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I agree that many people should not own a home. People without a solid financial cushion shouldn't even consider buying a home... yet this is exactly who the government and brokers are now trying to push into the glut of houses. First-time home buyer credits, 3% FHA mortgages, DPA and financed closing costs are putting inexperienced home buyers with little upfront into properties they are going to have a tough time maintaining.
A home can easily cost $5000, $10000 or more per year in routine maintenance costs. Things break or get damaged and have to be replaced, sometimes immediately. These people don't have savings-- they could only afford 3% down! And what is the first thing many first-time homeowners do when they buy a home? Finance new appliances ($2000 or more), patio furniture ($500 and up) and a grill ($200), plus open credit card accounts at Home Depot and Lowe's. They paint and landscape and spiff up the place, which is great for pride of ownership but not so great for financial solvency. Then they have to have new furniture, so they open furniture store revolving accounts. They gleefully sign up for the "18 month, same as cash" offers, letting the interest accrue at 24.9%.
Fast forward, 18 months-- what is the likelihood that they will have this extra money sitting there waiting? Tack on that 24.9% for a year or two and see how appealing that new home is. The 18 month, SAC offers are like Option ARMS-- savvy leveraging tools for the financially astute; an invitation to disaster for new homeowners; a lucrative profit center for the institutions selling them. My fear: this new wave of first-time homeowners who can't even afford the down payment, will be the next leg down. I hope I'm wrong.
And for the record, HUD does not require that a percentage of the loans be subprime. Never have and never will. They require (rightly so) that they purchase loans that reflect a fair lending practices. Flawed, perhaps, but in now way is it to be taken as "get as many subprime loans as possible".
Ginnie Mae does NOT primarily insure subprime loans, quite the opposite actually. Ginnie Mae ONLY secures FHA, VA, RHS and PIH (Public and Indian Housing) loans which are rarely (if ever) subprime.
I am using sub prime in the broad sense that the borrower may not otherwise qualify for a loan, unless insured or gurananteed by some arm of the Government or if they did, would have to pay a substantially higher interest rate to balance the risk and thus, it would not be " affordable housing".
GNMA gurantees prompt payment of P/I to investors for loans primarily insured by FHA and VA.
HUD determines and mandates specific affordable housing goals to FNMA and FHLMC. HUD requires both FNMA and FHLMC to fund a specific percentage of loans to low, moderate-low and very low income buyers. There are also goals specifying a percentage of loans that must be FHA/VA insured.
These loans, including all FHA loans, generally have more lenient qualification requirements and lower down-payment requirements.
I do not blame FNMA or FHLMC. It's the culture that created the mania.
Perhaps if your unique situation includes the overriding desire to lose money on the largest purchase you're going to make, now's the time to buy. If not, maybe it would be best to wait for prices to stop going down before jumping into such a large commitment. When even the people who make money from mortgages (Freddie and Fannie) tell you that home prices aren't even half way to the bottom, you should probably pay attention to them and ignore FUD and spin from people who only make money if you buy or sell a house.
Although I agree that Frannie Mae and friends need not exist, this housing bubble was not really caused by them. Most of the exotic loans that sent prices to the roof where not being sold to the GSEs.
Anyhow, regarding buying a home with Frannie Mae et al. A month ago or so my grandma was telling me the story of when they purchased their home in Los Angeles 55 years ago. It was $15,000 and they had $5,000 saved and she said they had to "beg the bank" to give them the loan. In the end they got the loan and paid it off it 10 years. They weren't rich by any means.
I agree that many people should not own a home. People without a solid financial cushion shouldn't even consider buying a home...
FHA and FNMA ( in it's original Government agency incarnation) have been around for 74 years.
ARMs have been around since 1982.
No doc loans have been around forever.
The President appoints the chairman of the FRB.
Interest rates were reduced and kept on reducing in the aftermath of 9/11, to goose the economy and it all combined into the mania that drove the housing market.
FHA and FNMA ( in it's original Government agency incarnation) have been around for 74 years.
ARMs have been around since 1982.
No doc loans have been around forever.
The President appoints the chairman of the FRB.
Interest rates were reduced and kept on reducing in the aftermath of 9/11, to goose the economy and it all combined into the mania that drove the housing market.
Your point is... what? And it has to do with the point that many people should not be homeowners... how?
What is happening is one of the largest redistributions of wealth this country has ever seen. People who should never have owned homes in the first place (I'm sad to say) have lost/ are losing them. New regulations will ensure only Buyers who actually have at least 3% down will be able to buy (a good thing). People with trashed credit will be out of the ownership-loop for quite some time, boosting the rental market and making investing at these rock-bottom prices even more attractive for landlords, as reasonable yields become possible.
As a side note, I don't know why they don't teach credit education in schools, since the current decline has come about in part due to purchasers' ignorance, which left them exposed to predatory lending practices. We would not even be in this mess if home-buyers has borrowed what they could afford, understood the difference between negative-amortization and 30-yr fixed, and studied history: all markets go up and down. We just have short memories.
As a side note, I don't know why they don't teach credit education in schools, since the current decline has come about in part due to purchasers' ignorance, which left them exposed to predatory lending practices. We would not even be in this mess if home-buyers has borrowed what they could afford, understood the difference between negative-amortization and 30-yr fixed, and studied history: all markets go up and down. We just have short memories.
Because we have not prepared young people for the realities of everyday business life. A math teacher spends more time on quadratic equations than on compound interest. And history teachers generally don't do economic history. Even my college history professors (that was my major) didn't know much about economics.
"CAUTION: Local politicians, notoriously cozy with builders, have green-lighted several master-plan communities for future development. If supply gets out of hand, prices will stall."
LOL.
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