I'm glad to see NAR's recommendations, and I hope to see many more. I'm hopeful that Congress, the President, and his advisors will come to fully recognize that the recession has many sources but none larger than low housing values caused by an oversupply of homes (11+ months). Housing is in a negative feedback loop: Lending guidelines have been tightened to all-time highs, which removes buyers from the market, which increases the oversupply of homes, which decreases housing prices, which causes more tightening of lending guidelines and so on, until the only buyers remaining are the cream of the crop who can afford to scavenge the inventory and qualify under the much tighter lending guidelines. But the majority of housing inventory does not get purchased, and the recession lingers for many more months, perhaps several years, if not fixed.
Here is another coalition with good ideas for Congress , to which I would add these solutions that NAR ought to discuss with Congress, in my opinion:
- Bring back the less restrictive underwriting guidelines of pre-August 2007 for only Full Doc loans purchased by Fannie and Freddie. Such guidelines permitted investors to have 10 loans with FICOs of 660, 80% LTV, and pay 1.5 points to acquire 1-4 non-owner occupied units;
- Remove loan pricing add-ons that have been added by Fannie and Freddie since August 2007 to make Full Doc loans too expensive and cost-prohibitive;
- Provide funds to lenders to finance the Alt-A loans as they were originally intended, priced, and underwritten: for the self-employed borrower who presented 680 FICOs, 80% or less LTV, reserves of 6 months of PITI, no lates on mortgages, and was self-employed in the same business for 2+ years per a business license or CPA letter, either for owner-occupied or non-owner occupied loans;
- Provide PMI companies the financial backing to underwrite and insure loans at 95% LTV, and especially condos, to buyers who want 30 yr fixed loans.
- Create an aggregator bank to buy the toxic assets, or modify mark-to-market accounting. Congress permits the SEC to modify mark to market accounting. It won't be eliminated -- Enron days -- but it needs to be modified http://www.washingtonpost.com/wp-dyn/content/article/2009/02/06/AR2009020602876.html
In my view these guideline changes, plus rates with a ceiling of 5.375% or less, is sufficient for 80% of people who want to buy in 2009. We have seen 30yr conforming rates dip below 5% without a commensurate surge in purchases, only in refinances, and only for the highly qualified. The Treasury can continue to purchase mortgage bonds to maintain that ceiling,and buyers will buy only if lending guidelines are made much less restrictive for the Full Doc and qualified Alt-A buyer. The solution needs to be holistic, so only lowering rates and providing tax credits will not be enough to overcome restrictive lending guidelines, in my opinion.