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Obama gov't solves housing market crisis

Discussion in 'Politics, Elections & Legislation' started by wireguy, Jun 10, 2011.

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  1. wireguy

    wireguy TS Member

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    http://townhall.com/columnists/lindachavez/2011/06/10/killing_the_housing_market/page/full/

    Linda Chavez

    Killing the Housing Market
    6/10/2011


    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.
     
  2. Barrelbulge(Fl)

    Barrelbulge(Fl) Banned User Banned TS Supporters

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    Those guidelines were in effect back in the 70's. Loosening the guidelines is what created the problem. Bulge.
     
  3. halfmile

    halfmile Well-Known Member

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    Clinton's repeal of the Glass-Steagle act started the mortgage feeding frenzy by the more unscrupulous of the money boyz. They had been chipping away at it for quite a few years.

    the rest had to follow suit to survive.

    HM
     
  4. Barrelbulge(Fl)

    Barrelbulge(Fl) Banned User Banned TS Supporters

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    It actually started with Carter. He started a program to "keep the money in the neighborhood" Then Clinton jumped in and really did it. Bulge.
     
  5. TOOLMAKER 251

    TOOLMAKER 251 Active Member

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    When I purchased my 1st home in 1973 you needed 20% down minimum and you could borrow 2.5 times your gross income.
     
  6. Barrelbulge(Fl)

    Barrelbulge(Fl) Banned User Banned TS Supporters

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    2.5 times your gross for house value.
    Payment no more than a weeks salary
    20% down, or 10%, and you paid debtors insurance until 20% equity was reached.
     
  7. capulona

    capulona TS Member

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    Not everyone in the USA should own real estate. This is a false assumption advertised by financial institutions that every American can own their home. Then they capitalized on that belief.
     
  8. TC

    TC TS Member

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    A home loan should be the most secure loan a bank can make. There is nothing wrong with 20% down and 2.5 times gross. This whole mess was caused by the no limit, no money down, everybody qualifies fiasco.
     
  9. RobertT

    RobertT Well-Known Member

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    Regardless of the past, this is another brick in the house that Obama is building.

    Robert
     
  10. b12

    b12 Well-Known Member

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    If I could give your money away it would by me one hell of a lot of free vote.This is the way politics works. Through a carrot in font of a starving wild horse and you can sit on him while he eats. But when he is done look out. You are going to land on your ass. Wild Bill
     
  11. wireguy

    wireguy TS Member

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    You guys are missing the point. It isn't the same world as when those rules made sense. No one is saying loans to bad risks should be made, but people are in such difficult circumstances today that having CONGRESS rather than the lending agencies making those calls, and making them by a "one size fits all" method, is going to keep a lot of people who might otherwise be looked upon as "worthy of a risk given the state of the market" from being able to buy. All that does is keep existing homes un-sold and keeps the value of real estate artificially depressed. These decisions should be made by the lenders on a case by case basis, not by congress. This is just more big brother government interfering in the marketplace and the results are going to be what the results always are when government powers it's way in where it has no business.
     
  12. Brian in Oregon

    Brian in Oregon Well-Known Member

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    Zero the Clown is determined to make the economy worse.
     
  13. Don Steele

    Don Steele Well-Known Member

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    There's no "right to own a house". Fact is, in this area...S. FLorida...the REALLY smart folks rent a place to live and put their money into gold and/or other commodities. Many who followed the "American Dream" are underwater, upside down, and owe more than their place is worth. Some freakin' dream huh...???
    They did not choose wisely. NOT the government's business. EVERYTIME the federal government interferes with the natural flow of capital...supply and demand economics....they make things worse.
     
  14. wireguy

    wireguy TS Member

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    Totally agree Don, and this legislation is a perfect example. The arrogance of Congress critters including the republicans is outrageous. The level of ignorance displayed by these people of economics is frightening. I personally know a guy who is running for the house and he is nothing more than a petty criminal.
     
  15. Catpower

    Catpower Molon Labe TS Supporters

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    A few years ago I did a bunch of a/c work for a huge credit union in the Dallas area, one time I was working on the President's vav box for his office, to get to the part I needed to I had to take off the return air duct, as I was working he was talking to somebody in Washington, but I could only hear one end of the conversation, but I could hear it like I was sitting in the room with him, he was kinda laughing and joking, about making the huge loans to saps that will never be able to pay them off, and the guy on the other end must have asked him if he was nervous about doing it, because he answered " Not at all, at the end of each day the loans are sold to Freddie or Fannie"

    The bastard knew he was making bad loans and was dumping them on the govt
     
  16. Catpower

    Catpower Molon Labe TS Supporters

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    Roger, the shit's of it was they bought a 65,000 sq ft building just for loan servicing, and they had aisles set up ushering the applicants through like cattle, that was about 2005, my wife went with me on a service call in that building, and then I said this is going to be just like the crash in the later 70 early 80's, just looking at the people you could see that a bunch of them didn't belong in there, wish I would have been wrong, but glad we saved money like hell, bought all of the toys we wanted and paid cash for them
     
  17. birdogs

    birdogs TS Member

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    Bulge is correcr on at least two, if not more points. The 28% and 36% mentioned were called "front" and "back ratios". They were traditionally employed by portfolio lenders (banks which loaned their own money) to assure that the mortgages would be paid back. They were replaced by Fanni and Freddie rules which were calculated to make more applicants qualify for a mortgage. This gave rise to "mort5gage companies" who only originated mortgages and then sold them to Freddie and Fannie. These "mortgage origination companies" had no skin in the game!

    Carter did in fact impose the "Community Reinvestment Act" which forced banks to loan a specific percentage of their profits within their own communities. Banks often had to make risky loans to meet these requirements. Dodd and Frank built on this to cause the present calamity.

    The easing of Glass-Steagle requiremens, in particular Section 20, had less to do with the housing crisis than with the financial crisis. It removed the firewall between investment houses and banks allowing banks to enter the securities business directly. The stage was set for a repeat of the stock crash of 1929. If point of fact, the financial crisis it caused manifested itself differently this time.
     
  18. crusha

    crusha TS Member

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    Sure glad that's solved now.
     
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