September 2008

TAKEOVER BRINGS FANNIE MAE FULL CIRCLE

Ironically, the U.S. government takeover of Fannie Mae returned the mortgage purchasing giant to what it originally was, a federal agency. Fannie Mae was created in 1938, as part of the New Deal program, to provide financing to the mortgage market.

Thirty years later Congress, in order to balance the budget, turned Fannie Mae into a public company. Congress created Freddie Mac in 1970 to provide competition in the secondary mortgage market.

Mortgage rates dropped shortly after the takeover of Fannie Mae and Freddie Mac and are expected to continue to decline in the immediate future. The stock market was initially positive in its reaction to the news of the takeover, however, the stock prices at these two GSEs dropped to below a dollar each. This caused them to be removed from the Standard and Poor 500 Index.

“I commend Treasury Secretary [Henry] Paulson and Federal Housing Finance Director [James] Lockhart for their bold actions to bring stability and continued liquidity to the nation’s mortgage market,” said Richard Gaylord, president of the National Association of Realtors. “Fannie Mae and Freddie Mac have always played a vital role in the U.S. economy by making fair and affordable mortgage loans available for homebuyers and owners. Their mission must not be interrupted. … NAR believes that the announced plan will help restore confidence in the secondary mortgage market.”

MEXICO ATTRACTS U.S. BUYERS FOR SECOND HOMES

Despite the problems the real estate market in the United States has been facing in recent years, the American market for second homes in Mexico appears to be quite healthy. BBVA Bancomer, the No. 1 bank in Mexico, has already loaned over $115 million to Americans and Canadians this year and expects its total amount of those kinds of loans to exceed $200 million by year’s end.

Isidoro Sanchez, director of business development at BBVA Bancomer, said the average loan is for about $500,000 for a North American buying Mexico real estate through his bank. Some of the homes purchased are in the $2 million range.

“Given the kinds of homes that are being purchased, this is a segment that is still buying,” Sanchez said, “even though there is a crisis in the U.S.”

RENT-TO-OWN HOMES GAINING POPULARITY

Now that mortgages are becoming more difficult to obtain, the rent-to-own option of homeownership is making a comeback.

Rent-to-own arrangements offer cash flow to owners of property that otherwise would be vacant. These arrangements are also advantageous to buyers who do not have the credit necessary to be offered a mortgage. It also helps these renters improve their credit and gives them an opportunity to “try out” homeownership on a less-risky basis.

ASK MARTITIA

QUESTION:  Are appraisers required by USPAP (Uniform Standards of Professional Appraisal Practice) to carry E&O (Errors and Omissions) insurance?

MARTITIA: While USPAP itself does not have a rule specifically about E&O insurance, USPAP’s Competency Rule insists that appraisers comply with all laws pertaining to them while performing appraisal assignments. Therefore, whenever and wherever an appraiser is legally required to be covered by E&O insurance he or she must also do so to conform with USPAP.

Even when not required by law or USPAP, a client has a right to request their appraisers to have E&O insurance. In such cases, the appraiser must follow the request of the client. Elliott & Company Appraisers has an E&O insurance policy that covers all appraisals done through this company.

Martitia Mortimer, Elliott’s executive vice president, answers appraisal questions on a regular basis in Elliott Real Estate News.

QUOTES

“In the business world, the mirror is always clearer than the windshield.” -- Warren Buffett

“The chief obstacle to the progress of the human race is the human race.” -- Don Marquis

“Passion is the quickest to develop and the quickest to fade. Intimacy develops more slowly, and commitment more gradually still.” -- Robert Sternberg

“When we fail, our pride supports us. When we succeed, it betrays us.” -- Charles Colton.

“Never forget what a man says to you when he is angry.” -- Henry Beecher

“Courage is fear that has said its prayers.” -- Dorothy Bernard
 

Newsletter Editor: kevin@elliottco.com
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