Monday, March 14, 2011

Countdown to Change

At the end of the week the mortgage regulation changes announced in January will go into effect. For those of you who haven’t yet heard about the changes, here they are in a nutshell:

1. A 30-year maximum amortization on insured mortgages over 80% LTV (loan-to-value), down from the current maximum of 35 years
2. An 85% LTV limit on insured refinances down from the current maximum of 90%
3. Elimination of government insurance on secured lines of credit (aka., HELOCs)

If you read my original blog post on the topic you’ll know I was a little heated with the changes when they were first announced. My opinion hasn’t changed but I’m a little less hot under the collar about it. Like everything else in life, it is what it is and stewing about it is not going to change anything.

It turns out that the overall sentiment over the changes was quite mixed. One side of the fence where I am, thinking they’re a little harsh and short-sighted. The other side applauding the government’s “proactive steps” in protecting us from ourselves and preventing a real estate market collapse. Whatever your opinion is, that’s fine, everyone’s entitled.

For now, lender underwriting departments are overloaded with applications from people who have listened to their mortgage planners and taken some action while they still have the flexibility to do so. What I don’t look forward to is a few months from now, just like what happened last year when the government took away options...I have a client in front of me who is looking for some financial relief and I have to explain there’s nothing I can do since the government felt it was better that they carry high interest debt instead of being able to access the equity in their homes without having to sell.

I can’t do anything about the changes but what I can do is give a little advice. Be prudent about how you spend your money. Understand what you’re signing when you get a retail store credit card or sign up for “don’t pay a cent” promotion. Seek out trusted advisors for your financial affairs both investment and borrowing, don’t blindly have faith in the person standing across the counter at the bank whose job it is to sell you as many products as possible at the highest rates and costs to you. Lastly, even more important than educating yourselves, educate your children. There is a severe lack of formal education surrounding personal finances in our country and the burden falls on parents to teach their kids. In doing so, don’t assume what works for you will work for them. They live in a different world than you do. “When I was a kid”, teenagers didn’t have credit cards, now they can easily get one with a $5000 limit. Like everything else, teach your kids how to respect and manage their finances and they will be much better off.