Sunday, May 18, 2008

Fannie Mae caves to Realtor/Builder Pressure. Coming June 1st: More insanely risky lending . . .

I did my first looking for a savings and loan--to lend me money for a house--35 years ago. Things were quite different then. We searched for a couple months, found a nice bungalow about nine blocks from downtown Waukesha, made an offer, got the acceptance back on a Friday afternoon. We went shopping for a mortgage on Monday morning, stopped in at eleven lending institutions before noon. Most were not taking applications.

I finally arrived at First Federal S&L on the corner of Grandview and Summit, ten blocks from home. Jerry Groh, a business-like lender, told me that the loan committee had just finished its weekly meeting, that if I had arrived earlier they could have acted on my application that day. They were lending money at 7.75%.

In that week we had to wait, we had two shocks: first, after a little small talk, Mr. Groh wanted to dig into (excavate, actually) our financial situation:
o Stability? Married four years.
o Employment? Two incomes; combined annual gross was just about as much as we wanted to borrow.
o Debt? Two used cars, both serviceable, both purchased for cash. We had to show him the titles, free-of-liens. No other debts except for a small balance on one of those newfangled Master Charge cards and about seven hundred dollars my wife was still paying on a loan she had taken out for college.
o Down payment? We had 20% in cash for a down payment.

Then... the flinty, gimlet-eyed Mr. Groh looked at us skeptically and asked the big question: "Is that your own money, or is some of it from your parents"? "It's ours. We saved it," we replied. (We actually had even a bit more in savings that we were planning to use to move up to a higher class of rummage to furnish our new house).

And Groh explained: "We're coming into rough times, financially. If I'm going to loan you this money. I want you two in the tank with me".

The housing scene in America would be a lot healthier if we still had lenders like Jerry Groh. I liked him, really liked him. He was my kind of conservative. Then, two unpleasant-but-unavoidable things cropped up after our talk: at the one-week-delayed loan committee meeting, the mortgage rate was up from 7.75% to 8.5%. Three quarters of a point in one week. And four years later, Jerry exercised the escalator clause in our agreement to push up the rate to 9%, proving that Groh's estimation of the economic future had been realistic. Interest rates nationally were on their way to 18%.

It was an introduction to the real world, a conservative world of housing, lending, inflation and "being in the tank" with a cautious and up-front businessman.

Not like today....

Fannie Is Poised to Scrap
Policy Over Down Payments


May 16, 2008; Page A3

Fannie Mae is expected to announce Friday that it is scrapping a policy requiring higher down payments on home mortgages in areas where house prices are falling.

The change comes in response to protests from vital political allies of the government-sponsored provider of funding for mortgages, including the National Association of Realtors, the National Association of Home Builders and organizations that promote affordable housing for low-income people.

Those various groups have said the policy is hurting an already feeble housing market by shutting out too many potential buyers.

The current policy, adopted in December and now due to end June 1, limits loan amounts in areas with declining home prices, including most of the densely populated parts of the country.

For instance, if a loan program normally allows people to borrow up to 100% of the estimated property value, the maximum is cut to 95% in "declining markets."

Under the new policy that is taking effect next month, Fannie will have the same maximum loan percentages across the country for people purchasing single-family homes that they intend to occupy, according to people familiar with the plan.

For borrowers approved by Fannie's automated underwriting program, the maximum generally will be 97%. For those approved by other means, the maximum will be 95%. (Fannie also has some loan programs, typically offered through state or local housing agencies or nonprofit groups, that allow certain borrowers to make no down payment.)

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Of the biblical allotment of three score and ten I have lived only three of them more than a bicycle ride from one of the Great Lakes. I grew up ten blocks from Lake Erie in the (once Irish/Italian ghetto, now newly-hip) "Near West Side" of Cleveland. I can still cycle to the Milwaukee lakefront in an hour and a half; but, a round-trip has always been more than I would (noror ever did) attempt. -0- I'm a "...somewhat combative pacifist and fairly cooperative anarchist," after the example of Grace Paley (1922-2007). -0- I'm always cheerful when I pay my taxes (having refused--when necessary--to pay that portion of them dedicated to war). -0- And I always, always vote.