INDUSTRY WATCH

Home Financing
Policy Change Deals a Blow to Homeowners

Fannie Mae policy change makes manufactured home financing more difficult.

BY TOM DOOLEY

A Fannie Maepolicy change scheduled to take effect on Aug. 24 could adversely affect manufactured-home lending practices and make homeownership more difficult for some low- and middle-income Americans. Under the policy change, consumers looking to purchase a manufactured home will have to prove that a minimum of 5 percent of the downpayment comes from their own funds (under previous programs, consumers could put as little as 0 percent down from their own funds). Also, the change will make fewer loans eligible for refinancing and will limit cash-out refinancing to 65 percent of loan-to-value on mortgages with terms not greater than 20 years (from 90 percent previously) and will eliminate the option to do cash-out refinances on 30-year mortgages. Fannie Mae, the nation’s largest home loan financier, stated that it was making the change due to the higher risk associated with assuming the mortgages on manufactured homes.

Housing and mortgage markets should see record levels of activity this year, boosted by the lowest mortgage rates in 45 years and a strengthening economy, according to David Berson, vice president and chief economist for Fannie Mae. Berson says the economy is poised for a rebound later in the year and interest rates should remain low as the Federal Reserve remains “vigilant against deflation.”

Higher mortgage rates probably won’t creep in until well into 2004, Berson told attendees at a luncheon put on by the National Association of Home Builders and the Urban Land Institute in early July in Minneapolis. He also noted that home price gains should be strong this decade, even if inflation remains contained.

In Lower Manhattan, the post-Sept. 11, 2001, exodus of commercial tenants has
subsided. The area is now showing new signs of recovery. According to a recent article in The Wall Street Journal (June 25, 2003), with cheaper rents and new property tax breaks in place, businesses are being lured back. Even Ground Zero itself is the site of new construction, with a temporary commuter train station on track to re-open later this year.

Developer Larry Silverstein, meanwhile, is replacing his 7 World Trade Center building with a new glass tower that will stand 750 feet tall. Best of all, some of the companies that had space near or in the destroyed World Trade Center skyscrapers are now considering a move back to that part of the city, according to The Wall Street Journal article.

If the “traditional family” is considered to be married couples with children, where only the husband works, there aren’t many of them in the United States. According to a study conducted by AmeriStat and released in March, such family units accounted for only 7 percent of the U.S. population in 2002. Dual-income families with children made up more than two times that number. Even families with two incomes and no children outnumbered the “traditional” family by almost two to one.

Among married-couple households, about 13 percent consisted of families with children in which only the husband worked, 31 percent were dual-income families with children, 25 percent were dual-income families with no children, and 31 percent consisted of other types of families, such as empty nesters and a large number of female-headed households.

The Rouse Co.,a nationally recognized builder-developer that first made a name for itself developing the town of Columbia (in the Washington-Baltimore corridor), one of the early models for new urbanism, has acquired 8,060 acres of rolling, treed land 25 miles northwest of Houston for $82.9 million to build another planned community. No name has yet been selected for the new development that is about 60 percent the size of Columbia, but the company plans to build about 17,000 single-family homes there and use 900 acres for multi-family housing and commercial uses, according to J. Alton Scavo, executive vice president for community development.

The Rouse Co. also is developing a 570-acre community called Emerson in southern Howard County and the 1,100-acre community named Fairwood in Prince George’s County, both in Maryland. Each of these projects was long blocked by opposition by some neighbors to rezoning for high density and lot size, pointing out the difficulty of developing Columbia-size projects on the crowded East Coast. Company officials note that not only is there a limited number of large parcels near major metropolitan areas in the East, but getting government approval for a mixed use development in the face of “ not-in-my-backyard” resistance is more difficult.

The U.S. Census Bureaureports that homeownership among 25-to-29-year-olds climbed from 35.2 percent in 1997 to 39.5 percent last year and increased from 53.5 percent to 56.4 percent among those aged 30 to 34. However, Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies, believes the trend really took off about a decade ago, when mortgage lenders found that demonstrating a good credit history—rather than contributing a downpayment of at least 10 percent of the property’s purchase price— was the best indicator of a borrower’s risk.

The Asian Real Estate Association of America, established earlier this year to increase Asian American homeownership, has initiated “The Asian American Homeownership Study” to identify obstacles to Asian American homeownership and to empower real estate practitioners with the knowledge and tools needed to help close the homeownership gap. The homeownership rate for Asian Americans falls significantly below that of Caucasians. The national homeownership rate for Caucasians is 74 percent; Asian Americans hover around 53.7 percent. In undertaking this mission, AREAA intends to work closely with the Houston Association of REALTORS®. Previously, the Houston association helped the National Association of Hispanic Real Estate Professionals launch as a national organization.

The Ohio Association of REALTORS® and its membership scored a notable legislative victory in the state’s General Assembly by having real estate related transactions removed from the list of business activities now subject to state sales tax. As proposed by Gov. Bob Taft, the legislation would have included a 6 percent tax on such industry activities as sales and listing commissions, appraisals, inspections, title searches, and property management services. It also would have increased commercial property taxes. All these provisions were eliminated from the measure, which ultimately passed both houses of the legislature and was signed by the governor, thanks largely to a massive political action campaign orchestrated by the Ohio association. While omitting real estate business from taxation, the legislation, as passed, establishes a “temporary” (two-year) increase in the state sales tax (from 5 cents to 6 cents on the dollar) and imposes sales tax on such services as landscaping, dry cleaning, personal care services (such as barbering), among others.

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Previously by Dooley:

Internet Listers Challenge California Licensing Requirement
San Francisco Still Has Nation’s Priciest Homes
Homebuying Booms Until 2020
A Good, Not Great Year Ahead