Posted on 06/10/2011 7:24:42 AM PDT by Kaslin
And you thought things couldn't get worse on the housing front. The U.S. housing market is in the worst shape since the Great Depression, and now the Obama administration's solution is to impose new rules that would banish 60 percent of current homebuyers from the market.
The proposed Mortgage Qualification Rules are the result of legislation passed in the wake of the financial meltdown to ensure that mortgage-backed securities are based on high-quality loans. But the effect will be to disqualify millions of potential homebuyers.
Earlier this year, the six federal agencies tasked with drafting the rules added a requirement that homebuyers make a 20 percent down payment to qualify for low-interest mortgages. In addition, the new proposals announced this week would cap the amount of income that borrowers could devote to mortgage payments to no more than 28 percent of gross income. Worse, it would disqualify any borrower whose combined debt payments amounted to more than 36 percent of monthly gross income.
What does this mean in practical terms? In 2009 (the last year for which we have accurate data), median household income was just under $50,000. Under the proposed new mortgage rules, an average family would be ineligible for a low-interest mortgage if they owed more than $1,500 a month in payments for all their financed debt: mortgage, cars, credit cards, student loans, and anything else bought over time. And the mortgage payment alone could not be higher than $1,166, including escrow for taxes and insurance.
The proposed rules would put an end to the American Dream for much of the middle class. As Urban League president Marc Morial said, "Homeownership, as we know it, could be a thing of the past" if the proposed rules take effect.
But the damage extends beyond depriving individuals of the opportunity to buy a home -- it will ripple throughout the economy. There is no question that the depression in the housing market is costing jobs, and not just the obvious ones in construction. Part of what has made the American economy more resilient than other countries' over the years is the willingness of Americans to pick up and move when jobs in one area disappeared but were available in other places. But the inability of many people to sell homes has reduced American geographic mobility to historic lows.
The consequence is to keep those people who have lost their jobs, but own their homes, from moving to states where jobs are more plentiful. If they can't find a buyer because the government has made it so difficult to qualify for loans, they're better off staying put and collecting unemployment insurance.
There is no question that many Americans have become addicted to debt and live way beyond their means. But one of the best ways of determining whether or not someone can really afford his or her lifestyle is to examine credit history-not simply the level of debt. But these new rules would punish even those borrowers who have never missed a payment and have exemplary credit ratings.
It also treats income as if it is fixed over a borrower's lifetime. A relatively young college graduate may have significant debt from earning that degree, but his or her income is likely to increase substantially over the 30 years of a mortgage, and restricting access to a loan on that basis makes little sense.
And, of course, the obverse is also possible. Incomes fall as well as rise. Just because someone is earning a lot today doesn't mean he or she will be making the same amount next year or the following.
But the real problem with these rules is what they will do to the overall housing market. Without buyers, home prices will continue to plummet. There are already too many unsold houses on the market, about twice the number you'd expect in a healthy environment. And the administration's solution is to drive millions of credit-worthy buyers from being able to purchase them?
These Obama administration rules could turn what increasingly appears to be a double-dip economic recession into a full-scale depression. The president will pay politically for this disastrous policy -- but Americans will pay out of their actual pockets for his folly.
Senator Chris Dodd (D-Conn) explained, “passage of such a requirement would restrict home ownership to only those who can afford it.“
See:
http://libertymaven.com/2010/06/06/chris-dodd-doesnt-believe-home-ownership-should-be-restricted-to-only-those-who-can-afford-it/9890/
We bought a house last year 10/2010. We put 20% down and everything sailed through. We received a letter around Feb of this year saying the loan was sold to FNMA, but that Wells Fargo would retain servicing. We still make our payments to Wells.
From what I understand, this is SOP.
Thank you so much for your reply.
We financed in Dec 2009. Yes if I were to refinance at cost I would go through a credit union.
That is the rub the goverment changed those conforming standards, but regardless the government has no business “buying” loans.
That is the rub the goverment changed those conforming standards, but regardless the government has no business “buying” loans.
“That is the rub the goverment changed those conforming standards,
I’m not aware of any change to conforming loan standards. Subprimes could still be conforming loans if the borrower had a sufficiently large down payment, had proof of income, the usual.
During the bubble most subprimes lent by Wall Street firms were non-conforming, something that WS wanted because non-conforming loans bring much higher yields.
“but regardless the government has no business “buying” loans.””
I’m not sure what part of government you think bought loans. Fanny was created as a GSE in the 30s but spun off in the late 60s and was a NYSE listed company. Freddy was created as a GSE around 1970 and also became a NYSE listed firm.
“What part of government, etc....”
The same part that bailed out GM. Bailed out Fannie to the tune of $100B, and the same part that’s going to take over your healthcare.
Don’t mean to be snarfy, but government should stay out of our business; no too big to fail crap. I’m sure you agree.
There is a growing number of Freepers who have good credit and solid loans and are paying their mortgages who are finding that their home loans are NOW owned by Fannie.
We don’t like that. If we wanted loans with Fannie, we would have gone and gotten loans from Fannie. We didn’t. NOW, we do. We aren’t party to the contract that did this to us.
Just as the government has federalized all the student loans, is the government going to federalize home loans? It sure looks that way.
I got a notice from Fannie telling me they now owned my loan. The bank they got my loan from is not recorded at the county.
Something stinks, and it is the too big to fail banks that are doing this.
“We don’t like that. If we wanted loans with Fannie, we would have gone and gotten loans from Fannie. We didn’t. NOW, we do. We aren’t party to the contract that did this to us.”
Of course you’re not a party to the decision. The mortgage was owned by the firm that lent you the money and they can do what they want with it. They owned the mortgage, not you.
And you’re not getting a loan from Fannie. Fannie is simply a secondary investor. Your loan came from your original lender. Your original lender wanted to get liquid in order to make another loan. They can’t do that if their money is already tied up. So they sold the mortgage paper on your house to Fannie.
They could have sold it to any investor that they wanted. Fannie is an easy choice for them since purchasing mortgages in the secondary market is the sole reason Fannie was created 75 years ago. It hasn’t been a government agency since Lyndon Johnson spun them off to the private sector in the late 60s. You can still buy stock in Fannie if you want to.
The Treasury lent money to those firms, it doesn’t own them.
The previous poster thinks that the government is buying loans. They’re not. What they are doing is lending a whole lot of money to Fannie.
If someone loans your business a ton of money they have first rights to its assets but they don’t own it and they don’t run it. Fannie isn’t part of the government, hasn’t been for over 40 years.
As recently as GWB it was some 53% of bank loans. You think that went down during Magnus oBummer's term?
HELL, they increased that crap.
The flaw in the article is that it agrees there should be rules. Then it whines about which rules.
There should be no rules. Nor should there be Fannie and Freddie or any other taxpayer guarantee. Nor should any lender be too big to fail. Let the market figure out what's an appropriate down payment, interest rate, income percentage, and what not. And if they're wrong, well, screw 'em!
And if some bank in Bavaria goes bust from over-investing in California liar loans, we shouldn't wring our hands. We should laugh. (Of course, if the Krauts were intentionally fed lies about the liar loans, that should be cause for a perp walk. I guess I'm not against all rules, just most rules invented since English common law was established.)
What exactly does that have to have to do with my previous post?
This whole business of messing up clear titles IS part of my contract. And selling my loan WITHOUT PROPER CHAIN OF ASSIGNMENT is NOT ok.
You can babble all you want about this nonsense, but the bottom line is that the title is clouded now. And I did not sign up for that. And I don’t want to see the whole country’s homes nationalized. Your words do not answer to that at all, And you know it.
Besides, since when it the ‘need’ for liquidity an excuse to cloud title? It is not. You paper pushers have made a huge mess and have allowed the home market to be crashed, all so that OTHERS can play around with paper and pretend to your selves that you are providing ‘liquidity’.
I do not expect your to admit to any of this. But your argument is part of the problem. Real people with real lives are being harmed with this nonsense. The whole country’s real estate market has been harmed with this nonsense.
If I wanted a loan from Fannie, I would have GONE to Fannie. Piss on the whole lot of them.
Well, good or bad, that will eliminate 90 percent of the potential buyers...In this economy? Maybe more.
A new high end pickup truck now costs nearly what homes in the Midwest are going for.
If they go much lower, they might as well give their homes away..
*Everything* is going up in cost, except the tax payers homes and wages...
Funny how that works.
Oh, I’ll leave the babbling to you. You are doing a much better job of it than I can hope to achieve. And I tip my hat to the way you don’t let facts get in your way. Makes for a convincing argument.
Not after the sellers appropriately adjust their pricing.
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