Big Economic News on Real Estate and Mortgages

May 21st, 2008

In case you haven’t heard, Congress is starting to prepare to pump billions of dollars into the mortgage industry. So what should you do as a mortgage professional or Realtor? Understand the economic impact and adapt so you can utilize it to your advantage in helping your current clients. As an economist, here are my thoughts on how it will affect mortgage markets and ultimately affect the mortgage and real estate industries.

The major fiscal stimulus plan that is under way is H.R. 5830. This will allow the Federal Housing Administration (FHA) to insure $300 billion in new loans.

What does all this mean?

When looking at government intervention (i.e. pumping money into any market(s)) you have to look out at least six months to a year in the future. It takes markets that long to respond to economic stimulus, and no matter what you think about H.R. 5830 its affect will be an economic stimulus to the economy.

What does this mean to mortgage professionals?

This means that over the next year you need to focus on your potential refinance clients. So the same people who cashed out refi’s will be back in season again! People who refinanced during the 2005-2006 lending boom will be excellent prospects for this new FHA program. So today you will want to start letting them know that once this bill passes they will be able to refinance into a mortgage that is 90% of the appraised value of their home.

What does this mean for real estate professionals?

Well the bill has not made its way through the senate, but one of the big likely additions to the bill is a tax benefit to investors who buy foreclosed properties. The sophisticated investors have been holding back but now are quietly coming off the sidelines and eyeing the foreclosure market to satisfy their appetite for good deals. If a tax incentive is added to this bill, it will spark investors to buy deals in this market, so keep your ears open for these individuals. In addition, we all know that there are more foreclosures hitting the market than we’ve all seen within the last twenty years, so now is your time to become a foreclosure specialist.

Simply put, the worst is behind us and the government is about to step in to really give markets a boost. We all need to start planning today for the economic future so that we can maximize our income.

Side note on politics: no worries even if this bill does not pass, some type of bill similar to it will. The political pressure is up and constituents are insisting on their representatives to pass some type of bill to counteract the terrible mess we’re in.

Cliff Pape
Home-Buddies

Tony Orlando said,

May 21, 2008 @ 5:44 pm

Great Blog post. I am going to bookmark and read more often. I love the Blog template

Cliff Pape said,

May 21, 2008 @ 5:48 pm

Thanks we appreciate your support.

REBoy said,

May 21, 2008 @ 6:47 pm

Now that it has passed the Senate, have there been any significant changes?

How much do you really think the bill will help those it was “intended” to help? Cause what I am hearing you say is that yes, loan officers and mortgage companies can really help their clients but since the government is involved, not all the money is going to hit its intended target.

Cliff Pape said,

May 29, 2008 @ 2:09 pm

That is a great question. The biggest change is that the senate bill would be in affect through 2011 where as the house bill would have been in affect through 2012. In addition, the senate bill does a much better job of taking the burden off of the tax payer. They have done this by providing a fund that Fannie Mae and Freddie Mac have to put money into in case homeowners default on their new government backed loans. This fund would then kick in to ensure that tax payers do not end up paying for the defaulted loans.

To answer your second question, in reality not many, by the time the legislation hits the market most homeowners who “really” needed it will probably have already lost their homes. However, those homeowners who need to refinance to ease their financial burden and/or are upside down in their home will be helped.

Fha Housing Program said,

June 10, 2008 @ 12:55 pm

Fha Housing Program…

Your blog makes very interesting reading. I’m sure others will think so too I look forward to reading their comments….

Cliff Pape said,

June 10, 2008 @ 6:37 pm

Thanks, are there any other particular economic, real-estate, financial and market information you think people would be interested in?

Big Economic News - Mortgage and Real Estate Update | Home-Buddies said,

July 15, 2008 @ 12:22 pm

[...] case you missed my previous article, Congress is quickly moving to pump billions of dollars into mortgage markets! This action is more [...]

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