Originally posted 08/07/07
As mentioned in my first post I am a mortgage broker by trade. One of my regular tasks is to send economic and interest rate information to real estate professionals that I post on my mortgage blog. Recently I posted the following regarding Minnesota’s state government wiping out their housing market. Given the Californian Legislature and some of the ridiculous bills they have passed this serves as a warning for us in the Golden State:
As previously mentioned Minnesota’s legislature passed a bill, or bills, under the guise of “consumer protection” or “predatory lending prevention.” In effect what these bills have done is start the ball rolling on collapsing the Minnesota housing market. Follow the ball….
In the past week we have received notification from national lenders that they will no longer fund mortgages in the state of Minnesota that are not fully documented for income and assets, have any pre-payment penalties (even if “soft” meaning no penalty if loan is paid off through sale of residence), have balloon payments or negative amortization. For many people none of this matters, they obtain mortgages using documented income and assets, get a 30 year fixed rate loan and move on. They also have excellent credit records and are currently about half of the mortgage market.
By passing laws that pull approximately half the mortgage products out of the market the Minnesota legislature, and governor who signed the bills, have greatly reduced the number of people who can qualify to purchase a property. Reduced demand leads to reduced prices. Further, as prices go down so do the comparable sales necessary for estimates of values for refinances.
Homeowners in adjustable rate mortgages that they may have obtained say three years ago because at the time had some spotty credit items, were self employed and run all their expenses through their company or for whatever reason will have a difficult, or impossible, time refinancing out of their current mortgages. Between the limited product offerings and dropping prices they will have two choices, start paying the dramatically higher payments when their interim ARM goes to adjustable, or not make the payments and give the property back to the lender. Thus causing more depression in the housing market.
As happens too often politicians in Minnesota over-reacted to the media reports of the sub-prime mortgage market having capitalization issues. Showing the typical trait of passing any kind of feel good legislation for today they completely ignored any long term consequences and results. They see their job as protecting people from making bad decisions and/or not knowing what is best for their situation. Because less than 1% of the housing market is affected by the sub-prime situation they decide to pass legislation that negatively impacts 100% of the homeowners in their state.
Whenever I hear a politician say, “this is good for the public” I get very concerned, not being part of the public most of them have little clue what is good for me and my family….especially when it comes to complicated issues like mortgage and housing markets.
My sincerest sympathy to the homeowners of Minnesota, but this is somewhat tempered by the fact that they voted them in now them must live with what they elected.