The new loans will only be doled out to those who buy private mortgage insurance, have a credit score of at least 620 and offer complete documentation of their income, assets and job status. And, to further mitigate risk, the agencies will require borrowers to receive home ownership counseling.Oh, well, in that case...
The mortgages require "home ownership counseling". Well, that's great... are they going to counsel people on what to do when it's 3am on Thanksgiving morning and the water heater just committed hara-kiri all over the basement floor? How to pay for that plumber's bill? Or are they going to teach them to use a water shutoff valve, a mop, a couple wrenches and a propane torch to sweat a new joint on a new water heater?
I'm not kidding about the obscene amount of money.
Our agent told us to get a pre-qualification letter from a bank, so we did. We had a rough number in mind that we were comfortable with affording. We gave the bank everything - statements, balances, assets, incomes, the works - and the lady plugged the numbers into her computer and rattled off a pre-qual number more than double what we thought we could afford.
I laughed at her.
She showed me the numbers. Three percent down, whatever percentage of gross monthly income, debt-to-income ratios... sure, we could afford it! She tried to tell us more than once that we could afford this mortgage.
She was nuts. Plain nuts. Or at least I thought so. We'd have been eating a lot of beans and rice and ramen if we'd gone anywhere near the numbers she waved at us.
Over the last decade we've heard a few major words over and over in the headlines. Bubble. Sub-prime. "Too big to fail."
Still, according to Mark Palim, who directs economic and strategic research at Fannie Mae, it's a welcome expansion of credit.Helps who, exactly?
"It's not a radical departure from what we're doing now, but anything at the margins helps," he said.
When did we stop teaching fiscal responsibility? I (admittedly) learned some of it the hard way. MrsZ and I have had some tough months over the last eight years, and yes, some arguments and tears to balance budgets.
Now? We're not living check-to-check. We're far from wealthy. We do have a small balance on our credit card (which is being hammered down on a pretty strong plan). But we're living comfortably within our means*, and are a hell of a lot happier for it. (In fact, MrsZ just resigned from her job. It hasn't panned out the way we'd hoped and we're financially able to allow her to not work for a while without juggling bills.)
But now, less than a decade after the sub-prime crisis popped a bubble, we're setting up young homebuyers for failure again ... Why? Who does this benefit? And who doesn't have a chair when the music stops?
The builders benefit - because they are paid before they turn over keys.
The banks benefit - because the foreclosures can be resold, the loans are insured, and they made some interest while those wonderful sub-prime buyers living on the bleeding edge of their credit score were making payments.
The insurance companies benefit - because they're collecting a lot of premiums, and what the hell - they're too big to fail, right?
Who's on the hook?
Go look in the mirror. If you pay taxes, you're on the hook, and you should be asking SERIOUS questions of your elected representatives as to why they're willing to allow this again.
* - (having a third adult in the house, and associated income, of course, helps tremendously; that is fodder for a coming post)