Tampa Palms, Westchase, Carrollwood and Tampa Bay Real Estate News From Jeanne Prigitano

Starting this month, April 2011, the new Qualified Residential Mortgage lending rules will begin to require a minimum of 20% down on non-FHA loans. The National Association of Realtors (NAR) believes that this will start to trickle down to requiring larger down payments on FHA mortgages, as well.

Many of the pundits out there believe that this will severely hurt the housing recovery we are beginning to experience. Maybe that’s true. But is it really such a bad thing? I don’t mean hurting the housing market. That is a bad thing since our economic recovery partially hinges on a housing recovery. What I mean is that it may not be all bad to have borrowers with a little more skin in the game and to have tighter lending requirements. Aren’t the loose lending guidelines and zero down mortgages partially responsible for where we are now? Anyone who could fog a mirror was given a mortgage.

Ok, let’s get it off the table. I’m old. Don’t rub it in and don’t remind me. I hate to admit it and I hate when people say “I remember when”. Nevertheless, I remember when a minimum of 20% down was the rule and not the exception. When I bought my first house, I saved for 4 years to have the necessary 20% down payment. I had to have a good job and good credit. When I was able to buy my first house, it felt like an accomplishment, a dream come true. It made me proud.

I purchased a house in the late 80’s with more than 20% down. Well, the housing market tanked just around that time because of the whole Savings and Loan debacle. Eight years later my house was still worth less than what I had paid. The difference was I didn’t walk away from the house because my life savings and all I had worked for was tied into the house. Fortunately, I was able to pay my mortgage going forward. If you have read any of my blogs, you know I strongly believe that there are many who should be helped during this trying time. However, there have been many who were able to pay their mortgages and just walked away because the house wasn’t worth what it once was. They had no money down so what did they have to lose. They certainly weren’t going to throw good money after bad. What do you think that did to house values with so many folks just walking away? What if you were the next door neighbor who did put 20% down, lost your job and were now forced to sell your house for far less than the 20% you put down? I really believe that a lack of stringent lending rules had people purchasing multiple houses, thereby creating a shortage, driving up demand, and subsequently increasing prices and creating a housing market that couldn’t be sustained.

Yes, I did sell my house 8 years later for less than what I paid but not less than my mortgage. That’s why I was able to buy another house and actually move up. It was a typical market…sell low/buy low, sell high/buy high. It wasn’t an overly inflated market that tumbled so dramatically creating a huge imbalance. So, do I believe we should have programs that spur the housing recovery? Absolutely! But let’s not make the same mistake. Let’s have some guidelines in place that will not create a false recovery but one that will be based on a strong foundation and will keep us moving forward.