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March 2011
Dear Friends, Clients and Colleagues, Folks, in case you didn't know it, we have entered a new real estate financing era. Another paradigm shift? How can we navigate as professionals? Increasing consumer frugality is being met by tightening lending standards. The mortgage market is facing pressures from new laws and regulations, declining home prices, lengthening sales cycles and the ongoing need for government-sponsored mortgage players to shore up their finances and reorganize. News Highlights "The price of mortgage money is going to go up and the availability of mortgage money may also be impinged," says Keith Gumbinger, vice president at HSH Associates, which tracks mortgage data." (Wall Street Journal, 2/26/11). "Fannie Mae is . . . a financial juggernaut . . . The collapse of the market for mortgage-backed securities has made them {Fannie and Freddie} more crucial to the current functioning of the housing market." (New York Times 3/4/11) "Today, about 23.1 percent of all residential properties with a mortgage are underwater, and an additional 2.4 million borrowers have near-negative equity." DS News.com 3/8/11 The attempt to straighten out the badly broken real estate financing disaster is at the root of the real estate crisis. Recently, the US Treasury Department released its analysis and proposal(s) to "fix" the problem. "Reforming America's Housing Finance Market." First and foremost is the proposal to wind down both Fannie Mae and Freddie Mac. Consider this report either the beginning of the approved plan to restore the real estate finance industry as a source of economic growth, or the wind down of 2 large industrial behemoths, and the beginnings of a total brand new system. The "HOW" and "WHAT" are the big questions. No one knows for sure, but keep this term on your front burner: "Qualified Residential Mortgage." That term is a key provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed last year. In one the original sponsors' own words: "The purpose of the Qualified Residential Mortgage is to create a clear framework for high quality underwriting and safe loans that will attract private investment capital back into the mortgage market." Of course, the devil's in the details. "{The} provision requires lenders to fully document a borrower's income and assets, verify that they have acceptable debt-to-income ratios and are capable of repaying their loans. Mortgages that meet the Qualified Residential Mortgage definition would be exempt from the risk retention requirements of the Dodd-Frank law, thereby providing an incentive for lenders. In turn, borrowers with these mortgages could avoid the added costs that would trickle down to them from their lender." New Jersey/Local Perspective (Source: 2011 Spring Housing Forecast, Otteau Valuation Group)
Navigation Opportunities Yes, the real estate financing paradigm has shifted, resulting in new challenges and opportunities to navigate. How do we as real estate professionals respond? Stay close to your clients, vendors and friends. Provide these valuable contacts with as much information as possible. Remain committed for the long haul, because that is what it is going to be. Share stories. Don't hide. "Well we know where we're goin'. But we don't know where we've been . . . And the future is certain. Give us time to work it out." – Talking Heads, "Road to Nowhere"
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