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IN 2011, HOME FINANCING LIKELY HARDER TO COME BY. THE IMPACT ON HOME SALES?

MORE STRINGENT GUIDELINES FOR LOW-DOWN-PAYMENT LOANS COULD RAISE COSTS, PRECLUDE MANY BUYERS!

For Home Buyers and Real Estate Practitioners alike, 2010 offered the opportunity to buy real estate, in Chicago and elsewhere, at prices not seen in ten years or more.  Mortgage Interest Rates, in some cases, down near 4%.

Here in Chicago, and in most Chicago Suburbs, home prices have declined by as much as 50% in some neighborhoods over the past three years.  Incredible values can be found, for those with good credit credentials, income, and solid down payment.

But many potential homebuyers are still very concerned about their chances for keeping their job, as unemployment here in IL has topped 10.5%.  They read the press, see predictions of home prices continuing to tumble, and wait on the sidelines.

Now, new Federal Regulations being finalized in Washington may make mortgage loan requirements even more stringent.  As reported by Chicago Tribune Reporter Mary Ellen Podmolik, yet-to-be-finalized provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, proposed requirements in the act will require mortgage lenders to hold at least five percent of the loans they originate, rather than selling the loans off entirely.

The objective here is to discourage risky investment practices.  But, as a practical matter, many experts fear new rules might quash mortgage lending to all but those with strong, solid down payments.  Some banks would call these high-down-payment loans "Qualified Residential Mortgages, or QRM's". 

If banks make loans not qualifying under the definition of QRM, they will likely impose higher fees and stricter underwriting guidelines.  And many first time homebuyers - those driving the Real Estate Market the last couple of years - may lack the funds to qualify.

Smaller community banks, who rely on local loans to many first time buyers may be most vulnerable to lost business - more vulnerable than larger banks with deeper pockets. 

If such smaller banks fail, less competition for mortgage loans could result in less of an ability by consumers to shop around, along with the possibility of higher fees for everyone.

Couple these stricter guidelines for conventional loans with proposed increases in fees for FHA Loans, and those backed by Giant U.S. Mortgage Investors and Guarantors Fannie Mae and Freddie Mac, and new guidelines might just dampen a 2011 Housing Recovery, just at a time many are hoping such a recovery can continue.

DEAN MOSS & DEAN'S TEAM CHICAGO

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