER PAYING OFF THE MORTGAGE.
 
WHILE THIS WAS GOING ON, PRESIDENT BUSH WAS BOASTING THAT ON HIS WATCH THE PERCENTAGE OF AMERICANS OWNING THEIR OWN HOME HAD GROWN FROM 65% TO 69%, AND NOW THERE ARE DEMANDS BY TWO OF THE PRESIDENTIAL CANDIDATES THAT THE FEDERAL GOVERNMENT PAY MUCH OR ALL OF THE MORTGAGES OF PEOPLE INVOLVED IN SHAM PURCHASES, FORCING BANKS TO WRITE OFF LARGE CHUNKS OF PRINCIPAL ON THE NOW BAD LOANS.
 
AS WE SAID, THE SYSTEM HAS NOW GONE TO THE OPPOSITE EXTREME.  SOME BANKS ARE DEMANDING CREDIT SCORES WELL ABOVE 700 BEFORE THEY WILL EVEN CONSIDER AN APPLICATION FOR A JUMBO FHA MORTGAGE.  AFTER TWO YEARS OF TURMOIL IN THE FINANCIAL MARKETS A GREAT MANY PEOPLE WHO HAVE LONG ENJOYED SPOTLESS CREDIT HISTORIES ARE FINDING THAT THEIR CREDIT SCORES HAVE SLIPPED BELOW 700.  IF THEY ARE SHUT OUT OF FHA JUMBO LOANS, THE CHANCES FOR THE HOUSING TURNAROUND WE EXPECTED ABOUT NOW ARE REDUCED.  WE WOULD LIKE TO THINK THAT WASHINGTON WILL MAKE SOME CHANGES TO LOOSEN THIS SITUATION UP A BIT.  WITH AN ELECTION AHEAD THOUGH, SUCH CHANGES MIGHT VERY WELL BE DELAYED.

source