Short-Term Fix, Long-Term Worry?

Okay, NAR, we understand what you’re trying to do. You’re a big organization, and you’ve obviously got some congressional clout. Included in the recently proposed Economic Stimulus Plan, the NAR has lobbied for higher loan limits from both Freddie Mac and Fannie May; higher loan limits will also be applied to FHA loans, which are insured by the government in the case of a possible default. This plan will raise conventional mortgage limits by 50 percent to about $625,000, and FHA loans will be raised from 95% to 125% of the local median sales price. While this will stimulate the market in higher-priced regions of the country (many of which have remained stable through the housing bubble), this will also make it easier to refinance with sweet, post-bubble mortgage rates.

Well, the NAR is excited, for sure.

But let’s say that the economy, and the housing market in particular, does not make an immediate or significant turnaround within the year. FHA loans alone could be more difficult to pay when interest rates rise, and the government could see an increasing number of large loan defaults. The government will eat this cost, and homeowners with conventional mortgages will suffer the same.

With bigger mortgages comes greater risk, and while this may be great for real estate brokers, it may not be good for homeowners in such a turbulent economic situation. We’ve seen what speculation has done to the current market. Just because the NAR will see a short-term gain in business, the long-term effects could be just as daunting as our current situation.

NAR, Economic Stimulus Plan, refinance, economy

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