Here is a quick post about some upcoming changes that will impact our local real estate market – some directly, and others indirectly.
First of all, July 21stis almost upon us – can you feel the excitement? You don’t? Don’t worry, not too many people in the financial industry are that excited about it, either. July 21, 2011, marks the 1-year anniversary of the Dodd-Frank Financial Reform and Consumer Protection Act, the largest piece of regulatory legislation created since the Great Depression. It also marks the first day that the new Consumer Finance Protection Bureau, which was created by Dodd-Frank, takes over the regulation of all things financial – everything from banking to credit cards to mortgages to payday loans – you name it, it regulates it.
Unfortunately, there remains a lot of work to be done before the CFPB will actually be able to do too much. Before they can begin examining non-bank financial institutions, such as insurance companies, hedge funds, and the like, they need to have a director approved by the Senate. However, President Obama waited until today to finally nominate a director for the bureau. Richard Cordray, the former attorney general for Ohio, was the man the President picked to run this new department. Regulation of these non-bank entities is one of the key components of the new law, so it’s a bit ironic that the CFPB isn’t yet ready to monitor these types of companies.
In news that will have a direct impact on our local housing market in the Portland area, HUD (the Dept. of Housing and Urban Development) announced that it will be rolling back the maximum loan amounts for many areas across the US. While the new limits are still in the proposal stage, it’s likely that they will be approved in their current form. The implementation date for these new limits is October 1, 2011, which will be here before we know it.
In Oregon, these changes will be impact nearly every county. Focusing on the Portland-Metro area, the maximum loan amount is slated to fall from $418,750 for a single family residence to $362,250. That’s roughly 13.5% less than the current maximum loan. The loan limits are used on all FHA loans, which is currently the primary lending vehicle for most first time home buyers. However, FHA will be used more and more by folks looking to re-enter the housing market after suffering through a short sale or foreclosure in recent years. FHA qualifying guidelines are more lenient than conventional standards (those used by Fannie Mae and Freddie Mac) for applicants that have a short sale or foreclosure on their credit report. This means that we’ll likely see continued price depression since some homes may not be eligible for FHA financing unless their price is lowered.
One last bit of news regarding upcoming changes involves the USDA guaranteed loan program. This program has gained in popularity over the last few years due to its attractive loan features: no down payment required; no monthly mortgage insurance; attractive interest rates; and the potential to have the seller pay for the buyer’s closing costs or to have them financed into the mortgage. Well, one of those attractive features is going away this fall. USDA will be instituting a monthly mortgage insurance premium. While this will increase the monthly expense of financing a home through USDA, it is still an outstanding program for buyers that are looking to finance a rural property.
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