Pat Combs, President of the National Association of Realtors (NAR), testified before the Senate Subcommittee on Housing, Transportation, and Community Development. The purpose of her testimony was to address irresponsible and abusive lending practices in the real estate industry.
Foreclosed homes and the greater difficulty in obtaining subprime loans are concerns of both the nation and the real estate industry during the current market slump. The impact of the real estate market on the national economy is huge. Real estate transactions accounted for $20.7 trillion and 16% of the nation’s economic activity in 2005. Currently 2007 continues to see slower home sales. Real estate analysts report that median home prices from May of 2006 to May of 2007 dropped from $228,500 to $223,700.
The combination of predatory lenders offering loans to people who end up in foreclosure, combined with the need to keep loans for lower income families and people with marred credit available is what prompted the NAR’s testimony.
The NAR and Congress are currently working to create real estate standards and responsible lending practices. The NAR has a policy that calls for “stronger underwriting standards, for all mortgage lenders to act in good faith and with fair dealings and provide flexibility for unique life circumstances. ” The real estate trade organization also is asking for stronger penalties for unscrupulous and irresponsible lenders, FHA modernization, and elimination of the “phantom” Mortgage Cancellation Tax. Finally, the NAR recommended that real estate home appraisers become fully independent entities to ensure unbiased and accurate property assessments.
According to Combs, “…when families lose homes to foreclosure, our communities, the housing market and our local and national economies all suffer. ” In fact, a recent report on the social benefits of home ownership found that individual net worth shows a direct correlation with real estate ownership. The study found that renters in 2001 held a median net worth of $4,800; while owners of real estate held a net worth of $171,700. The Report, Social Benefits of Homeownership and Stable Housing, is available through the NAR website at www.realtor.org.
As first-time real estate homebuyers and people with credit issues seek home loans, the issue before the Senate will impact them directly. Tighter guidelines can protect mortgage holders from predatory lenders. But these restrictions have also made it more difficult to obtain subprime loans at affordable interest rates. This has led to an increase in non-conventional loans like interest-only and balloon mortgages. While these have their place in real estate, they can end up in foreclosure when offered to borrowers who don’t have the financial means to support the loans. So it is in the interest of the real estate community, the national economy, and individual homeowners to promote responsible and accessible home lending practices.
John Harris is a researcher and writer on real estate topics such as economics, credit improvement tips, home selling advice and home buying preparations. For more information please visit San Diego Homes for Sale