What Phasing out Fannie May and Freddie Mac Means to You Part II

Last week, we discussed what the history and the proposals submitted to congress recommending changes to Fannie and Freddie.  Part II will discuss what this means for you.

What this means for you?

Through these two firms, the 30 yr fixes loan has been made readily available.  This has been important in terms of providing stability in terms of homeowners’ monthly budgets and housing prices. 

If the private sector took over mortgages, the 30 yr fixed loan could become more expensive.  There is debate regarding how much the interest rate could increase to cover the risk, but some say as high as 3%.  This would raise a monthly payment for every $100K borrowed to increase from $537 to $733 per month (an increase of $2,352 per year).

The bottom line is there will probably not be any significant changes during the next five years to these loans.  The other good news is other countries with a higher percentage of ownership are able to offer different alternatives to the 30 year fixed mortgage. 

The U.S. has a home ownership rate of 66.5%, down from 69.2% in 2004.  Yet some countries have a higher percentage of ownership then the U.S.:

• Ireland: 74.5%
• Australia and the United Kingdom: 70%
• Canada: 68.4%
• Japan: 61%

Source Whaton Business School

What Phasing out Fannie May and Freddie Mac Means to You Part 1

What Phasing out Fannie May and Freddie Mac Means to You

History:

Fannie May was a government agency created in 1938, and in 1968 was converted to a publicly traded company.  Freddie Mac was created by the government in 1970 as a publicly traded company to provide competition for Fannie May.

Their primary role is to buy and insure mortgages issued by private lenders, with most loans being bundled into mortgage securities sold to investors.  They basically provide investors a certain guarantee that interest and principal payments will be made even if homeowners default. 

Fannie May was a government agency that was federally backed at one time, so investors assume the government will make good on these two firms’ obligations.

Problem:

Mismanagement and guaranteeing risky mortgages issued by private lenders, led to Fannie and Freddie holding high risk loans.  When the housing bubble burst in 2008, many of these loans went into default and large losses were incurred by both firms.  The government took over the firms, wiping out the shareholders and costing the tax payers $130 billion in bailouts.

Proposal:

The Department of the Treasury and the Department of Housing and Urban Development sent Congress a proposal last month outlining three proposals:

1)      First option would dramatically reduce the government’s role insuring and guaranteeing mortgages. 

a.       This would be limited to government programs such as FHA and other programs targeted to creditworthy lower and moderate income borrowers.

b.      Private lenders would be responsible for providing and insuring mortgages.

2)      Second option is similar to the first option, but provides a mechanism to ensure access to credit during a housing crisis.

3)      Third option is also similar to the first option, but adds an insurance program that is privately funded to secure mortgages.

During the phase out period, the government would implement restrictions on loan amounts and increase fees to drive more people from Fannie, Freddie, and FHA loans to the private market.

What this means for you?

Visit my blog tomorrow to find out.

Question of the Day: How do you think this will affect you as a buyer or seller?

Please feel free to leave comments and I will use these in the article tomorrow.  Thank you!

Source Whaton Business School

DC Metro Area Housing Market Has Mixed Results

Sales of existing homes in the DC metro area are up compared to last year (5.8%), however home prices are slightly down.  The median price of an existing home sale in the Washington area was down to $287,500 (a -1.1% change compared to last year).

Even with the economy improving, housing prices are still not rising as fast as some hope, although they are higher than during the lowest point of the housing slump (July 2010).

Still people are having problems purchasing homes due to tight credit restrictions, and cancellations from appraisals not supporting prices negotiated between buyers and sellers. 

The good news is the market is definitely improving, but it is at an erratic rate with ups and downs.  With raising interest rates, it is important not to wait too long to act.

Source: Washington Business Journal

What's New on U Street

March seems to be a busy time on U Street.  People are out and about enjoying the warmer weather, but what are they going to find when they go to U Street?


What's Coming Soon:

• Duncan Donuts and Subway will be next to Marvin on 14th Street
• Lost Society (a boutique steak house) will be on 14th and U
• Habte Sequar of Loford LLC has purchased land at 11th and V with plans for a new residential building

What's Newly Opened:

• Touchdown, a new sports bar where Momo's use to be opened Tuesday
• Divine Shine, a new shoe shine, handbag, and repair shop, opened at 723 T Street

What's No Longer There:

• Results has closed their doors on U Street, but will soon be replaced by a newly remodeled Vida Fitness
• Greater Goods at 1626 U Street has closed its doors

For more information, please view the source listed below.

Source: U Street Neighborhood Association

Wonder Bread Factory's Uncertain Furture

With the development boom finally starting to reach Shaw, it is a shame that the Wonder Bread Factory faces such a bleak history.  Douglas Developement who owns the property, has put virtually no money into mantaining the structure, yet want top dollar for it.

The Wonder Bread Factory is located at near the corner of 7th and S Streets, NW, and directly adjacent to the new Progression Place currently under construction (new home of the United Negro College Fund). 

DCRA has deemed the property structually unsafe as of March 14th and requires significant work before it can be used again.

With all the developement happening in the area, it would be a shame if the building was lost for good.Source: Prince of Petworth

Energy Efficient Tax Deductions Reduced for 2011

During the last month of 2010, President Obama singed into law a bill which would allow unemployment benefits and the Bush era tax breaks to continue. 

What wasn’t publicly promoted was that the law:

·        Slashed the popular tax credits for energy-efficient remodeling from the current 30 percent of an improvement's cost ($1,500 maximum per taxpayer) to a 10 percent credit, with a $500 maximum for expenditures on insulation materials, exterior windows and storm doors, skylights and metal and asphalt roofs that resist heat gain.

·        New dollar-specific limits on key improvements that had been eligible for 30 percent credits. These include a $150 tax credit limit on the costs of energy-efficient natural gas, propane and oil furnaces, and hot water boilers, plus a $300 credit limit on the costs of central air-conditioning systems, electric heat pump water heaters, biomass stoves for heating or water heating, electric heat pumps, and natural gas and propane water heaters.

·        Limits allowable tax credits available for energy-efficient windows installed during 2011 to a total of $200, compared with the previous $1,500. On top of that, it prohibits taxpayers who have taken total tax credits in past years exceeding $500 from claiming any additional credits on energy-conservation projects they undertake in the coming year.

It is likely this new law will move people away from doing energy efficient improvements to their homes and more kitchen and bathroom remodeling projects like before.  However, as energy prices continue to increase, taking on these types of projects may be enough of a reward if it means people can save on their energy bills.

Washington Post

Federal Government Extends Deduction of Mortgage Insurance

Just another example of how the Federal Government is trying to entice more people to buy homes by extending tax incentives.

Federal Government has extended the mortgage insurance (MI) tax deductibility to 2011.

Here is a quick breakdown of what it is, how much the average home owner can expect, and how long it will be extended for:

• The law provides for an itemized deduction on federal tax returns for the cost of private mortgage insurance paid by eligible borrowers.
• The law allows qualified borrowers with adjusted gross income of up to $100K to deduct 100% of their MI premiums on the federal tax returns.
• According to an analysis by Bankrate, a leading source of consumer financial information, a homeowner with a $180,000 mortgage would save about $351 in taxes a year.
• This law applies from 2007 – 2011 and may be extended if congress chooses to do so.

Click here for more information on mortgage insurance deductions