Housing

[Rudyard K]

Obviously this has a homebuilder spin on the opposition, but I’m curious what you all think.

http://www.nbnnews.com/NBN/issues/2011-04-04/Front%2BPage/index.html

My general view is that the 20% down payment rule (or something in that neighborhood) would be a good thing…and I have a personal financial benefit to believe otherwise.
As a society (i.e. government subsidy view), we can always offer some other type incentives to encourage or help the lower income groups to buy a home. But that help or subsidy would then be measured and quantified separately, without blurring the lines between prudent business practices and offering help for those who need a little hand or encouragement for an industry that creates jobs.

So?...thoughts?

[charlestudor2005]

We in the US lust after the hope of home ownership. And politicians present it to us on a silver platter. And it is all so illusory. We are the only country in the world that makes this kind of promise.

The plan I would prefer is that no home be bought until it is fully paid for. You either save and pay in full or you rent, with a portion going towards purchase...if that's what you want. The portion going towards purchase would be placed in a "purchase" escrow and draw interest.

But this "no down" shit is just that: shit. It's like asking for time OTC.

[Tiffani Jameson]

Boy Charles, there's just no middle ground with you. But I happen to agree. But as a 2x homeowner who took advantage of not having 20% down, and I'm pretty sure you did too, so I don't think it's fair. But I agree. People rely on credit way too much.

I agree with the study. Making that much a requirement would ruin the market. But on the flip side, God knows if it were possible to get that kind of money from people, it would surely help the market.

[EJunkie]

In Canada, if you have less than 20% down you have to get mortgage insurance from the Canadian Mortgage Housing Corporation; to protect the lender.

Adds an element of stability to the market.

[Rudyard K]

Originally Posted by EJunkie

In Canada, if you have less than 20% down you have to get mortgage insurance from the Canadian Mortgage Housing Corporation; to protect the lender.

Adds an element of stability to the market.

It used to be the same here. They called it PMI. I don't know if it still exists...but it damn sure doesn't seem to be required.

[pjorourke]

http://www.cato-at-liberty.org/homeo...mortgage-debt/

"One of the rationales commonly given for massively subsidizing our mortgage market is that without such homeownership would be out of reach for many households. Such a rationale implies that more debt should be associated with more homeownership. (Let's set aside the obvious, how are you actually an owner without any equity?)
But is that the case. The chart below compares the homeownership rate with the average debt-to-value ratio of U.S. households. (Data on debt-to-value is from the Fed's Flow of Funds and homeownership is from the Census Bureau)."




By 1960, the homeownership rate was already over 60%, yet debt-to-value was less than 30%, half of the current value. Even in 1990, when homeownership reached over 64%, debt-to-value was still under 40%. From 1990 until today, the percentage of mortgage debt to value increased by over 50%, all to gain a 2 percentage point increase in homeownership. So it seems the story of the last 20 years has been a massive increase in home debt with very little increase in actual homeownership rates. The converse should also hold: reducing homeowner leverage should have little, if any, impact on homeownership rates.

[Rudyard K]

Originally Posted by pjorourke

By 1960, the homeownership rate was already over 60%, yet debt-to-value was less than 30%, half of the current value. Even in 1990, when homeownership reached over 64%, debt-to-value was still under 40%. From 1990 until today, the percentage of mortgage debt to value increased by over 50%, all to gain a 2 percentage point increase in homeownership. So it seems the story of the last 20 years has been a massive increase in home debt with very little increase in actual homeownership rates. The converse should also hold: reducing homeowner leverage should have little, if any, impact on homeownership rates.

An interesting conclusion. I have the same type graph, albeit didn't carry to the year 2010. I hadn't drawn that conclusion by looking at it...but it does make some sense.

Under the category of "the good old days" there are several other variables that have affected that graph...including...

1) S&L's and banks deposit interest rates were controlled by the Gov. As such, the lending environment was more stable for home mortgage rates.

2) In Texas, and maybe elsewhere too, you could not borrow money against your homestead for any reason other than purchase or home improvement.

3) The average life of a mortgage loan in the 60's & 70's was well over 7-8 years. By the mid 90's that life had dropped to 3 years. Partially, that life dropped because of refinancing at lower interest rates but also partially because people are more transitory today...rolling the equity gain in one house into debt of another larger house.

[WTF]

Originally Posted by Rudyard K

but also partially because people are more transitory today...rolling the equity gain in one house into debt of another larger house.

Which can do nothing but conclude with a bubble.

I agree with your OP. I think it is a good idea. I also think there will be hard times until the bottom is found.

Loans are hard to come by these days. Poor titty dancers can't even get a car loan like in the old days!

[Doove]

Originally Posted by EJunkie

In Canada, if you have less than 20% down you have to get mortgage insurance from the Canadian Mortgage Housing Corporation; to protect the lender.

Originally Posted by Rudyard K

It used to be the same here. They called it PMI. I don't know if it still exists...but it damn sure doesn't seem to be required.

In most cases, i'm sure it is still required, but the requirement comes, i believe, from the bank, not from any sort of regulation. So if the banks want to forego the requirement, they can.

Either way, it seems to me that whether or not you can comfortably afford the monthly payment should be the over-riding criteria, whether you have 2% to put down or 50%.

[WTF]

Originally Posted by Doove

.

Either way, it seems to me that whether or not you can comfortably afford the monthly payment should be the over-riding criteria, whether you have 2% to put down or 50%.

Yes but when you have put nothing/hardly anything down and the economy takes a turn for the worse, what keeps these people from walking away from their homes?

Not everybody is responsible enough to own a home.

[Guest050715-1]

Originally Posted by WTF

Yes but when you have put nothing/hardly anything down and the economy takes a turn for the worse, what keeps these people from walking away from their homes?

Not everybody is responsible enough to own a home.

Exactly, this was going to be my point.

I also don't think the criteria for qualifying for a loan amount should be three times your annual income. That's a heavy burden even before adding interest, taxes and insurance. Rather, I think the criteria should be a percentage of your take home pay burdened with the expenses of an estimated tax and insurance.

I was vehemently opposed to the constitution change allowing refinancing of homesteads. I'm not one for legislating responsibility but this is a big one and I think we were better off the way it was.

[pjorourke]

I read somewhere that there is actually some evidence that high levels of home ownership can be harmful -- it locks people into places where there may not be jobs (e.g., Detroit). Communities with a better balance between home ownership and rentals are better able to adjust to booms/bust in the economy.

[WTF]

Originally Posted by pjorourke

I read somewhere that there is actually some evidence that high levels of home ownership can be harmful -- it locks people into places where there may not be jobs (e.g., Detroit). Communities with a better balance between home ownership and rentals are better able to adjust to booms/bust in the economy.

Maybe we should all aspire to own our own tepee

[Camille]

That makes a ton of sense PJ.

In England, qualifying was the toughie. Making sure you could prove you could make the payments was way more important than how much of a deposit you could put down. it's ages since I had a mortgage there, but I think you could borrow a maximum of 3 or maybe 3.5 x your annual gross salary...but they would look very closely at your outgoings (via bank statements etc) to see how close to that max you could get.I don't know much at all about qualifying here...but I'm getting the impression that prior to the economy tanking qualifying wasn't overly stringent. Is that right? I do agree that people could still walk if the onus is simply on a persons ability to pay with no downpayment required...just curious though.

C x

[WTF]

Originally Posted by Camille

...but I'm getting the impression that prior to the economy tanking qualifying wasn't overly stringent. Is that right? x

Google No Doc Loans! My God it was easy to get a loan. You really had to live through the process to see how wacked out it was. My brother-in-law had his own mortage company. You would not believe the loans that got through.

http://www.forbes.com/2010/07/02/return-liar-loans-personal-finance-no-doc.html

Instead, lenders started trusting borrowers to "forecast" future income and underwrote loans based on those projections (using as a fallback the house itself as collateral). In the height of the housing boom in 2006 and 2007, low-doc loans accounted for roughly 40% of newly issued mortgages in the U.S

Originally Posted by Camille

... I do agree that people could still walk if the onus is simply on a persons ability to pay with no downpayment required...just curious though.

C x

No down payment is little more than a lease....it had tremendous upside for the borrower and very little downside because as you stated , you could just walk away if the market tanked. It was a huge house of cards. We here in Texas did not have a huge bust because of two things. One as RK stated we were late to the party of tapping into home equity, Thank God and two high energy prices are a net gain (at least for us Houston folks)