The hot topic in Real Estate now is the mortgage world. Before we go any further, it's important to define a few terms you've probably heard or read about (I don't mean to patronize anyone):

Conforming Loans - These are the loans which do not exceed the maximum loan amount of the secondary markets (currently I believe $417,000) or those folks who have acceptable credit scores, 20% to put down on their purchase, ect. Essentially, good risks to the lender.

Non-conforming - Includes Jumbo loans (above $417,000) and those with less than stellar credit scores and less than 20% to put down on their purchase. These loans are higher risk to the lender.

Secondary Market - lenders sell some or all of their mortgages that they have originated to the secondary markets usually in bulk. The secondary market is primarily composed of: Fannie Mae, Freddie Mac, Ginnie Mae, Retirement and Pension funds, Life Insurance Companies, State Housing Agencies. You the borrower do not go to these agencies to originate a loan.

Federal Reserve - The federal reserve has the ability to influence the cost of borrowing money in the banking system with several economic tools. The most effective method of influencing interest rates is through the open market operation. Other methods include: regulating the reserve requirement, which is the amount of money banks are required to keep on hand rather than lending to consumers. The Fed will also increase or decrease the discount rate which is the rate the Fed charges the banks for borrowing money from the Fed.

Federal National Mortgage Association (Fannie Mae) - Created in 1938 to purchase the newly created FHA mortgages from local Savings and Loan Companies. The FHA insurance program was created to assist in the recovery of an economic depression and FNMA was created to make sure FHA loans could continue being made. Today FNMA purchases Conventional, FHA, and VHA loans.

Government National Mortgage Association (Ginnie Mae) - Created in 1968 to act as a subsidy function assisting qualified homebuyers with low interest loans. GNMA does not lend money, but does act as a guarantor with the full faith and credit of the US Government.

Federal Home Loan Mortgage Corporation (Freddie Mac) - Created in 1970 to purchase conventional mortgages from local S&L. Today, they purchase all three types.

Mortgage Bankers - Those lenders who lend money directly to consumers

Mortgage Brokers - Do not lend money to consumers directly but broker the specific needs of the consumer with a pool of lenders.

Here's my jist on the mortgage situation: Over the last several years mortgage money has flowed freely. Essentially, just about anyone wanting to purchase a home or investment property could do so no matter their financial situation. As demand increased, the risk lenders and mortgage investors were willing to take increased. Loans like "stated income" (no proof of income required), 100% loans, loans to people with traditionally subpar credit scores, ARMS, interest only loans, reverse amortization loans, ect became not the exception but almost the rule.

Before I go any further, let me say those loans for the right people for the right situation and goal are not always bad. But, for the wrong person for the wrong reasons is a prescription for disaster.

For the most part, lenders (Countrywide, Wachovia, Bank of America, USAA, ect) get their money directly from the FED, in-house mortgage investors and Wall Street investors (Lots of China investors) in the form of a Mortgage-backed security or in-house portfolio. Think about these last two as individuals and organizations putting money into a type of mutual fund specifically dedicated to providing lending money to home buyers. For years, those investors got rich (high profits, little "perceived" risk". New mortgages were plentiful. Again, go back to the "if you wanted money to purchase real estate" rarely were you turned down. Unfortunately, though it seemed like easy money, eventually many of those high risk loans started to default (Such as ARM adjusting). As the defaults rose, those mortgage investors started to see smaller returns and even started to loose their money. As a result they began to pull their money out of those "mutual funds" (not really but just to paint the picture). This resulted in a lack of liquidity; essentially the lenders endless supply of money dried up. The only other place they can get money is from the FED, which traditionally is given to them at higher rates and more stringent criteria than those investors were providing their funds.

If you recall, about two weeks ago, the FED lowered their "discount window rate". Which is slightly different that the FED Fund rate mainly in that it's a short term adjustment in price (normally only one day). They feds made this lower rate available, I believe for 30 days. It's anticipated that during the September session, they will lower the Fed Fund rate which will provide a more long term reduction in interest rate to the bank/lender which will in turn lower the mortgage interest rate to the consumer. This lowering of the rate in-turn produces more money that the lenders can afford to lend out. In attempt to lewer mortgage investors back, lenders have severely tightened the reins on qualification standards.

There is still plenty of money out there to lend. Folks with good credit scores, jobs, and assets should continue to enjoy record low rates and no problem acquiring a mortgage. However, this criteria tightening has eliminated many folks from acquiring a mortgage. Since the FED only backs loans up to $411,000 more folks are unable to purchase higher priced homes. Since many of the 100% loans when to first time home buyers and investors, many of those folks have been ruled out.

Less people qualifying for loans means fewer homes being sold.

Stand by though....The government is poised to jump in. They've already developed a product designed to assist some of those folks with adjustable loans and the FHA loan is making a huge comeback due to them loosening their criteria. I'm going to end there on this topic but I think that covers the that situation in broad detail.


Now, one of the best things about our Real Estate market is that we have a high transient rate; many people always moving into and out of the area. However, one of the other big situations hurting our Real Estate market is the inability of potential buyers to sell their home in California, Texas, Arizona, ect. Pam and I are currently working with about 20 families who want/need to buy a home here in the Pensacola area, but can not until they sell their home elsewhere. What does that mean to us here. If you're trying to sell your home, it's got to be in the best condition that you can make it and it must be priced right. So, when a buyer does come in to the area, looking for a home in your price range, yours will stand out. We've got to loose the mentality of let's through it out there at a price and see what happens. I can tell you what is going to happen, that house down the street priced $5000 less than yours will be scooped up. Once again, I'm not talking "fire sale" here, but priced appropriate to the market is key.

If you're a buyer without the need to sell a home or can at least get your home under contract before you submit an offer on a home here, you'll have a distinct negotiating advantage.

Let me end this by saying...I'm confident I can walk into any grocery store or restaurant and look anyone of our clients in the eye and shake their hand. Just making the sale has never been Pam's or my goal. Education, representing our clients needs and goals, and working hard to get them what THEY want is always first and foremost.

We have had folks take out 100% loans, interest only loans, ect over the last couple of years, but I know they knew what they where doing and they all did it for the right reason. We've also told many that they needed to wait, bring their credit scores up so they wouldn't get hit with high charges and interest rates and we've put them in contact with trusted lenders who've helped them do that.

We still have good lenders with 100% loans, Jumbo Loans, and great rates on conventional type loans. But we only work with those lenders who have the same goals as we do and that is to meet the needs of our clients.

If you have a lender you know and trust, that's good to. In reality, a Realtor doesn't need to get involved with the mortgage process. Many times we do though as part of our consulting process.