The Most Important Issue in Real Estate

The Most Important Issue in Real Estate

The proposal of new, stringent mortgage and financing requirements is potentially the most significant issue in real estate today. The new measures would further convolute the quagmire that is the United States real estate market.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have already voiced their support of a proposal that would require homebuyers to put down at least 20 percent of the sales price in order to obtain a "qualified residential mortgage." Currently, the Dodd-Frank financial overhaul law of 2010 requires regulators lenders who approve any unqualified residential mortgages to retain 5% ownership if the loan is packaged and sold to investors. The new proposal would remove the 5% liability placed on lenders, deeming a 20 percent down payment as automatically "qualified." Many believe that this could be on the low-end of required down payments as well, with 25 and 30 percent requirements being more likely, particularly if it involves non-owner-occupied or refinanced properties. One proposal would also require borrowers to maintain a 75% loan-to-value ratio for refinances and a 70% loan-to-value for cash-out refinances. With the backing of the three aforementioned federal agencies, the proposal would only need the approval of the Department of Housing and Urban Development, the Federal Housing Finance Agency and the Securities and Exchange Commission.

Such a significant change in real estate and lending regulation could have far-reaching implications. Owning property has been an indicator of financial security and personal success since the days of our Founding Fathers, but if these requirements are imposed the traditional real estate route taken by millions of Americans could take a big detour, starting with Generation Y. It is already clear this generation is becoming increasingly skeptical and wary of anything to do with real estate, factor this in and the demand in the rental market will continue to soar. More than 1.2 million young adults moved back home from 2005 to 2010 and today 85 percent of college grads move back home opposed to renting or buying. The 15 percent unemployment rate for those ages 20-24 does little to aid the situation. So, while experts predict rent to increase anywhere from 10-30 percent over the next two years, renting will likely remain the more viable option. However, the housing market is certainly making a strong case for those in their twenties who are able to land well-paying jobs out of college and maintain a terrific credit. Home values reached a nine-year low recently and are predicted to decline another 5-10 percent over the next year. As soon as the robo-signing scandal is resolved the housing market will be flooded once again with foreclosed homes. Foreclosures already make up 27 percent of home sales