The real estate and financial services industries have been under siege since the real estate bubble burst in 2007. Steve O’Connor, the senior vice president of government affairs at the Washington, D.C.-based Mortgage Bankers Association, says that private investment will be the key to a turnaround in the real estate market.
The real estate and financial services industries have been under siege since the real estate bubble burst in 2007.
Thousands of lenders have gone out of business, and countless more are on the edge. Private investors are loath to invest in anything backed by mortgage securities. The U.S. government jumped into the breach with an alphabet-soup array of programs to stabilize the housing market.
And over the next two to three months, with the real estate market and financial sector marginally reinforced, Congress will be debating how to build a sustainable housing market for the future. And the rules the legislators write will likely govern the market for decades.
That was the message of Steve O’Connor, the senior vice president of government affairs at the Washington, D.C.-based Mortgage Bankers Association; he was the keynote speaker of the Rockford Chamber of Commerce’s Real Estate Forecast Luncheon on Thursday at Cliffbreakers Riverside Resort.
O’Connor said the real estate market collapsed because of greed — both investors' and homeowners' — and a lack of oversight. The problem going forward is determining how drastic the changes will be.
“In times of crisis, the pendulum tends to swing too much,” O’Connor said. “The risk in a crisis is to overcorrect. What we have now is too much investment in real estate by the federal government and not enough by private investors. We have to find a way to get private investment back in real estate.”
O’Connor said the Federal Housing Authority, which was created to help low-income and minority people buy homes, has taken on too much since the collapse of subprime lending. Historically, the FHA underwrote about 10 percent to 12 percent of all mortgages. When subprime lending was at its peak in 2005 and 2006, FHA had about 3 percent of the market. Now, the FHA is behind about 30 percent of all mortgage loans.
“That’s too much. They don’t have the capacity, resources or technology to support that,” O’Connor said.
He also touched on the continuing foreclosure crisis, which started because of risky subprime lending but now continues to grow simply because so many people are out of work.
“There are 4 million homes in the foreclosure process in some way. We call that the shadow market,” O’Connor said. “It’s going to take years to get through that inventory.”
Of significant concern to many in the audience were the federal tax credits that helped increase home sales in the second half of 2009. The $8,000 tax credit for first-time buyers and a $6,500 tax credit for buyers who lived in their homes for five years or more are set to expire at the end of April.
“What we’ve already seen is anything that can be done to stimulate the real estate market is in everyone’s best interest,” said Frank Wehrstein of Dickerson & Nieman Realtors.
But Jon Krause of Gambino Realtors Inc. said he doesn’t believe the credits will be extended for a second time.
“I was at a conference where it was made pretty clear that Congress doesn’t want us coming back to them,” Krause said. “I know the credits have helped, and we’re going to be pretty busy the next couple of months getting deals done before the credits expire.”
Alex Gary can be reached at (815) 987-1339 or firstname.lastname@example.org.