Places to Live, Not Investments

Reading Eagle

by Dan Kelly

It's time to start thinking of houses as homes and not as an investment for speculation.

It's a concept many homeowners have been forced to accept as they saw the value sucked out of their real estate investments during the mortgage crisis that began several years ago and helped cripple the U.S. economy.

Boyd Orr, chairman of the Mortgage Bankers Association of Pennsylvania, said 100-percent mortgages still are available, but mainly for rural housing. He said no lender wants to write a 100 percent loan that isn't backed by the federal government. He said today's mortgage market is not necessarily worse, just different.

For one thing, there is no longer the great investment appreciation that drove people to buy a bigger house every five years.

"If you bought a place five to seven years ago your home is probably worth less," Orr said. "People are now being forced to think about housing as housing and not as an investment.

"You need to get first-time home buyers back into the market because they drive the upward movers," Orr said. 

A big reason many homeowners are continuing to fix up rather than move up is uncertainty in the mortgage loan market, said Christian Malesic, executive director of the Home Builders Association of Berks County. 

The housing market is showing signs of a rebound. Values are creeping up. In March, new home sales were up 1.5 percent over February and 18.5 percent over the same month last year.

But Berks County home builders and contractors say they're getting more requests for repair and remodeling jobs than they are for new home construction.

The government, the Federal Housing Administration and banks tightened rules on the mortgage loan market after the subprime mortgage crisis triggered the national economic avalanche. 

But just as the market appears to be bouncing back, regulators are considering imposing new rules that would require 10 or even 20 percent down payments on all mortgages, Malesic said.

Rules like that could freeze low-income, first-home buyers out of the housing market, And if fewer people can buy houses, that's bad news for builders.

"If Congress does what the pack mentality says, the zero-sum mortgage could disappear," Malesic said. "Experts agree 5 percent (minimum down) is going to be the consensus, but how many first home buyers in their late-20s or early 30s have the ability to put down, 5, 10 or even 20 percent?"

Malesic said mortgage bankers he has spoken to say the amount of the average down payments in proposed regulations being floated on Capitol Hill call for mandatory down payments of 10 to 20 percent. 

"I think what is needed is common sense lending, and we're almost there now," said Peter Champagne, president of the Reading-Berks Realtors Association and broker of record for Keller Williams Realty Elite, West Lawn.

Champagne, who is also a director of the Pennsylvania Association of Realtors, said 69 percent of home buyers put down less than 20 percent when purchasing a home. He said one piece of legislation being pushed is to require a 2 to 3 percent fee for home buyers who are not eligible for a so-called Qualified Residential Mortgage.

"In my opinion this is not warranted and will not only be an unnecessary burden on those trying to buy a home, but also will put a damper on the housing industry, which is just pulling itself out of a four-year recession," Champagne said.

"You don't want to see financing getting any harder to get, but still have responsible lending," Champagne said. "In the heyday, it took more desire to buy than ability to pay. You want to have responsible lending, but you don't want to see a 20 percent down-payment requirement either.'

Champagne said so-called low-doc, or mortgage loans requiring little documentation of credit score, income or assets, were a big reason for the mortgage crisis.

Mortgage lenders are doing a lot more to make sure the mortgages they provide are sound investments in the secondary mortgage securities market, said Orr.

"There's a lot more due diligence being done," Orr said. "New rules are being written every day and we don't know what those final rules are going to be, but no one wants to do a loan that will come back to haunt them in the future."

Contact Dan Kelly: 610-371-5040 or