In today’s market, buyers call shots

Homeowners and the real estate agents who want to sell their homes usually spend a fair amount of time sprucing it up. If the property is a single family residence, there is landscaping to do. Other outside improvements may include patching and painting. Even clean windows can have an effect on a buyer.

Inside there are carpets to shampoo, perhaps hardwood floors to clean and cabinets to polish. As a friend told me as we prepared our first home for sale in 2002, “Your house will never look as good as the day it is sold.” A little wiser now, I may disagree with him only slightly, adding that our house looked pretty good on the day of our appraisal. The sprucing up for that visit, as I have written, was a waste of time.

At the time we were selling our home, we were also buying one. As we were buying and selling in a white hot market, we did not have the luxury of a contingency sale, that is, a purchase of a new home effective on the sale of our existing home. Sellers ruled the roost.

And while sellers did have the upper hand in the sale, financing was clearly a wide open field for buyers. Our 5.75% interest rate was competitive, and we had many mortgage plans from which to choose. We juggled three loans to make our move (our existing first mortgage, a “swing loan,” and the new mortgage) and that proved to be one of the easier parts of the transactions. It seemed as though there were quite a few lenders willing to take us on.

But what a difference a few years make. Today, buyers are calling the shots in ways not seen in decades, perhaps ever. Making matters worse were sluggish April sales and recent news that the economy is again in trouble.

Further aggravating the sales situation are the changes in mortgage loan qualifications, or should we say, a return to the policies that existed for many years. Back then, buyers were required to put 20% down on a home and show proof that they could handle the resulting mortgage payments. That proof came in the form of providing prior tax returns and current pay stubs or 1099 forms.

Today, those requirements, which kept a tight lid on the level of foreclosures, are coming under fire from a prominent real estate group.

At last month’s meeting of Realtors® Midyear Legislative Meetings & Trade Expo, National Assn. of Realtors President Ron Phipps questions a proposed rule that would require not only a 20% down payment, but would also limit mortgage payments to 28 percent of gross income, which is difficult for many buyers to achieve in an economy where wages are in reverse.

Realtors are concerned that the new rules will shrink an already small pool of buyers.

“As the leading advocate for housing and home ownership, NAR firmly believes Congress intended to create a broad QRM exemption — strong evidence shows that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk, and not high down payments,” said Phipps, broker-president of Phipps Realty in Warwick, R.I. “Saving the necessary down payment has always been the principal obstacle to buyers seeking to purchase their first home. Proposals that require high down payments will only drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market.”

Phipps may be correct. We managed only 10% down on our first home, but we scored high on the two key loan qualification criteria, ability (to pay back the loan) and intent (to pay back the loan).

There is no easy answer. And based on the shockwaves following the last housing meltdown, which are still being felt, there is little likelihood of any significant easing of home mortgage qualifications anytime soon.

STEVE SMITH is a Costa Mesa resident and a freelance writer. Send story ideas to smi161@aol.com.