Big Reforms from Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are implementing big reforms aimed at helping disadvantaged communities become homeowners and making sure homebuyers of color stay owners.

The initiative from the two federally backed home mortgage companies announced last Wednesday is the most sweeping overhaul since the housing crash in 2008. Some of the big-ticket items exclusively reviewed by USA TODAY include assistance with down payments, reserve funding for homeowners' emergencies and Fannie Mae and Freddie Mac are also rolling out a new credit reporting system that factors rent payments into creditworthiness scores, one of the biggest systemic barriers experts say keep renters of color from being able to purchase a The three-year strategy also laid out plans to increase fairness in the underwriting process, address appraisal disparities in multifamily housing, and finance permanent supportive housing programs primarily geared at providing housing for people experiencing homelessness.

Help is on the way

As part of the effort, Freddie Mac is expected to issue $3 billion in affordable housing bonds this year. 

By 2024, Freddie Mac wants to fund the construction of 30,000 new multifamily units that allow credit-building for renters, accept housing choice vouchers and are designed inclusively for people with disabilities. They want to make the credit-building program available to 300,000 units.

The lender also wants to finance loan offerings in underinvested communities and neighborhoods at risk of losing affordability.

The announcement from Fannie Mae and Freddie Mac comes as median home prices and rents across the country skyrocket.

In the first quarter of this year, the median price of a home reached a record $428,000, according to the Federal Reserve Economic Data database, known as FRED.

Rent year-over-year increases have soared 90% across the nation, the most recent analysis by Rent.com found. In some markets, such as Austin and Oklahoma City, rents have shot up more than 112%, two years after a pandemic recession put nearly 40 million people at risk for eviction.

A majority of Americans also believe it's a bad time to buy a house for the first time since 1978.

According to a new poll by Gallup, only 30% of U.S. adults said it was a good time to purchase a home, driven by an annual inflation rate that accelerated to 8.5% in March and interest rates for 30-year fixed mortgages that climbed above 5%, up from 3% in 2020.

Taken together, everyday Americans are looking for relief in a priced-out housing market that has exacerbated inequities.

 If you’re interested in more information, I’m here to help. Call Scott Rojo at 916-548-3942.

Should I Sell a Home During Inflation

The economy is weird right now and if you’ve read the business section of any website or newspaper lately, it seems like inflation is the topic that’s on the tip of everyone’s tongue. The pandemic has upended daily life for nearly everyone, the Federal Reserve is trying to stave off even more dire conditions by lending money for next to nothing, and the unemployment situation remains precarious.

Even so, real estate has remained an unusual bright spot, because homeowners and would-be buyers were generally less affected, monetarily speaking, by the pandemic than renters.

Although the housing market has remained strong, it’s not immune from outside economic forces, including inflation.

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What to consider if you want to sell your home

If you’re looking to sell your home right now, now is a great time. The only issue could be what happens on the other side of the transaction.

Cons

• Selling will be easy in comparison to finding another home. When you go to purchase your next place to live, you’ll be joining the group of eager buyers competing for a limited number of available homes.

• Home prices are up by more than 17 percent since last year, according to the National Association of Realtors, which means the proceeds from your sale won’t go as far when you move to make your next purchase.

• Low inventory, high prices, and high rents may make it hard to find your next home.

Pros

• The pandemic has shifted priorities for a lot of homebuyers, and remote work led many to seek out more space.

• Although more people wanted to move, the available inventory did not keep up, which forced prices up — a great thing for sellers.

• Buyers are very competitive, often offering more money than the list price and waiving contingencies that are normally part of the contract.

• Many housing experts think we’re near the top of the market in terms of prices, so it’s a great time to sell overall.

Should I Buy a Home During Inflation

What Is Inflation?

Inflation essentially is an increase in the prices consumers pay for goods and services. From the point of view of a single self-interested consumer, you never want to see inflation because it means the money that you already have in your possession is worth some amount less than it was when you originally earned it. But from a macro view, some inflation is good.

In a healthy economy, there should theoretically always be some inflation. If prices tend to go up over time, it encourages people to buy goods, services, and even houses now rather than waiting for some later date. This means there’s plenty of work for producers. This allows them to continue hiring people, who buy goods and services of their own.

The key is keeping a lid on inflation. You don’t want a can of soda that used to be $1.50 from the vending machine to suddenly cost a $5 bill. Another place we tend to usually see inflation show up first is the gas pump and this tends to generate headlines as well. The Federal Reserve has said its long-run goal is for inflation to be around 2% annually.

“By keeping interest rates this low for this long, what they’ve done is they’ve created an everything bubble. It’s not just the housing market,” Desmond Lachman, a senior fellow at the American Enterprise Institute.

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What to consider if you want to buy a home

Even in this crazy market, you can still snag a great home if you play your cards right and make sure the numbers work for you. It’s especially important to work with a full-time local Realtor. Full-time Realtors are constantly networking with other agents and often know of upcoming/off-market inventory that can only be found by word of mouth. When it comes to writing an offer, listing agents often put a strong amount of consideration into who is representing the buyers. (Hence our slogan; Who you work with Matters!)

Cons

• The intense seller’s market means buyers need to be prepared for bidding wars and to lose out on multiple properties before finally sealing a deal.

• You may need to reevaluate your budget or must-have list: Most homes sell over-asking these days, so your dollars may not go as far as you hoped.

• You could see your property value decline after you close once the market cools off, but experts say a trend toward foreclosure is not on the horizon, and if you’re buying your forever home, the value should eventually recover.

Pros

• Mortgage rates have never been lower. You may have to pay more for your house than you’d like to, but your borrowing costs will be lower, so you may be able to afford that bigger loan without having to stretch too much.

• Although home prices are high, most experts say this current housing cycle should not be a repeat of 2008, when the bursting bubble triggered the Great Recession. If you buy now, you may see some short-term losses if you try to sell the property again too soon, but there shouldn’t be a huge wave of foreclosures like there were a decade ago.

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Why I would buy a home during inflation

Although it might make sense that rising interest rates may bring home prices down, it will also greatly affect the purchasing power of homeowners that plan to use a mortgage. During inflation, the money you had yesterday is worth a little less today. If you can lock down a 30-year loan with a low interest rate and a monthly payment that you are comfortable with, then it is a great time to buy.

The first step would be contacting a lender to see what your options are. Feel free to reach out to us for a referral, we have a couple of amazing lenders that can help you!

Take a look at the step by step guide to purchasing a home.

View Guide

Gifting a Down Payment for a House

Coming up with the down payment can be the biggest hurdle to buying a home. If you’re lucky, your parents, grandparents or other relatives will gift you a down payment. 

The amount given often depends on the type of mortgage and your credit score. An FHA loan, for instance, can be approved if you have a low credit score and can only require a down payment of 3.5 percent if your credit score is between 580 and 619. 

The lower your credit score, the more money you must put down yourself from your own income, with less being given as a gift. If your credit score is below 580, a 10 percent down payment at minimum is required for an FHA loan. If you put down 20 percent or more, the entire down payment can be a gift. 

Conventional loans, such as Fannie Mae or Freddie Mac loans, allow the entire down payment to be a gift if you’re putting down 20 percent or less of the home’s purchase price. 

Down payment funds also have other rules, starting with a down payment gift letter that’s required by the lender to document the gift. It isn’t a standard form, but can be written by you. You can get help writing this letter from your real estate agent or broker. 

Gifts are only allowed from family members, not friends. The letter should include the name and address of the person making the gift, the amount, address of the home you’re buying, the relationship of the giver, what type of account the money’s coming from and a clear explanation that the money is a gift, not a loan.

Documented proof will also be needed as to where the gift is coming from and that you’ve received it. This can be a bank statement or copy of a canceled check made out to you, or a brokerage account statement if investments are sold to raise the cash. The money you receive should be put into a separate account apart from your checking or savings. 

Tax implications should also be considered—not by you as the person receiving the down payment gift, but by the person making the gift to you. 

While tax laws are apt to change annually, it’s important for anyone gifting down payment funds to speak with a tax professional to understand exactly how the process works.