Friday’s edition of Investor’s Business Daily carried an Op-Ed by RE/MAX CEO Dave Liniger supporting recent government policies that mark a return to more reasonable mortgage standards.
FHA has reduced the cost of mortgage insurance, while Fannie and Freddie have says they are reducing down payment requirements from 5 percent to 3 percent. Many critics have reacted by saying this puts the country on the road to another housing crisis. However, the Liniger Op-Ed points out that the mortgage environment is much different today and new policies still require borrowers to meet a number of qualifications, which must be documented.
“What brought on the housing crisis was the popularity of loans that had low introductory rates or did not require verification of income,” says Liniger. “As a result of the crisis, lending standards went from too lax to overly restrictive. With recent changes, the industry is simply returning to reasonable practices that will allow ordinary people with good credit to enjoy the benefits of home ownership.”
Statistics demonstrate that down payments alone are not a reliable indicator of future default on a mortgage. The FHA has for years successfully insured borrowers who make a 3.5 percent down payment on a home purchase. Since it can take several years to save enough to make a down payment, FHA has been the route taken by many first-time buyers.
Because FHA has charged higher fees, many first timers have turned elsewhere for a mortgage or decided against buying a home entirely. According to the National Association of Realtors, the current participation of first-time buyers is 30 percent of all home sales, while the historic norm is 40 percent. Liniger says the housing recovery cannot be considered complete until this segment of the market returns.
“We shouldn’t punish today’s mortgage borrowers for the mistakes of the past. FHA, Fannie and Freddie are on the right track, supporting aspiring home buyers, the housing recovery and the overall economy,” Liniger adds.
Housing accounts for 18 percent of our national GDP. More reasonable and accessible mortgages not only promote a strong housing market, but a sustainable economic recovery as well.
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