Indiana Realtor blog by James P Wells. Discussing Real Estate topics concerning Central Indiana and the US. Focusing on Boone and Marion County.

I have received several requests in the past few weeks to contact my congressman and request support of this bill. These requests have been sent from several different sources but the most recent was from Pat Combs, President of the National Association of Realtors.

I’ll admit that I haven’t reviewed this bill with a fine tooth comb, but I have looked thru it. I do see benefits from changes made to this bill including tighter requirements on mortgage broker (required surety bonds), but my concern is more about the attitude and some of the other significant changes proposed like:

• Eliminate the 3% down payment currently required
• raise single-family FHA loan limits to 125% of area median home prices
• allows Secretary of Housing and Urban Development to make even further increases if required by market conditions

I may go on a rant here so I’ll apologize up front, but this bill is being sold that it will modernize FHA for current market conditions. I loaned money for 10 years and was deeply involved in sub-prime mortgages. The main reason I chose to leave the industry was because I saw things were getting out of control.

Indiana has been at the top of the foreclosure list for many years and I believe a big reason for that is because we have made it extremely easy for people that should not be homeowners, become homeowners. Indiana homeownership rates for 2005 put us at about 78.5% compared to 68.9% for the US. What does this have to do with foreclosure you ask? I own rental property and can honestly tell you that there are people in our society that are not able to successfully own and maintain a home. The question becomes- What percentage of the population can effectively own and maintain a home?

I guess I just don’t understand how making it even easier for a 1st time buyer to buy a home will help us in our current market slump. The slump has been created via several different factors, including low down payments (reduces the buyers vested interest in the property), High loan to value percentages (if you owe $125,000 on a $100,000 house and making the payments becomes tough, what incentive do you have to retain the property), stated income loans (people don’t have to prove what their income actually is for loan approval), and most importantly a huge swing in the supply/demand cycle.

Loan approvals are becoming tougher to obtain and homeowners stuck in bad loans may end up losing their homes if they are unable to refinance, but revising the FHA guidelines in this manner doesn’t agree with my opinion of a solution. The real estate market needs this adjustment (the current slump) to bring home prices down so they are more affordable to the average buyer. Reducing down payments and and increasing LTV percentages only makes it easier to afford in the short term, not for the next 30yrs when the buyer will need to make those mortgage payments.