In 2008, the U.S. real estate market witnessed a devastating turn of events as the market erupted in a resounding collapse leading toward record-breaking foreclosures and the lowering of market value pricing across the U.S.
At the time, Dean Baker, co-director for the Center for Economic and Policy Research, based in Washington, D.C., laid blame on a lengthy list of “villains” responsible for the housing crisis as homeowners opted for foreclosure or watched as their equity holdings deeply plummeted.
Baker advised lenders that perhaps the best way to prevent any future bubble was to prevent the bubble from forming in the first place.
As per a recent article posted to The New York Times, it appears the largest government-based lenders may have taken Baker’s advice into consideration.
To prevent the onslaught of another housing market bubble, Fannie Mae, the leading source of liquidity for housing in America, recently announced a plan to ease mortgage lending guidelines as a means to promote accessibility in the housing market. Fannie Mae is trying to expand the availability of mortgages with lower down payments as a method to extinguish any instance of another housing market crisis.
To further secure the market’s viability, Fannie Mae executive, Timothy J. Mayopoulos is a proponent of the plan that would enlist private mortgage insurance options as a method to safeguard the availability of new home loans and a means to protect the market from increased foreclosure rates and personal bankruptcies.
In conjunction with Freddie Mac, Fannie Mae’s brother agency, the proposed plan would ease the ebb and tide of the housing credit market. At the time of the 2008 housing crisis, up to 80 percent of all mortgages carried some form of taxpayer guarantee against default. Mortgage lenders would secure mortgages by selling the note to bond investors who later sold the mortgage to Fannie Mae and Freddie Mac.
The inception of the proposed plan would decrease the current required 20 percent down payment by at least 17 percent. Fannie Mae believes that this action would open more avenues of financing to the prospective home buyer backed by the private mortgage insurance industry.
The implementation of the plan would weigh heavily on whether or not the private mortgage insurance agency is up for the challenge and willing to take the risk.
Although involvement would still include Fannie Mae and Freddie Mac, they are legally unable via charter to guarantee loans exceeding 80 percent of market value. By enlisting the assistance of private mortgage insurance providers to offer financing with a three to five percent down payment, Mayopoulos said the mortgage insurance providers indeed have the capital and are ready to take the risk, accepting the responsibility of defaults or petitions filed for Chapter 7 bankruptcy protection.
The proposed plan has been met with speculation, raising concerns by Mark A. Calabria of the Cato Institute (a libertarian-leaning research group). Calabria ponders as lenders would offer mortgage loans to a higher risk credit group, borrowers may already find themselves “under water” due to transaction costs associated with the original lender. He further expressed that in the event of a market downturn, could prove devastating to the homeowner resulting in increased foreclosure or personal bankruptcy rates.
Mayopoulos, in response, stated that both Fannie Mae and Freddie Mac would further consider incorporating consumer guidelines into the program by assessing both income and savings levels of the prospective borrower to offset any possibility of projective defaults.
As Mayopoulos, Fannie Mae and Freddie Mac remain proponents of the new plan to stabilize a growing real estate market, he professes that it is understood that his agencies are not the only lender in town and verifies that if implemented, a strict monitoring policy will be in effect.
If you are still experiencing the after-shock of the 2008 real estate market crisis and find yourself considering foreclosure as a strategic defense, the qualified Lake county foreclosure attorneys of Newland & Newland, LLP would like to discuss your legal options with you. Since 1993, partners Steve and Gary Newland have been assisting clients throughout Cook, Lake, McHenry, DuPage and Will counties with reaching an equitable financial plan when it comes to forging a foreclosure strategic defense or exploring protection under Chapter 7 bankruptcy. Contact one our convenient office locations today to schedule your free consultation.
