We are going to the wrong way! You want to read this entire blog! Urgent! Click the link or see it at www.scottdeaton.com.
That’s right. For some reason, the powers in charge of providing money for Americans to realize the American dream of home ownership, ARE GOING THE WRONG WAY! History has proven that home ownership is ‘the key’ to our economy. When it is positive, the economy is positive. When it is bad, the economy takes a hit. Home ownership increases net worth, contributes to strong communities, and creates jobs, and creates a since of pride in ownership. Why then are we taking drastic measures to limit the ability of Americans to own a home?
Let me explain.
(1)As of April 1, 2011, our government installed new legislation controlling how mortgage lenders are compensated when providing home loans. Personally, I don’t feel that the government should control anyone’s income. That is where the ‘free market’ takes over. Consumer demand and supply should control one’s income, not what some person ‘on the Hill’, who has probably never had to earn his own living, thinks is necessary to protect the public. What this new rule will actually do, is cause many loan originators to go out of business, which means less competition. Before this ruling, consumers had plenty of choices for obtaining a loan. The consumer could pick who they wanted to use, and they don’t care how much money the lender makes as long as it costs the consumer less! All of us remember from our Economic 101 classes, that less competition increases costs. And who will cover the higher costs due to less competition?......Ding, Ding, Ding….you are correct! The consumer! For home loans, that means buyers!
(2) Effective April 18th, 2011, FHA backed loans (which make up a HUGE amount of the loans processed) will have a 27% increase in their fees. The monthly FHA mortgage insurance fees will increase from .90% to 1.15%. Wow! Hey, if we are going to hit them, then lets hit them hard! 27% increase at once! Ouch! Lets put this in perspective. On a $100K loan, this will increase the monthly payment by $19.96. On a $200K loan, this will increase the monthly payment by $39.91. Doesn’t seem like much? In effect a .25% rate increase equals about $4,000 less house for the $100K buyer, and $8,000 less house for the $200K buyer. In my market, that is a big difference.
(3) Lenders are now increasing the minimum credit scores needed to get a mortgage. Effective immediately, USDA (which provides 100% Rural Development loans) requires a minimum 640 credit score. I think everyone would agree that our lending standards are too tight. I’m not saying we go back to throwing out money to ineligible buyers like we did during the 2000-2006 explosion, but we need to be able to make good investment decisions without expecting the buyer to be the golden goose. If they have a job, good credit scores and want a modest house that fits their income, then lets get them in a house. Housing is incredibly affordable right now, but we can’t get the buyers into the homes because we can’t get them a loan. Lets remember that due to the economy, everyone’s credit score has taken a hit. Lets take steps to get good buyers into good homes.
(4) Lenders are also requiring higher down payments. Come on, who has 20% to put down on a home. Even for a $100,000 house, that is $20,000 CASH that some lenders say you must have in order to get a loan. Even in our market, $100,000 doesn’t buy you a lot of home. First time buyers, young recently married couples, single women….these make up a large number of the potential buyers on the market…but these groups are not sitting around with $20,000 - $40,000 cash. Which is why FHA loans make up a large group of loans since they only require 3.5% down, but the government can’t and shouldn’t support that much money, because that will cause even larger problems, including limiting the amount of FHA backed loans, which means less loans, less ownership.
These are just a few of the examples of a pattern that we are going the wrong way when it comes to increasing, or maintaining, home ownership. Home ownership numbers are already predicted to decrease, and that can only have a negative effect on our economy, our way of life, and our pride. Sometimes we can handle small increases over time, but this is too much at one time.
Oh, yeah, almost forgot. If the government shuts down soon, then there is the possibility that no government backed loans (FHA, VA, USDA) will be funded…at least until the government comes back online. This means buyers can’t buy and sellers can’t sell for now.
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