Lending Cafe

The two government-sponsored enterprises (GSEs) that back about $100 billion in American mortgages - Fannie Mae and Freddie Mac - may slowly be replaced by private entities if some lawmakers get their way.

Following the passage of the 2008 Housing and Economic Recovery Act, the government bailout of the two bodies led many to criticize the Bush administration's handling of the housing crisis. Now, the Federal Housing Financing Agency (FHFA), the regulatory body that was formed to manage the two GSEs since 2008, is seeking a resolution that is more long-term in nature and will relieve the burden of taxpayers.

When a mortgage refinance may not be adequate to save underwater borrowers, some lenders offer short sales to offer relief. This process, which can take quite some time, has compelled lawmakers to address the issue directly.

Senators Lisa Murkowski of Alaska, the bill's chief sponsor, along with Scott Brown of Massachusetts and Sherrod Brown of Ohio, have co-sponsored a bill that would force lenders to respond to homeowner requests for short sales in a timely manner. The goal of the law would be to encourage movement in the housing market, which many indicators point toward still being stuck in neutral.

In 2006, Jason and Brooke Huerkamp funneled $400,000 into four rental homes and a duplex in Mankato, Minnesota - home to four colleges and universities. After finding real estate investor loans and repairing the properties, the Huerkamps began renting them out, shortly before home prices plummeted. The investment has since paid off, as they now collect more than $7,000 in rent each month.

According to USA Today, the Huerkamps are not alone in discovering this new-found revenue stream. These "buy-and-hold" investors envision property ownership as a long-term investment, unlike "flippers," who quickly spin off a home after conducting repairs and upgrades.

Even as the glut of REO and foreclosed properties begins to diminish, the Federal Housing Administration (FHA) is continuing to be flooded by defaults on properties with FHA loans, as defaults increased for the ninth consecutive month in December 2011. To help alleviate this backup, some borrowers with the means to do so may explore applying for real estate investor loans to purchase these properties at a low rate.

The FHA insures about one-third of mortgages, according to HousingWire. As of December 2011, the amount of defaults on homes with FHA loans was 19 percent higher than it had been one year prior - 711,000 properties. While the government has tried to expedite foreclosure processes so that the homes can be spun off to new borrowers, there are simply too many homes for the process to move along swiftly.

Although interest rates on most mortgages are currently at or near record lows, borrowers achieved a near-consensus when it came to the type of refinancing they preferred in the fourth quarter of 2011.

Fixed-rate loans are appealing to homeowners who plan to reside in a given property for an extended period of time. Payments are consistent and interest rates remain stable, so these loans may be more attractive to growing families.

In the past, homeowners typically only made green energy enhancements to their properties if they were environmentally conscious and concerned with their energy use. But, as new home construction rates have slowed and costs of wasted energy have climbed, pragmatic homeowners may be more inclined to conduct a mortgage refinance to free up equity in their home and pay for green remodeling.

Builders are certainly preparing for homeowners to act in this way. According to the Green Home Builders and Remodelers Study by McGraw-Hill Construction, green homes are expected to increase from a $17 billion market to anywhere between $87 billion and $114 billion by 2016.

Economic and social conditions have altered the idea of all people moving out on their own at age 18 and then retiring to a long-term healthcare facility at the end of their lives. This has significant implications for the real estate industry - as more families with multiple generations live together, property owners may need to take out an investment property mortgage to build these nontraditional homes.

The U.S. Census Bureau refers to many multigenerational homes as "doubled-up" households. Specifically, these households must contain at least one individual over age 18 who is not the homeowner, a partner of the homeowner or currently enrolled in school. The number of these households increased from 19.7 million in 2007 to 21.8 million in 2011, representing an increase from 17 percent of all households to 18.3 percent.

Homeowners who owe significant sums of money to their mortgage lender may face foreclosure if they cannot work out an agreement with their lender. But, some lenders are beginning to consider an alternate way to release homeowners from unwieldy mortgage payments, even if doing so causes the lender to lose money.

Most borrowers may only be aware of two strategies that come into play when their payments start to fall behind - mortgage refinance and foreclosure. According to reports from several news sources however, a third option, known as a short sale, is becoming increasingly embraced by lenders.

After bandying about the possibility for many months, policymakers are finally embracing a government-sponsored initiative that would allow individuals with real estate investor loans to scoop up foreclosed properties and then rent them out to tenants in need of a residence.

The program will only apply to properties whose mortgages are backed by Fannie Mae, although Freddie Mac and the Federal Housing Administration (FHA) are expected to launch similar programs if the pilot succeeds.

Many Americans are raised to fulfill contracts they agree to and keep their word whenever possible, which is why so many homeowners are currently struggling with the decision to deliberately default on their home mortgages as a means to achieve debt relief.

While strategic default may be the solution for some borrowers, mortgage refinance continues to be an attractive option for others who are aware of record-low rates on adjustable-rate loans and fixed-rate loans.