April 19, 2010
American Dream? Dream On.
As we in the seller finance industry continue to fight a government who has no problem passing laws with unintended consequences, I'd like to shed a little light on the situation at hand.
First we had the Anti-Predatory Lending bill (at the time, HR 1728, later rolled into another bill to disguise it, apparently) that passed the House and kinda sorta got stuck in the Senate. The HUD SAFE Act, although passed in 2008, then reared its ugly head earlier this year as it came time for the states to adopt its provisions or initiate their own, even tougher restrictions on lending.
Both of these bills place severe limitations on people who likely won't even know they're in violation of the law. I've written several pieces on both these bills and won't get into the specifics in this entry. Suffice it to say that the bills are oxymoronic: In other words, they discourage the very kind of actions that should be encouraged in this economy.
There continues to be a glut of properties for sale nationwide. Banks don't want to lend to anyone but the most creditworthy among us. Banks take this stance because the federal government doesn't want any at-risk borrowers, and the banks certainly don't want to hold the paper if the GSE's (government-sponsored entities) like Fannie Mae, Freddie Mac, and the FHA won't buy it.
So...there is a very small pool of buyers (relatively speaking) that will qualify for a conventional loan. A friend of mine, who is a loan officer for a national lender, says he rejects 6 out of every 10 applications he receives. I have spoken to Realtors in some parts of the country who say 9 out of 10 people that contact them about buying a home will not qualify for a bank loan.
Now, I'm no genius, but I'm thinking it's really hard to sell properties when nobody can get a loan to buy one. Maybe, just maybe, if the owners of those properties offered to finance the properties, we could make some headway. I'm not talking about 'blind finance' - I'm talking about giving homebuyer seminars, reviewing income and expenses, verifying rent history, etc. You know, underwriting. I'm guessing (and it's really not a guess - I know the facts) that a large majority of people, assuming they understand they need to make their payments and BUYING ONLY HOUSES THEY CAN AFFORD (i.e. having house payments equal to or less than their prior rental payments), would certainly be found to be creditworthy.
So...our government wants to make it illegal for you and I to sell an investment property with financing because they don't want you hurting "the little guy". This is the same "little guy" the government wouldn't THINK of extending financing to, and the same "little guy" who really really really wants to own his own home. So what is the "little guy" supposed to do? According to one government official, "some people were just meant to rent". So much for the American Dream!
We're going to fight this tooth and nail, people. Eventually someone with brains in Washington (OK, maybe not from the current crop of politicos, but certainly their replacements come November) will see that more government regulation on the financing of homes is simply counter-productive. The backlog of unsold houses will only grow larger, and we'll become a nation of landlords and disgruntled renters. American Dream? That sounds more like an American Nightmare. Fight with me, people!
Make it a great week,
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