REAL ESTATE Relax, everything is OK

Some people think the housing boom is over, and we do see a slowdown nationwide, but are we headed for a housing bust similar to 2008? I don’t believe so, and here’s why.

Think back to the time before the finan cial crisis of 2008 – lenders played loose and fast with their qualifying guidelines, putting people in houses they never should have bought. If you were breathing and had the minimum down payment, and sometimes that was zero, you were blessed with a home mortgage.

Since then, the redesign of the financial system and policy changes make it very unlikely that we will have a reboot of the 2008 housing crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 helped to prevent a return to the old way of doing business, as long as you had the ability to wade through and initial dozens and dozens of pieces of paper or go bleary reading it online. Much of this new paperwork is comprised of

Castles in the Sand

LOUISE BOLGER

disclosures and more disclosures, the same thing written in 10 different ways making sure that borrowers understand exactly what they’re agreeing to.

In addition to better regulations, the borrowers themselves are more prudent in handling their finances and more responsible about finance. This comes from better financial education as a result of the 2008 crisis and a general switch in the real estate culture requiring buyers to have more skin in the game.

Federal regulators eliminated exotic mortgaging products that didn’t require documentation of income, called no doc loans, and little or no money down mortgages. Adjustable-rate mortgages and other subprime mortgage products that dazzled borrowers with the thought of owning a home they were actually not qualified for are also gone. The problem was when these low adjustable entrylevel rates readjusted to the higher rates, homeowners couldn’t afford the increase and walked away from the property, leaving the lenders and subsequent stockholders holding the bag. It was all a house of cards with uninformed homeowners living in properties they couldn’t afford and never should have been in.

Thankfully, today underwater mortgages and foreclosures are minimal. Homeowners are sitting on a nice cushion of home equity mostly acquired during the past two years. Also, because future homeowners were initially required to put down more money, at least 20% of the home’s value after the appraisal, they never had the incentive to just walk away.

Fannie Mae and Freddie Mac came under government control after the financial crisis and that’s when reform really began. Today, mortgage companies issuing Fannie or Freddie mortgages, which are about half of all originations, must follow tight underwriting guidelines. Consequently, today’s borrower is a much higher quality and much better-educated borrower. Even with a drop in home values that many areas are experiencing now, homeowners still have a cushion of equity that they will likely never default on.

Even though Manatee County is showing signs of a slow-down, compared to other regions of the country we’re pretty solid. Florida steadily remains one of the most popular states in the country for incoming new residents and as long as that stream continues, so do potential homeowners. Therefore, I conclude that everything is okay as long as the prudence we developed since 2008 isn’t forgotten.