May 13, 2011

Federal Government Considers Not Guarantying Jumbo Loans

Federal Government to Consider Not Guarantying Jumbo Loans

A news item today in the Finance section of Yahoo, showed a news article in the New York Times reporting housing might take another blow as President Obama's administration is considering stopping the guaranty of larger home loans.  It quotes the "Obama administration’s position paper on reforming the housing market. “Larger loans for more expensive homes will once again be funded only through the private market,” it declares".  Should the administration continue on this move the results could additionally weaken the already weak housing market.  Upper end homes valuation will fall in the market as new buyers may not be found.  The prognostications are that the interest rates on upper end homes will climb and will require more funds up front and qualifications will tighten as private funding will get tougher.

Typically, the upper end homes were the ones to continue to be traded as they were upper middle income earners or higher that could continue to afford different homes even during an economic downturn.  This group generally consisted of people that would continue to have good jobs even during the slow periods of the economy.  Now if they stop buying houses as the down payment qualifications rise, the upper housing market might be littered with foreclosures and short sales that have plagued the country.

So what happens if you live in an area where the average home is in that category?  Move!  Well not really, but you might want to consider not moving for the foreseeable future.  With an already weak economy and reported losses in value across the country, it is not the time to change the market in a negative way.  If you think about it and see how this could affect the housing market, it may also cause severe damage to the overall economy.

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