What the Government May Do for Homebuyers
Buying in this foreclosure market is a golden opportunity for investors and prospective homebuyers alike- people who are looking to snap up a dream home and take advantage of discounts and cheap financing with historically-low interest rates.
However, for many homebuyers, that path to the American Dream has been stonewalled by the banks they so desperately need for affordable financing.
The truth is, unless you are paying cash, or have significant assets at your disposal and a sterling credit rating, getting lending approved for a home purchase is difficult. Every reputable lender has tightened its restrictions on how it decides who gets funding and who doesn’t. The end result is that a record housing glut exists, with millions of homes sitting on the market and a vacancy rate of 11%.
And since the recovery of the housing market depends on allowing as many people to buy homes as possible, a conundrum exists: How do you entice lenders – banks, lending companies, and federal agencies – into loaning more money for more homes?
The solution may come from the federal government, and it may arrive sooner than you think.
Dealing with the Foreclosure Backlog with Fannie Mae and Freddie Mac
The federal government has been quietly discussing a proposal to help homebuyers and investors gain access to more loans and credit so they can start buying properties and reduce the extensive foreclosure backlog and housing oversupply that exists.
The feds cannot simply order banks to start lending, however, so the solution involves using federal agencies and government-sponsored entities (GSEs) to provide incentives and security for lenders. The policy idea that is taking shape in Washington today involves the two largest GSEs: Fannie Mae and Freddie Mac. Under the plan – still being actively yet quietly debated in D.C. – the two mortgage purchasing companies will be required to loosen their standards for loans to investors, which would help inject desperately-needed liquidity into the market.
The government can make this move because taxpayers own both enterprises, ever since they were placed into conservatorship three years ago.
Will the Foreclosure Backlog Shrink?
Even with this measure, it remains up in the air whether or not the foreclosure backlog – somewhere in the neighborhood of 1 million homes – and the foreclosure inventory – around 1.9 million - will shrink.
To do so, buyers would have to have access to credit and financing in order to take advantage of foreclosure deals from all across the country. Banks would also have to begin processing foreclosures again – instead of sitting on them like they are currently doing.
Looser lending requirements will help to take care of the first, while the pending foreclosure settlement will help to deal with the second. In fact, banks could begin wholesale foreclosure proceedings again as early as a month from now – assuming the terms of a settlement are finalized.
If the government has its way, both processes could be underway soon. When this happens, homebuyers and investors need to position themselves to benefit from the large injection of foreclosures into the market that is sure to happen over the next year. Indeed, many analysts are predicting the bottom of the market between now and the first quarter of 2012.
Finding prime opportunities for foreclosure deals will be easier than ever before, and with a bit of light at the end of the tunnel, the upside potential for investors and homebuyers is crystal clear.