It’s taken one of the most brutal housing markets in decades to knock some sense into our lawmakers back in Washington – that “Potomac fever” makes them a bit slow on the uptake when it comes to moving quickly on anything other than getting a sound bite on TV!
The anticipated legislation, which is expected to be signed by President Bush as soon as it hits his desk, is an ambitious attempt to give American consumers some confidence about the real estate market, stem the tide of Las Vegas Foreclosures and bail out mortgage finance behemoths Fannie Mae and Freddie Mac. We think it will help the local Las Vegas Real estate market – not to mention the rest of the country.
One of the key provisions is allowing homeowners who are unable to make mortgage payments refinance into more affordable, fixed rate loans insured by the Federal Government. The legislation enables the Federal Housing Administration to guarantee up to $300 Billion (yes, that’s Billion!) in loans for distressed homeowners. The caveat to this big chunk of your taxpayer dollars riding to the rescue is that lenders will have to write down the homeowner’s original loan balance, taking a big financial hit in the process.
Is this enough to help the millions of distressed homeowners around the US? We don’t think so, as an estimated 3 million homeowners may face defaults in 2008 – but helping 400K of these distressed homeowners is a step in the right direction and may help to calm some jittery consumers.
The housing legislation could also help first time home buyers through a tax credit up to $7,500. But, this is really just a long term interest free loan, as the homeowner must pay this back within 15 years and pay it in full if the home is sold for more than the original purchase price.
This “New Deal” type of legislation also helps low income Americans, creating a permanent housing trust fund that benefits low income wagearners. The trust fund will be administered by the states – they can use the funds to produce and preserve low cost housing. This fund could eventually mushroom to $600 million by 2011 from its originating sources, Fannie Mae and Freddie Mac.
The national media is not saying much about this legislation’s impact on Seniors – we have a large senior population here in the Las Vegas Real Estate Market and we think this bill will help them. As there is a provision within the bill that increases the limits on certain reverse mortgages. A reverse mortgage is a type of loan collateralized by a house available to homeowners from 62 years and up enabling them to get a lump sum payment for the value of a house or monthly payments. The new legislation boosts the cap on the FHA reverse mortgage program to as high as $625K – this is beneficial to seniors, enabling them to pull more money out of their home.
So what impact will this legislation have on the Las Vegas Market? We think it can only help our market continue to move in a healthier direction by negating some portion of our Foreclosures and sending a positive signal to the overall Las Vegas real estate market. But the greatest impact Las Vegas and nationally may well be the government’s signal that it intends to step in and bail out Fannie Mae and Freddie Mac and not allow our financial systems to free-fall into more of a mess than it is in already!
This legislation is not a panacea and we certainly don’t think the Las Vegas real estate market will turn around overnight. But, it should be a good shot in the arm that infuses consumers with more confidence and as stated earlier, but to underscore, reduce Las Vegas Foreclosures!
