Dec 10, 2014

Housing Bubble: Round 2

Fannie and Freddie will again back mortgages with 3% down. (Warning: Autoplay with sound.)

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?

When we bought our first house in 2009, we didn't really know what we were doing. We had an agent who got lazy. We had a deal explode underneath us (which cost us a sizable chunk of money in fees for inspections etc - today I realize we could have probably filed a small claim suit for those fees as we'd have not made an offer and entered a contract if  the seller had actually made the legally-required disclosures), we had banks that wanted to give us obscene amounts of money, and truthfully, we didn't know what we wanted.

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.
"It's not a radical departure from what we're doing now, but anything at the margins helps," he said.
Helps who, exactly?

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)


pediem said...

I got my "home ownership counseling" from my dad, mostly. Some from my mom. They're still the ones I call when something goes belly-up around the house or when I need advice on how to do (or how NOT to do) something.

And yes, even when I was looking to build this house, the bank was willing to give me far more than I was comfortable with taking. It took me almost 6 months of working with the architect, figuring out where ever blessed outlet was going, to get the final cost down to what I was ok with...because it's just me. No extra money coming from someone else's salary, and the way things are right now, it's a good thing I've got some wiggle room.

Bubblehead Les. said...

I remember the Democommies pushing the Dodd-Frank Bill through during the Bush Administration and thinking "This is going to Bite us on the Butt when all those "Politically Correct" New Home Owners actually have to start PAYING their Mortgages."

I remember reading how the Big Banks and Mortgage Companies started started chopping all those 'Sub-Prime" Loans up so as to not get stuck with Junk.

I remember how the whole House of Cards came down, and Millions of Good, Solid Homeowners watched their Market Value plummet like a Stone.

I remember how Millions lost their Jobs, and TRILLIONS of Dollars were Printed and sent out to all those Companies who were "Too Big to Fail."

And now, just when we are finally crawling out of the Hole that the Politicians dug for us, they want to start the Whole Thing all over again?

Gee, is Obama trying to make the Country into a WORSE MESS than when he came in, all because he couldn't keep his Henchmen and Cronies in their Seats on Capitol Hill?

Talk about throwing a Temper Tantrum because one's "Fundamental Transformation" collapsed like the Hindenburg!