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Uncle Bill
11-16-2011, 04:56 PM
...some 'common sense' uttered by a Democrat????? Whoda thunk it!

UB


Moron's Rule



"5 Percent Rule"


In a bid to stem taxpayer losses for bad loans guaranteed by federal housing agencies Fanny Mae and Freddy Mac, Senator Bob Corker (R-Tenn.) proposed that borrowers be required to make a minimum 5% down payment in order to qualify. His proposal was rejected 57-42 on a Senate party-line vote because, as Senator Chris Dodd (D-Conn) explained, "Passage of such a requirement would restrict home ownership to only those who can afford it.

"Hold that thought... November 2012 is getting closer!

HPL
11-16-2011, 11:20 PM
Now THAT'S funny!!

HPL

caryalsobrook
11-17-2011, 04:39 AM
...some 'common sense' uttered by a Democrat????? Whoda thunk it!

UB


Moron's Rule



"5 Percent Rule"


In a bid to stem taxpayer losses for bad loans guaranteed by federal housing agencies Fanny Mae and Freddy Mac, Senator Bob Corker (R-Tenn.) proposed that borrowers be required to make a minimum 5% down payment in order to qualify. His proposal was rejected 57-42 on a Senate party-line vote because, as Senator Chris Dodd (D-Conn) explained, "Passage of such a requirement would restrict home ownership to only those who can afford it.

"Hold that thought... November 2012 is getting closer!

At least he defined the policy of his party concerning housing. That is to allow people to buy houses they cannot afford.

Conservatives want a policy quite the opposite. They want a policy that restrict home ownership to only those that can afford it. Boy would he hate my choice of policy. Minimum of 20% down with no more than a 15 year fixed mortgage and payments of no more than 25% of take home pay. The liberals want regulations well there is one short and simple that will guarantee no housing crisis and no finantial crisis due to housing.:D

Gerry Clinchy
11-17-2011, 11:59 AM
At least he defined the policy of his party concerning housing. That is to allow people to buy houses they cannot afford.

Conservatives want a policy quite the opposite. They want a policy that restrict home ownership to only those that can afford it. Boy would he hate my choice of policy. Minimum of 20% down with no more than a 15 year fixed mortgage and payments of no more than 25% of take home pay. The liberals want regulations well there is one short and simple that will guarantee no housing crisis and no finantial crisis due to housing.:D

I don't know that you need the 15-year mortgage if you have the other stuff in there. Fact is that most people no longer stay in the same home for 30 years.

However, I think 10% would be okay, if you required the reasonable cap on the Loan-to-Income Ratio. Right now the FHA rate is 3.5% down, so raising that to 5% will not exactly be a major move. In PA, my state, "closing costs" then make up an additional 5% to 6%, so you're looking at needing about 10% to go to closing on a home. That's $10K on a $100,000 home.

Also, a fact is that low-income renters generally pay around 35% to 40% of their income in rent. Seems like a better idea to have them own a home. It is a fact, as well, that neighborhoods that are populated by owner-occupants stay in better condition than those with primarily renters. So, there is some benefit to the community (not just the individual homeowner) when there is affordable housing.

Our local low-income home loan program requires that the participants need to save their own down payment of $1600, and have those funds for 90 days undisturbed ... simply to prove that they are capable of having the self-discipline to save.

I'm also for removing the mortgage interest deduction for loans over $500,000. If you earn enough to afford the payments on a $500,000 home, I believe that you must have an IQ at least 25 points higher than your age, so you should be able to figure out a budget and how to save for a down payment & construct a budget to make the payments.

I don't favor removing the deduction for property taxes. 2/3 of our property taxes here are school taxes. How many times do we have to be taxed for education?

I'd have to say that I'm NOT in favor of "restricting" home ownership. I'm in favor of reasonable financial standards for home ownership.

Marvin S
11-17-2011, 07:07 PM
I don't favor removing the deduction for property taxes. 2/3 of our property taxes here are school taxes. How many times do we have to be taxed for education?

Gotta make you happy knowing that you get to pay so much to 42%er's :-P.

Gerry Clinchy
11-17-2011, 07:54 PM
Gotta make you happy knowing that you get to pay so much to 42%er's :-P.

Don't know about your state, but here in PA:
1) Fed Inc Tax - a portion is going to Fed education funding
2) State Inc Tax - a portion is going to State education funding
3) Local Inc Tax - 1% goes to school district
4) Property Tax - 2/3 goes to school district
and then

5) Real Estate Transfer Tax - 2%, 1/2 goes to school district

Of course, there is the 6% sales tax as well. God only knows what they do with that revenue.

caryalsobrook
11-18-2011, 06:47 AM
I don't know that you need the 15-year mortgage if you have the other stuff in there. Fact is that most people no longer stay in the same home for 30 years.

However, I think 10% would be okay, if you required the reasonable cap on the Loan-to-Income Ratio. Right now the FHA rate is 3.5% down, so raising that to 5% will not exactly be a major move. In PA, my state, "closing costs" then make up an additional 5% to 6%, so you're looking at needing about 10% to go to closing on a home. That's $10K on a $100,000 home.

Also, a fact is that low-income renters generally pay around 35% to 40% of their income in rent. Seems like a better idea to have them own a home. It is a fact, as well, that neighborhoods that are populated by owner-occupants stay in better condition than those with primarily renters. So, there is some benefit to the community (not just the individual homeowner) when there is affordable housing.

Our local low-income home loan program requires that the participants need to save their own down payment of $1600, and have those funds for 90 days undisturbed ... simply to prove that they are capable of having the self-discipline to save.

I'm also for removing the mortgage interest deduction for loans over $500,000. If you earn enough to afford the payments on a $500,000 home, I believe that you must have an IQ at least 25 points higher than your age, so you should be able to figure out a budget and how to save for a down payment & construct a budget to make the payments.

I don't favor removing the deduction for property taxes. 2/3 of our property taxes here are school taxes. How many times do we have to be taxed for education?

I'd have to say that I'm NOT in favor of "restricting" home ownership. I'm in favor of reasonable financial standards for home ownership.

Gerry, you point out a clasic difference in approach. You focus on setting rules and regulations making it easier to own a house. I focus on rules and regulations on making sure THAT IF YOU CAN BUY A HOUSE, YOU MOST PROBABLY BE ABLE TO KEEP THE HOUSE. That is the big difference. the easier yo make it to purchase a house the greater the risk that one will not be able to keep it, which is EXACTLY WHAT CAUSED THE HOUSING CRASH.

Gerry Clinchy
11-18-2011, 09:30 AM
Gerry, you point out a clasic difference in approach. You focus on setting rules and regulations making it easier to own a house.

Not really a big difference. I still favor a down payment that reflects a self-discipline to save for a home purchase ... deferred gratification, if you will. Skip the large-screen TV & put that money in the bank each month. Easier than 20% down, yes. As easy as zero down, no.

Such ability to defer gratification is what distinguishes adult behavior from infantile behavior. That should give some indication of an individual commitment to home ownership.


I focus on rules and regulations on making sure THAT IF YOU CAN BUY A HOUSE, YOU MOST PROBABLY BE ABLE TO KEEP THE HOUSE.

I don't want to make it "easy" to buy a home, nor would I restrict it unduly. If someone can afford $800/mo in rent, and they have also managed to set aside some savings, then they should be able to afford an $800/mo mortgage. Is there some reason to make them pay MORE than that for a mortgage (difference between 15-year and 30-year is almost double the monthly payment)?

If they have proven they can save with a $800/mo rent payment, they should also be able to save the same amount each month to use toward home maintenance?


That is the big difference. the easier yo make it to purchase a house the greater the risk that one will not be able to keep it, which is EXACTLY WHAT CAUSED THE HOUSING CRASH.

The problem with the housing crash was that people were being over-extended in their affordability; and also given mortgages with 0 down payments. No skin in the game. No proof that they had the self-discipline to defer gratification. No proof that the commitment to home ownership was really a strong one. Some of the loans that were made were stunningly STUPID.

For lower-income individuals saving is tougher than for those with more disposable income. I could live with requiring higher down payments for higher-priced homes. Saving $20/week for a family of four earning $50,000/year, is easily as hard as saving $50/wk for a similar family earning $100K/year. More of the income over $50K is "discretionary", so can be put into the category of deferred gratifications.

I think there can be a balance between "restricting" home ownership and using reasonable guidelines that can still insure that the buyer is committed to owning AND keeping the home.

With today's mortgage rates, the monthly mortgage payment can be lower than paying rent ... and only the taxes will increase over the term of a fixed rate mortgage. Rent will not stay stable.

The problem I find with lower income prospective buyers are: lack of down money and credit issues. If they have the down money (+ closing costs), they have proven they have the ability to defer gratification (by saving $). If they have good credit, they have proven the same thing. For these buyers who have proven their adult responsibility, they are likely to keep their homes.

I have also seen 3Yr ARMS work very well for individuals who are subject to frequent re-location by their employer. They KNOW they will be moving before their interest rate goes up. ARMs were also a good deal when interest rates on fixed rate mortgages were at 11% (or so)mortgages back in 1983. Those ARMs went DOWN as the indexes dropped. When interest rates are historically low (like now), the fixed rates are the way to go. (I worked in processing for a mortgage lender back in fall 1983 when rates were high).

I think you and I are on the same page, but my one-on-one with buyers of all income levels has certainly influenced my perspective.

caryalsobrook
11-18-2011, 10:49 AM
The problem with the housing crash was that people were being over-extended in their affordability; and also given mortgages with 0 down payments. No skin in the game. No proof that they had the self-discipline to defer gratification. No proof that the commitment to home ownership was really a strong one. Some of the loans that were made were stunningly STUPID.

For lower-income individuals saving is tougher than for those with more disposable income. I could live with requiring higher down payments for higher-priced homes. Saving $20/week for a family of four earning $50,000/year, is easily as hard as saving $50/wk for a similar family earning $100K/year. More of the income over $50K is "discretionary", so can be put into the category of deferred gratifications.

I think there can be a balance between "restricting" home ownership and using reasonable guidelines that can still insure that the buyer is committed to owning AND keeping the home.

With today's mortgage rates, the monthly mortgage payment can be lower than paying rent ... and only the taxes will increase over the term of a fixed rate mortgage. Rent will not stay stable.

The problem I find with lower income prospective buyers are: lack of down money and credit issues. If they have the down money (+ closing costs), they have proven they have the ability to defer gratification (by saving $). If they have good credit, they have proven the same thing. For these buyers who have proven their adult responsibility, they are likely to keep their homes.

I have also seen 3Yr ARMS work very well for individuals who are subject to frequent re-location by their employer. They KNOW they will be moving before their interest rate goes up. ARMs were also a good deal when interest rates on fixed rate mortgages were at 11% (or so)mortgages back in 1983. Those ARMs went DOWN as the indexes dropped. When interest rates are historically low (like now), the fixed rates are the way to go. (I worked in processing for a mortgage lender back in fall 1983 when rates were high).

I think you and I are on the same page, but my one-on-one with buyers of all income levels has certainly influenced my perspective.

First of all, I dissagree that it is cheaper to own a house than rent. Having been in real estate you should know that it takes 5% of the value of a house to maintain it. So $100,000 house requires $5,000 a year to maintain over the life of the house.

Second, I use the 20% down payment as that being the threshold for mortgage insurance(which is quite high). Below that it is required because the risk of default is HIGHER. The difference between the two of us is you set lower standards and requirements of buying a house and as such are will to take a greater risk that the owner will default. The more the downpayment, the less the risk of default and not only that but the less the cost of the loan, especially if you don't have to pay mortgage insurance.

I was in my mid 30's before I bought my first house(renting I mght add was just as cheap for me). Every house I have bought(3), I made enough down payment that there was no mortgage insurance and not even an escrow account for taxes and insurance required, also saving me money. I did thin by having enough equity so none of these things affected me. I did this by not buying a house above my income(whatever it was at that time).

The difference between us is that you are willing to accept more risk of default than I am but you are not willing to accept the risk of zero down so to speak.

Gerry Clinchy
11-18-2011, 12:01 PM
First of all, I dissagree that it is cheaper to own a house than rent. Having been in real estate you should know that it takes 5% of the value of a house to maintain it. So $100,000 house requires $5,000 a year to maintain over the life of the house.

First off, just so you know, I put 30% down on my own home. So while my own standard for myself, due to various circumstances, were higher than I might set for everyone else.

I have not spent 5% of value each and every year during my ownership, so could not necessarily agree with that figure.

Second, I use the 20% down payment as that being the threshold for mortgage insurance(which is quite high). Below that it is required because the risk of default is HIGHER.

However, I also would include the PMI in the total mortgage payment, to make it equal to the current rent expenditure.

In a more "normal" market, housing values tend to increase slightly over time. So, with a 10% down payment, the PMI decreases each year. And staying in the home over a longer period of time, the PMI could be paid off long before the rest of the mortgage (whether a 15-yr or 30-yr). Also, have had clients who were astute enough to watch the housing market, and get the PMI removed sooner than otherwise, by getting an appraisal.


The difference between the two of us is you set lower standards and requirements of buying a house and as such are will to take a greater risk that the owner will default.

I can't argue with that statement. I'd have to say that I base my less restrictive views on the fact that before the most recent lending fiascos, people who put 10% down did not cause a meltdown.

In the meltdown, there were substantially lower down payments (down to 0), and that was compounded by using excessively low loan to income ratios. Prescriptioin for disaster. And it was fulfilled.

Also, FHA loan limits were raised to excessive levels. At one time, they were unrealistically low, adjusted annually based on the regional values. Then they went the other way, excessively high. I do not agree with the position of the Natl Assn of Realtors that those limits should remain in place.

And the current situation is that as conventional loans have become more restrictive, an inordinately large number of loans became FHA loans! So, we're still feeding more spit into the taxpayer's fan.


The more the downpayment, the less the risk of default and not only that but the less the cost of the loan, especially if you don't have to pay mortgage insurance.

The mortgage insurance on an FHA loan


The difference between us is that you are willing to accept more risk of default than I am but you are not willing to accept the risk of zero down so to speak.

Yes, I believe that a higher risk than you proposed is sustainable, but I don't view home ownership as a "right".

caryalsobrook
11-18-2011, 01:12 PM
Yes, I believe that a higher risk than you proposed is sustainable, but I don't view home ownership as a "right".
THen I am sure we would both be happy if the gov. got out of the home ownership business(eliminate Fanny an Freddy) and let the market determine the down payment, interest rate and length of mortgage instead of gov. rules and regulations. I know I would.:)

Gerry Clinchy
11-18-2011, 03:07 PM
THen I am sure we would both be happy if the gov. got out of the home ownership business(eliminate Fanny an Freddy) and let the market determine the down payment, interest rate and length of mortgage instead of gov. rules and regulations. I know I would.:)

Yes, I think you are correct. You and I only differ on what the down payment might be that would be high enough to remove most of the risk of default, except in extraordinary circumstances (like job loss, disability, etc.) Might have lost a lot of homeowners with the unemployment rate that has occurred, but at least the losses would be smaller ones than they are.

The lenient lending policies also pushed toward building ever-larger homes (more expensive). When a developer buys 50 acres of land, he can get only 100 to 200 homes on that land (in most places). As land becomes more scarce the developer is driven to build ever-larger homes to get the most bang for the buck out of the land available to him. Think $400K homes instead of $200K homes. If the lenders were not giving the dumb loans, there would be less market for the $400K homes, and the developer would build $200K homes since those would be the ones he could sell.

The "fancy" new construction inflated prices. One local developer here was selling condos in a new complex to a LOT of investors. I just saw a foreclosure on one of those (1-Bedroom!). Very fancy appointments; about 850 SF. Originally purchased for $193,000; now a bank re-po listed for $87,900! The pricing had literally been "fixed" by the developer. NYC people thought these were "bargains." They failed to notice the geography: this area is NOT New York City!

Not sure ALL regulation on credit should be removed. For example, if a credit card company charges 29%, why wouldn't they just say "no" to even issuing the card if the individual was so uncreditworthy? Those interest rates sound like loan-sharking to me. If there were a cap on the upper limit of interest on unsecured debt, then the banker simply would not take the risk of lending to such an uncreditworthy person. By being able to charge the high interest rate, they are saying they need to do so to protect the amount loaned. However, if the person is that uncreditworthy & desperate, the excessive interest rate will probably justl accelerate the speed of the ultimate default. Seems smarter not to issue the card in the first place?

caryalsobrook
11-18-2011, 05:18 PM
Yes, I think you are correct. You and I only differ on what the down payment might be that would be high enough to remove most of the risk of default, except in extraordinary circumstances (like job loss, disability, etc.) Might have lost a lot of homeowners with the unemployment rate that has occurred, but at least the losses would be smaller ones than they are.

The lenient lending policies also pushed toward building ever-larger homes (more expensive). When a developer buys 50 acres of land, he can get only 100 to 200 homes on that land (in most places). As land becomes more scarce the developer is driven to build ever-larger homes to get the most bang for the buck out of the land available to him. Think $400K homes instead of $200K homes. If the lenders were not giving the dumb loans, there would be less market for the $400K homes, and the developer would build $200K homes since those would be the ones he could sell.

The "fancy" new construction inflated prices. One local developer here was selling condos in a new complex to a LOT of investors. I just saw a foreclosure on one of those (1-Bedroom!). Very fancy appointments; about 850 SF. Originally purchased for $193,000; now a bank re-po listed for $87,900! The pricing had literally been "fixed" by the developer. NYC people thought these were "bargains." They failed to notice the geography: this area is NOT New York City!

Not sure ALL regulation on credit should be removed. For example, if a credit card company charges 29%, why wouldn't they just say "no" to even issuing the card if the individual was so uncreditworthy? Those interest rates sound like loan-sharking to me. If there were a cap on the upper limit of interest on unsecured debt, then the banker simply would not take the risk of lending to such an uncreditworthy person. By being able to charge the high interest rate, they are saying they need to do so to protect the amount loaned. However, if the person is that uncreditworthy & desperate, the excessive interest rate will probably justl accelerate the speed of the ultimate default. Seems smarter not to issue the card in the first place?
We are close but we would not have had the high unemployment and finantial crisis had it not been for the policies of Freddy and Fanny. Be careful about the interest rates though. You are trying to determine who is credit worthy for a loan instead of the market. by setting a cap on interest rates, you are preventing those who are willing to pay highe interest rates from getting a loan. A loan in nothing but a contract where the borrower agrees to borrow money and the lender agrees to loan the money. Let them set the terms, not you or me or the gov. heaven forbid. I should not make that determination for you and you should not make it for me.

Fun to have a civil discussion isn't?:D

Gerry Clinchy
11-18-2011, 07:23 PM
We are close but we would not have had the high unemployment and finantial crisis had it not been for the policies of Freddy and Fanny.

I think you are correct that the housing bubble created a lot of jobs that disappeared rapidly when the bubble burst. And that was caused by the foolish lending practices. We might still have had recessionary conditions caused by increased cost of energy, though. And the auto industry has also been headed into trouble over time.



Be careful about the interest rates though. You are trying to determine who is credit worthy for a loan instead of the market. by setting a cap on interest rates, you are preventing those who are willing to pay highe interest rates from getting a loan. A loan in nothing but a contract where the borrower agrees to borrow money and the lender agrees to loan the money. Let them set the terms, not you or me or the gov. heaven forbid. I should not make that determination for you and you should not make it for me.

When it comes to credit card interest rates, I think that may be slightly different. I think people only will pay 29% interest when they are desperate. If they are desperate enough to borrow at that rate, can default be far behind?

If there were a cap, it would simply mean that lenders wouldn't be exposing themselves to those defaults, since credit card debt is unsecured loans. It's almost like the lender is saying, "I know you're a dead-beat, so if you will promise me your right arm, both your kneecaps, and your first-born child, I'll lend to you anyway." I'm sure the criminal definition of loan-sharking is out there somewhere, but this seems as close to "legal" loan-sharking as I can imagine.

Yes, I have credit cards, and I make sure that I don't have to pay those interest rates! But I see them on the statements of my credit cards, and I could nearly faint thinking of carrying any balance at such an interest rate.

The lender and borrower would still be free to arrange their own contracts, but there would be an upper cap limit; perhaps based on prime rate, or some other index?

It's kind of interesting that no one talks about defaults on credit cards during all this meltdown. I'd guess there has been plenty of it.


Fun to have a civil discussion isn't?:D

Yes, it is!