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Saturday, December 22, 2007

Oh Great! We're number 1 again!

Battered by a declining manufacturing base, low or no population growth and low demand for housing, Michigan and Ohio rank No. 1 and 2 on mortgage finance company Fannie Mae's list of states with the largest credit losses through Sept. 30. I suppose we should be proud to have beaten Ohio at something this year, although I can think of better categories in which to compete.

Fannie Mae, which finances or guarantees one of every five home loans in the United States, listed losses — loans written off as having no chance of being recovered — of $185 million for Michigan and $101 million for Ohio, two states with strong ties to the troubled automotive industry. In contrast, California had $30 million in write-offs and Florida had $21 million. That’s almost hard to believe, isn’t it?

Nationwide data from Countrywide Financial Corp., the nation's largest mortgage lender, found the No. 1 reason its customers have been defaulting on mortgage loans is reduced income. That accounted for almost 60 percent of its loan defaults in the first 10 months of this year. Once illness and divorce are factored in, cash-flow problems caused 80 percent of mortgage defaults nationwide, according to Countrywide's data; payment adjustments (read that as ARM resets) alone accounted for only 2 percent. Hmmm! Maybe we should rethink this shift to "service industry jobs", if the people working in the service industries can't afford a house.

If there is any good to be taken from all of this perhaps it is that Michigan and Ohio have already taken the lumps that this recession has to give and may be ready to turn the corner locally, while the rest of the country goes through what we’ve experienced. Various economists and publications (Business Week for one) are warning that 2008 will be a down year for the U.S. economy, but we can already say – “been there, done that.” At least let’s hope that’s what it means. With so much value already out of our real estate market, there are great bargains to be had all over Michigan.

There was also some good news to be found in the recent congressional action on FHA Modernization Act, which the Senate finally passed last week. Once things get hacked out with the House there should be some help in the form of changes to FHA loans. For one the bill provides that FHA loans can now have as little as 1.5% down, instead of the 3% that has been required. Also, the limits are being raised from the current $221,000 to $417,000. That will make the vast majority of our market inventory eligible for FHA mortgages. The new law also provides for FHA to accept Fannie May and Freddie Mac approved Condo projects, which may help that currently stalled market.

An additional boost could come from the fact that FHA programs are not “risk based”. Right now we often fall victim to the conventional mortgage companies playing the “declining market” card as their reason for not extending loans to our buyers. The FHA is not concerned with “declining markets”. Since we are in a declining market, this should help. Some banks with foreclosed properties won’t entertain FHA programs in offers right now, but most will – they just want to get rid of the properties.

So call me. There are lots of FHA programs available and heaven knows we’ve got lots of houses to choose from. We often work with John Adams Mortgage on those programs and about 30% of their business currently is FHA approved mortgages (projected to go up to 50% this coming year). Maybe Michigan can be #1 at something positive, like getting people in new homes with FHA mortgages, for 2008. I’ll bet we can beat Ohio on that, too.

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