If I were the czar of the mortgage market, I would attempt to bring back the 30-year amortizing fixed-rate mortgage with a 20 percent down payment. As recently as fifteen years ago, this was the workhorse of the housing market.
I think that a housing market that is based on mortgages with low down payments is inherently unstable. The buyer's equity comes almost entirely from house price appreciation. That means that in a rising market, everybody can buy a home. In a flat or falling market, nobody can buy a home. [note: Bob Shiller wants mortgages that are indexed to home prices. Such mortgages might adapt to this problem, but I would rather avoid the problem in the first place.]
I don't think the fixed rate is what matters. In fact, though I'm not sure that I've seen this reported anywhere, fixed rate mortgages make the housing market more unstable, because house prices vary more sharply with interest rates.
Of course, the lurid stories we're hearing now are all about people locked into houses with rates they can't afford. But that's because their downpayments were so miniscule. In a normal market, they could sell and walk away, taking perhaps a small loss. But with little or no downpayment, even a small movement in the value of their home wipes out all their equity, leaving them with no way out except foreclosure or bankruptcy. If you can't come up with the cash for your mortgage payments, you certainly can't come up with a big check to hand over at closing to make up the difference between the mortgage and the sale price.
Liberals are blaming the banks, and conservatives the government, for the push into no money down housing purchases. But the fact is, we're all at fault. Everyone in the country--buyers, sellers, financial advisors, bankers, regulators--became convinced that owning a home was a surefire ticket to wealth, and that therefore everyone could and should buy one. Now we're surprised that we've gotten into exactly the same trouble as everyone else who thinks they've got a way to make money without working.
I'd like to take exception to that. I moved to Fairfax County after graduating from Cornell and rented because I felt that the home price-to-rent ratio was too high in the local market. In general, yes. In this case, the median voter theorem ensures that me, the outlier, will take a bath.
"Everyone in the country--buyers, sellers, financial advisors, bankers, regulators--became convinced that owning a home was a surefire ticket to wealth, and that therefore everyone could and should buy one. "
I don't think this tells the real story. I think that what drove housing prices up was the ongoing middle class pinch. Stagnant wages and rising costs for education and health care (and so on) made it look to most like the ONLY way to build any sort of secure future was to buy a house and watch it grow in value. It wasn't "wealth" people were looking for, it was some small measure of security, because they weren't finding it anywhere else. There was nothing foolish about that idea, but it attracted a lot of sharks looking to capitalize on that anxiety.
Aww, come on, MLJ. Isn't it possible the poor middle class folk weren't looking only for security, but also were motivated by greed, just a little?
My wife and I paid 1/3 of the price of our home as a down-payment several years ago. We make over $200k/year. I live in an upper-middle class development where houses went from $350-400K to $650-700K in about 6 years. During that time, a number of people - most of whom I know don't make as much as we do and couldn't have put as much down - sold their houses and bought slightly larger, brand-new homes (even though the houses in our development are only 5-10 years old) down the street. Why? Surely they weren't all desparate, lowly wage-earners seeking only a measureof security. Or were they just more greedy Republicans?
Most of the people in trouble from the housing mess got in trouble because they were greedy and foolish, just like all the day-traders who lost their money after the stock market bubble burst several years ago, not because evil mortagage bankers tricked them, or for any other reason. The notion of good, decent, heart-of-America folk being manipulated by greedy capitalists and forced into a corner by awful Republican policies derives from a comic-book level worldview. The world isn't so complicated that adults can't take care of themselves.
In this matter, I defer to my father who worked in the stock market and has experience in finances.
He ALWAYS insisted on fixed rate mortgages with a sizable down payment: primarily because it set in stone your base payment schedule. He disdained the variable rates because he knew full well the market fluctuates too much and could raise payments well above your ability to pay them.
When I look at how the subprime system was set up, how rickety a house of cards it all was, I am still amazed people were allowed to get away with it for so long... well, until now with the whole thing collapsing. And even then, half the guys who profited from this con game are gonna walk away with millions rather than ten to twenty years in a supermax.
Um no,
We're all at fault now, because so many bought into this.
This is primarily the fault of Banks and governments lack of oversight.
Of course people are going to use what ever means they're given. Giving cheap credit to those who can't possibly pay it back is their fault, and now the tax payers are left to bail everybody out.
The government is mostly to blame, because it has long wielded the most power in the mortgage business through its sponsorship of and implicit subsidy to the GSEs, its regulatory power via the CRA, etc. The government -- mainly the Clinton and Bush administrations -- decided that 60% of Americans owning their own homes wasn't enough, and that we needed a higher percentage of home owners -- especially minorities. They encouraged more lending at more lenient terms to lower income borrowers who were long denied credit for good reason.
Then they imported millions of Mexicans to build the houses. And they got into bed with the big mortgage companies (e.g., Countrywide's sweetheart deals for Charlie Rangel and others). And now we have the burst of the bubble.
There's a simple solution here: do nothing. House prices will decline until they are affordable again for most Americans. Banks will demand down payments and lend to those who are good credit risks. We'll end up back at 60% home ownership rates instead of two thirds. We'll all be better off.
Eriver, I would say status motivated your neighbors to move up. I'm constantly amazed that what seems to be more important than security to many people is the perception to the outside world that they are doing well. So maybe pride or stupidity is the emotion rather than greed.
Moe has it right! I make 35K a year, and when a mortgage company lied to me and told me that I, my wife and two kids could buy a 400K house and pay less than my rent at that time, who was I to argue? And now, that the lie has been revealed, evil, cold-hearted Repiglican capitalists are looking to throw my innocent ass back out into the rent market! Is there no justice in the world?
Megan mentions the risk of bankruptcy. I think the surprising thing is how little risk of bankruptcy there is for defaulting homeowners. So many states prevent lenders from going after the homeowners (beyond foreclosure) that bankruptcy is often unnecessary. You walk away from your house; you rent a new place. Even if you have a good income and are leaving your place a dump, the lenders cannot (and often do not even when they can) come after you personally. I had no idea that was true until the past year.
Eriver writes: "The notion of good, decent, heart-of-America folk being manipulated by greedy capitalists and forced into a corner by awful Republican policies derives from a comic-book level worldview."
Yes, it would be. But it's not mine.
It's funny how the black/white world view of conservatives turns any comment suggesting that market abuses occur into some sort of Commie manifesto.
I'm a capitalist, chuckles. I've worked extensively in the mortgage industry on a number of levels. There was always a sleazy element involved in it - it just got larger as time went on. The collapse was inevitable.
We're all at fault? Hardly.
I bought this place in the Carter era when the interest rate was just north of 12%. It has appreciated since then, and I'm in a fifteen year mortgage now under 6%, so I think I'll be OK.
My son just put 20% down on his house the old fashioned way. He saved it. His mortgage payment, including taxes, equals the rent on a decent apartment.
Is the next article about it being my fault that my neighbors drive SUVs?
I blame the banks to a large extent, and consumers to a lesser extent. When the .com bubble burst, housing became the next way to get "easy money". Interest rates were low, so the banks needed volume to make money. They decreased lending standards to get the volume.
What I really found offensive was the amount that they pushed the ARM with zero-down buyers. In a historically-low interest rate market, there's nowhere for the payment to go but up. Common sense dictates that when rates went up, there would be a percentage of people on the low end who couldn't afford the new payment.
I also blame the consumer (and their high school economics teacher) for not realizing that banks like ARMs in a low market so they can make money on the back end. Low fixed rates are the last place they want to be - they end up losing money when rates go back to normal. Anyone with just a small amount of understanding of interest should be able to realize that.
15-year fixed, with a 20% down payment is the best way to go. That way you actually build real equity in your home much earlier in the process. At 6%, for example, a $100,000 home at 15-fixed, 20% down, will only cost the person $41,000 in interest payments. The same home, nothing down, 30-year, will cost $115,000 in interest over the life of the loan.
Also, even though homes go up about 5-7% in value per year, once you throw in property taxes and upkeep, you really aren't making money until the house is paid off.
Hey, Mark L:
I don't know much about mortgages, so bear with me. You said that a 15-year, 20% down is the way to go. Why not a 30 year? Is it simply that you're paying it off earlier?
MLJ-
I'm not a conservative. But like you I am a capitalist.
"It wasn't "wealth" people were looking for, it was some small measure of security, because they weren't finding it anywhere else. There was nothing foolish about that idea" - that's pretty silly, dude. How the notion of security meshes with buying more house than you can afford isn't real clear.
" . . . the black/white world view of conservatives" - yes, MLJ, out of all the people who post here, your views are consistently the least likely to veer into good-vs-evil territory. Yes. Indeedn
"There was always a sleazy element involved in it - it just got larger as time went on. The collapse was inevitable.: I agree the collapse was inevitable. You can't borrow demand from the future forever. Everyone should have been able to see that. That's kind of the point. Shame on the government for acting like it wasn't going to happen. But also shame on individuals who deluded themselves into thinking same. And 'chuckles,' ther's a sleazy element to just about everything involving money, especially government, even Democrat-dominated government.
Mark L - You're forgetting about opertunity cost. The money you use to pay off your mortgage early is money that could have gone into your 401k or IRA.
One problem is they pretty much won't let you make a down payment greater than 3% and less than 20% without jumping through hoops, and you end up paying more. I tried to save up a good sized down payment, but when I went to arrange a loan I discovered how inflexible the mortgage market is on this point. Given the favorable terms and low down payments of FHA (finger of blame: government) mortgages it shouldn't be a surprise that borrowers tend to put little money down.
Eriver quotes and replies: ""It wasn't "wealth" people were looking for, it was some small measure of security, because they weren't finding it anywhere else. There was nothing foolish about that idea" - that's pretty silly, dude. How the notion of security meshes with buying more house than you can afford isn't real clear."
Nothing I wrote said anything about "buying more house than you can afford," of course. What I was talking about is the anxiety that led to more people trying to get in to the market in the first place, which is what drove prices up. Simple economics. The rest is stuff you're reading into my comments.
Noah Yetter writes: "I tried to save up a good sized down payment, but when I went to arrange a loan I discovered how inflexible the mortgage market is on this point. Given the favorable terms and low down payments of FHA (finger of blame: government) mortgages it shouldn't be a surprise that borrowers tend to put little money down."
Great point. And as housing costs rose people who'd been paying PMI (private mortgage insurance) for years looked around and said, "Not this time," when moving on to another property.
Klug,
Like Mark, when I bought my home in 1998, I paid 20% down and took a 15 year mortgage (later refinanced in 2003 to a 10 year). The difference in interest rates is what lured me- I could get the 15 year at rate that was over 0.4% lower at that time (overall rates were higher then than later or today, so the spread is likely narrower now). My monthly payment was higher, but not two times as large as the 30 year (was about 1.5 times, if I remember correctly), and I could afford it- viewed it as additional forced savings. For a time, my mortgage payment was almost 50% of my actual free income each month, but that has lessened over the years, most of which occured when I refinanced at an additional point lower.
I guess I would not encourage most people to do what I did- keep the mortgage payment a smaller portion of your take-home pay than I did, but then I did not have any dependents, so it was a reasonable choice for me.
jmo is correct, however, it is what you would do with the extra money that determines how quickly to pay off the mortgage, but for me I had already maxed out the 401K and could still save a good chunk of what was left to boot.
Megan, you write:
"In fact, though I'm not sure that I've seen this reported anywhere, fixed rate mortgages make the housing market more unstable, because house prices vary more sharply with interest rates."
I don't follow. Fix-rate mortgages are the way homeowners hedge against interest rate risk. They pass the risk on to banks who manage the risk with the composition of their balance sheet. How would this destabilize the housing market?
Am I missing something?
I second Nate. I don't understand how fixed rate mortgages make housing markets more unstable.
Fixed rate mortgages mean households have a better sense of what their maximum monthly cash requirement will be over the long term, and therefore will do a better job to matching buyers with financing they can actually afford, over the long term.
-winterspeak
I third nate.
If you get a variable rate mortgage, your payments will vary over time, but the amount you pay will be less dependent on what rates happened to be at the time you bought your house. If everyone is using fixed rate mortgages, housing prices will be driven by fluctuations in interest rates. If rates go up, prices collapse.
It depends on the definition of unstable. Fixed rate mortgages mean prices will whipsaw more in response to interest rates/inflation--as soon as interest rates drop, the price of the house rises. If you have a situation where a lot of people have almost no equity, ARMs mean more people will have to sell into a downturn.
re: Nate -
People look at their monthly payment when making housing decisions, not at total price of house. The higher the interest rate, the higher the monthly interest, the lower the price of the house has to be. Lower the interest rate, and people can afford a higher priced house, which means that the price can increase.
A variable interest rate mortgage means people buy when interest rates are low, but would be disinclined to buy when high, plus people who bought high would be forced out. The theory goes that the pressure from only variable rate mortgages would be that no one would know what the future interest rate would be and would therefore be pressured to keep the price low. Accordingly, housing would be more stable, but prices would be lower.
Banks which wrote and retained their own mortgages have been largely unaffected by the current problems, because they only lent to those they reasonably expected to be able to repay their mortgages. I understand some see that as a radical concept, but it worked for them this time, just as it has in the past.
You say conservatives blame the government, but the main fault of the government was lack of regulation (and the destruction of previous safeguards). Somehow I can't see conservatives really getting mad at too little regulation. If anything, the conservative anger seems to be directed at the people who bought homes they couldn't afford (ie, greedy stupid poor people). Conservatives blame this group for many other things as well, from the cost of the welfare state to high crime rates.
On a second thought, one must realize that with the current poor state of the public education, getting into a good school district is immensley important to parents trying to secure a good future for their kids. These school districts correspond with expensive neighborhoods. Some parents were willing to financially risk everything in order to give this opportunity to their kids. yes, others were greedy, or stupid, or misinformed, or outright tricked, but for some, it was a matter of getting the kids into a good school. There is a reason "good school district" is a heavily touted piece of information on any real estate listing. And, its a feedback loop. the more expensive the neighborhood gets, the better the local schools, which then leads to even more expensive housing. And, conversely, the negative is true.
Although school is "public" and free to all citizens, its still not evenly dispersed accross income brackets. The rich get much better "free" school than the poor by simply being able to afford to live in the good school districts.
This post, and a lot of other commentary, appears to assume that if the GSEs had just maintained high standards for borrowers, they would be fine. This is wrong.
1. There were plenty of mortgage lenders handing out money left and right, but the GSEs weren't among them. Until a few months ago, the GSEs continued to fund only conforming mortgages (20% down, fixed rate, documented income etc.). Under political pressure, they did then expand into jumbo and alt-a, but never sub-prime, mortgages. Those non-conforming mortgages were always a small fraction of their portfolio.
2. Default rates on conforming mortgages were increasing. While default rates have skyrockted most for sub-prime mortgages, default rates on conforming mortgages have skyrockted plenty. Note that, when a homeowner is upside down (mortgage exceeds home value) it is in his economic interest to walk away. That means that even people who are able to pay will choose to default.
3. The GSEs borowwing costs were increasing. As the market began to believe that the treasury was not going to guarantee GSE debt, the spread between GSE debt and treasury debt grew to more than 100 bp.
It appears that the GSEs had a business model that presumed that its borrowing costs would never increase and that the default rates of its conforming borowers would never increse. Those assumptions were wrong, and would have sunk their business model even if they had stuck to conforming mortgages.
==
Fixed rate mortgages mean prices will whipsaw more in response to interest rates/inflation--as soon as interest rates drop, the price of the house rises.
==
Can you explain a bit more, or perhaps recommend sources - Isn't that also true anyway for floating? The fixed rate is just a transformation of the floating rate.
If the floating rate drops, I still lock in the floating rate for the term and can pay more per month, and as such prices will rise.
The difference between a "good" school district and a "not so good" school district has very little to do with the age of the buildings or the per student expenditures of the district. The District of Columbia school district is the "poster child" for expensive, poor quality, underperforming schools.
Teachers do not want to teach those who do not wish to learn. Teachers do not want to teach in situations where their lives are threatened. The best teachers don't have to do so, because they are sought out by school districts where these issues are of little or no concern. Poor teachers have fewer choices.
The solution is not to force good teachers to expose themselves to frustration and personal risk teaching in poor schools. The solution, rather, is to create an environment in the communities with poor schools in which students want to learn and teachers can teach safely. In the meantime, it is essential that students who want to learn be given the opportunity to attend schools in which they have the opportunity to learn.
The first step in the process almost certainly must be the restoration of order, civility and discipline in the classroom. Perhaps reestablishing "reform schools" would help.
"Mark L - You're forgetting about opportunity cost. The money you use to pay off your mortgage early is money that could have gone into your 401k or IRA."
That's true, but a 401k often won't give you a *guaranteed* rate above the mortgage interest rate, especially in a down or flat market. Sometimes one choice is better, sometimes the other is. The increased cash flow (and security) from having the house paid off is often more useful to a youngish person than 401k money that can't be touched until age 60.
The increased cash flow (and security) from having the house paid off is often more useful to a youngish person than 401k money that can't be touched until age 60.
So don't put it in a 401K, instead invest outside your retirement accounts. Any interest is taxable, but the interest you pay on your mortgage is tax-deductible, so if you can get comparable rates, it's a wash. And that way you have the flexibility of having control of your money if you need it rather than having it all tied up in your house.
Of course if you need the 'temptation prevention protection' of tying that money up in your house so you don't spend it, well fine. But otherwise, there's no great advantage to an early pay-off. We could pay off the rest of our mortgage now if we had to, but at 5%, I'll take the rest of the 30 years.
Nylund,
You misunderstand the role of government in the mortgage business - it essentially created and supported the secondary market for mortgages. It's not just a question of regulation. The GSEs were created and then given billions of dollars per year in de facto subsidies. Capital gains taxes were waived on most real estate sales. Mortgage interest was made tax deductible. Banks were leaned on to lend to low-income minorities with shaky credit. And so on. If the government weren't so involved we wouldn't have had a bubble.
Until a few months ago, the GSEs continued to fund only conforming mortgages (20% down, fixed rate, documented income etc.).
Incorrect, they stopped verifying that income was documented and stopped verifying that the 20% down was the result of a person saving money and not being loaned the 20% by a bank, family member or seller. Saving the 20% down isn't just about the equity, it's about proof of being fiscally responsible. It's more accurate to say they only bought 80% LTV loans and had the option of verifying income but didn't do it.
If the loan looked good enough, then the computer didn't require income verification. Loan officers toook advantage of this, so now it's unknown just how many Prime, "income documented" loans are going to perform just like Alt-A loans due to this problem.
Why should the only allowable public "school choice" be to change school districts? Something is just unright about that.
Fred, and others:
To what extent did the GSE's subsidy in the secondary market enable the mortgage lenders to diversify into higher risk/higher return areas? If there is a subsidy to "conforming" loans by the GSE, the value of such loans increases and so is reflected in increased amount of capital, which can be used to offset the riskier loans.
I second the "don't pay it off" crowd.
Home equity has no rate of return and no liquidity. You can't access your equity without qualifying for a mortgage anyway, so if you just lost your job chances are you won't be able to access that money. But if you had saved/invested the difference in payments, you would have the cash to continue making your mortgage payments.
Besides, a mortgage is probably the cheapest money you can borrow.
Megan-
But the fact is, we're all at fault
Please explain why I am at fault- besides the fact that I was forced by gov't to subsidize this nonsense?
I paid cash for the only home I've ever owned in my life(I bought in 2005)- and my only connection to Fannie/Freddie is ownership of "S&P 500 index" funds.
re: schools.
The comments are spot on regarding schools. Its a big deal for parents (like me), which is why I live in tiny house in a great school district. Lots of people move out of big cities to the burb's solely for the schools (I did).
The only way I can see to reverse the downward spiral of bad schools/bad housing is to introduce vouchers, and thereby decouple the location/school link. In DC, for example, the only way to get into a better school is (a) move to a better school district (preferably outside DC), or (b) pay for private school.
Fred,
I believe that all the government actions you mention date to before 1980. So why now?
I think it was the Madness of Crowds and market breakdown. Everywhere along the line it was more, more, more -- more bonds, more mortgages. Standards kept going down and parties along the way kept reducing their standards of risk. I suspect there was some consumer fraud, but I also suspect there was activity that no one wanted to question and look too closely at because more deals were being done and if they started to question, other firms would get the deals.
Think Internet stocks in 1999.
"Everyone" is to blame?? My wife and I got a 30-year conventional mortgage in 1993 and paid it off ahead of time. Just how are we to blame for this mess?
I've seen a chart by a NY finance professor showing that the default rate problem was in variable rate, not the fixed. If true, then the problem WAS in the ARMs (that Alan Greenspan said everyone should have) and not across the board.
I disagree with a pox on all houses attitude. How could savvy banks and investment houses not understand the risk of what they were buying and selling?
JordanT:
I grant you your quibble. And your quibble does mean that we probably will never know definitively whether the GSEs would have remained solvent if they had maintained conforming loan standards, because we don't know what fraction of the loans classified as conforming shouldn't have been.
I still think I can make a good case the default rates would have increased significantly even if their conforming standards had remained high, or even been strengthened. The fact that it can make sense even for a borower who is entirely able to pay to walk away from an upside-down home is the key here.
When you loan me money on the basis of collateral, you are giving me a choice: either re-pay the loan or give you the collateral. If you loan me $100K and I give you a $100K goal brick as collateral, and the next month the price of gold halves because a big new source is found, it makes sense for me to say "thanks," keep your $100K, and leave you with the now $50K brick.
In Debt Up to My Eyes thinks, "evil, cold-hearted Repiglican capitalists are looking to throw my innocent ass back out into the rent market!"
Dude, if that's what you think, go ahead and vote for the dick with ears.....but the dirty little secret is that he doesn't have a clue as to what the solution is......I'd hate for you to cast an uninformed vote.
If you loan me $100K and I give you a $100K goal brick as collateral, and the next month the price of gold halves because a big new source is found, it makes sense for me to say "thanks," keep your $100K, and leave you with the now $50K brick.
I don't think the analogy applies to here. It is a hardship for most people to save up 20% down for a house. I hope that this isn't taken out of context, because I think going through this hardship is one thing you must do to prove you can be trusted with being loaned 4-5 times your yearly income (typically hundreds of thousands of dollars). Walking away from a house, means you're walking away from at least 3-4 years of heavy savings. Most people saved much longer than that for their first house. It's much harder to walk away from a house, for most people an emotional investment, versus a gold brick.
I do agree that we'll never know what would have happened had Fannie and Freddie been doing their due diligence. They may have failed anyways, but certainly the losses would not have been nearly as high.
There's little doubt that if there were no no-money down mortgages, we wouldn't be in the mess we're in now. I blame all the politicians (Dodd, Shumer, and Frank were the most prominent, but there were others, of both parties) who provided covering fire for Fannie and Freddie so they could buy those mortgages.
However the Government fixes the mortgage business going forward, one thing should be absolute: no direct or indirect government subsidies for no-money down mortgages. Tell Barney Frank to put that in his pipe!
"We could pay off the rest of our mortgage now if we had to, but at 5%, I'll take the rest of the 30 years."
Where are you finding this >5% guaranteed return? I looked at my index funds over the past year and they're -14.01% YTD. I'd gladly take 5% over that.
One point -- the AMT kicks in on many people who theoretically have "deductible" mortgage interest making the whole amount essentially taxable. Along with the extremely low risk inherent in paying back your mortgage vs. other investments this becomes a much more attractive option.
Ignore my comment. I misunderstood the refinancing interest v. mortgage interest issue. Carry on.
Didn't the Fed or some arm of government already issue new mortgage rules for October or next year, including documentation on loans?
I do agree with Megan when she says "We are all at fault," except for the obvious exceptions, like those individuals who were actually responsible (whether in buying homes they could afford, properly matching loans with home buyers, etc.) But clearly no one branch of everyone involved can take all the blame. The government, the mortgage industry, and the buyers made errors of oversight or judgement.
Stupid homeownership trick:
As an alternative to a 15 year mortgage or prepaying, one option is to take out a par whole life insurance policy with a face amount equal to the mortgage. Load it up with paid up additions. You can get a rider that pays your policy premium even if you're disabled (for younger people it's super cheap- a few dollars/month.) For older people it will be higher)
Sometime around year 15-20, depending on dividends, the mortgage interest rate, and how the dividends interact with the amortization table, you should have enough cash value to pay off the home early.
In the mean time, you have the death benefit that pays off the home if something happens to you. You have some accumulated cash value after the first few years to pay your mortgage if you lose your job. AND you don't have to go to your bank to qualify for a loan. No paperwork. You can access it with a phone call, and it never has to be paid back (you borrow it against your death benefit, though there is interest that accrues.)
In the mean time, you still claim the full home mortgage tax deduction until you decide to pay it off.
But once you have enough cash value accumulated to pay off the home, maybe you will want to keep the mortgage. If you need extra cash for something, tapping the cash value is less hassle, and you can still take the tax deduction.
Just a thought. But what do I know. I'm just a hick from flyover country.
"In a bid to boost minority homeownership, President Bush will ask Congress for authority to eliminate the down-payment requirement for Federal Housing.." -2004
http://www.usatoday.com/money/perfi/housing/2004-01-20-fha_x.htm
In a bid to boost minority homeownership, President Bush will ask Congress for authority to eliminate the down-payment requirement for Federal Housing
It had essentially been eliminated anyways for FHA loans. The seller could "donate" the 3% downpayment to a "nonprofit" organization who would take a cut and then hand it over to the buyer. This was forbidden in the latest housing bill starting October 1st, but there is a big drive to bring it back. Buyers who took advantage of this had 3 times the default rate versus those who didn't.
Variable rate mortgages have always amazed me. I am just not capable of assessing the risk of having hundreds of thousands of dollars subject to a variable interest rate for decades.
Maybe it would make sense if there were a managable cap to the rate (8 or 9%, say), but otherwise, aren't you betting that you will be able to sell the house if the rate gets too high, and isn't that a sucker bet if rates are increasing?
Maybe it would make sense if there were a managable cap to the rate (8 or 9%, say), but otherwise, aren't you betting that you will be able to sell the house if the rate gets too high, and isn't that a sucker bet if rates are increasing?
Most variable rate mortgages are capped. For instance, my mortgage is fixed at 4.75% for 7 years then it converts to an ARM for the remaining 23 years. There is maximum interest cap at 9.75%. This type of loan makes sense if you plan on paying it off early *or* moving within 10 years or so. If you're planning on staying there for 30 years and not paying it off early then I'd advise against this type of loan.
The 20% down is not always a good idea. If you put 20% down on a house and don't have any cash left over to cover emergencies then you are just setting yourself up. I went for a 80/10 loan and paid off the 10% as fast as I could. Then again I had no other debts and needed cash on hand to furnish the house, pay for a wedding etc. The 80% is a 30 year fixed.
Yes, I second the idea that we are all at fault.
In fact, I wrote about this very idea in an opinion piece, "The United States of
Gordon Gekkos" that was published last April.
The 20% down is not always a good idea.
Of course it's not always a good idea for the borrower. But it's a great way to protect lenders and the system as a whole.
For those of us from working class environments who were taught to strive, to educate ourselves and to respect those who had achieved something, the performance of those who had done that and were managing Wall Street is mind boggling. While we are losing our factory jobs, these people were making six-figure incomes, and they didn't know what they were doing. There is a feeling we were sold a bill of goods. Real work has been diminished and looked down upon and replaced with what?