Author Topic: What could possibly go wrong with making home loans easier to get  (Read 8128 times)

ender

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This article is apparently from over a year ago, oops

Obama administration pushes banks to make home loans to people with weaker credit

This is unbelievably frustrating to me. Didn't we JUST FIND OUT HOW BAD THIS IS?

I think the Onion could probably copy this article nearly verbatim and post it. I would quote parts of this article here as excerpts but really, the entire thing is ridiculous.
« Last Edit: June 28, 2014, 07:14:10 AM by enderland »

Jennifer in Ottawa

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Re: What could possibly go wrong with making home loans easier to get
« Reply #1 on: June 21, 2014, 06:47:43 AM »
Well, this is a good news bad news sort of thing I think.  If it's true that American banks are declining mortgages to all but the the extreme upper end of credit scores then providing them assurances is a good thing.

People make mistakes, and if you've ruined your credit rating it can take a long time to improve it, regardless of how much you've changed your circumstances and philosophy about debt, borrowing and fiscal responsibility.

To my mind, if you can demonstrate adequate income, take the steps necessary to recover your rating to a certain point thereby demonstrating that you have learned from your mistakes and become a more responsible adult, and can provide a minimum of 10% down, you ought to be cut a little slack.

plantingourpennies

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Re: What could possibly go wrong with making home loans easier to get
« Reply #2 on: June 21, 2014, 06:55:35 AM »
The article is more than a year old, doesn't list any specific policy measures, and is mainly quotes and opinions from opposing talking heads.

It's click-bait.

best,
Mr. PoP

Ninja-Edit: OP, if you are concerned about this topic, why not do some research and find out what policies were implemented, and if they were effective?
« Last Edit: June 21, 2014, 06:58:47 AM by plantingourpennies »

Winston

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Re: What could possibly go wrong with making home loans easier to get
« Reply #3 on: June 21, 2014, 07:09:30 AM »
To my mind, if you can demonstrate adequate income, take the steps necessary to recover your rating to a certain point thereby demonstrating that you have learned from your mistakes and become a more responsible adult, and can provide a minimum of 10% down, you ought to be cut a little slack.

Agreed. Right now, lending standards have swung toward "too strict." IMO, the most important hurdles should be down payment amount (make sure the buyer has enough skin in the game) and solid employment.

ender

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Re: What could possibly go wrong with making home loans easier to get
« Reply #4 on: June 21, 2014, 03:27:56 PM »
The article is more than a year old, doesn't list any specific policy measures, and is mainly quotes and opinions from opposing talking heads.

It's click-bait.

best,
Mr. PoP

Ninja-Edit: OP, if you are concerned about this topic, why not do some research and find out what policies were implemented, and if they were effective?

Wow, I rather feel foolish, someone had posted this to Facebook and I assumed it was recent.

doh.

Le Dérisoire

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Re: What could possibly go wrong with making home loans easier to get
« Reply #5 on: June 22, 2014, 08:15:14 AM »
I really don't get why governments want to encourage home ownership (that is, beside getting more votes). A house is not an investment, it's a commodity. You do not get richer by owning a house rather then renting it. Should the government subsidy loans to buy cars? What about vacations in the Caribbean?

The only reason people owning houses end up richer is because they are forced to save money by paying of their mortgage. If the government wants to save people from themselves, it should at least encourage them to save money in something that actually makes more money (such as a pension fund or something), not a high-leverage, high-maintenance, illiquid commodity.

On the subject, see this recent post by Garth Turner: http://www.greaterfool.ca/2014/06/20/come-on-in/

arebelspy

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Re: What could possibly go wrong with making home loans easier to get
« Reply #6 on: June 22, 2014, 11:39:49 AM »
The article is more than a year old, doesn't list any specific policy measures, and is mainly quotes and opinions from opposing talking heads.

It's click-bait.

best,
Mr. PoP

Ninja-Edit: OP, if you are concerned about this topic, why not do some research and find out what policies were implemented, and if they were effective?

Well done Mr. PoP.



Garth Turner ... greaterfool.ca/

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kyleaaa

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Re: What could possibly go wrong with making home loans easier to get
« Reply #7 on: June 22, 2014, 01:20:25 PM »
Meh, the financial crisis, as bad as it was, is an extremely small price to pay for making homes more affordable to disadvantaged classes. I'll take 20 more recessions in exchange any day of the week.

Latwell

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Re: What could possibly go wrong with making home loans easier to get
« Reply #8 on: June 24, 2014, 10:56:15 AM »
I agree with others. This is a good thing and a bad thing. It is good for people like my SO. He messed up his credit prior to us being together. The moment we began dating, he paid everything off and has been impeccable with his payments since. That was over 5 years ago  you wouldn't know that he's turned a new leaf by looking at his score. It's been a nightmare trying to get his score up.

rocksinmyhead

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Re: What could possibly go wrong with making home loans easier to get
« Reply #9 on: June 25, 2014, 07:44:33 AM »
I really don't get why governments want to encourage home ownership (that is, beside getting more votes). A house is not an investment, it's a commodity. You do not get richer by owning a house rather then renting it. Should the government subsidy loans to buy cars? What about vacations in the Caribbean?

The only reason people owning houses end up richer is because they are forced to save money by paying of their mortgage. If the government wants to save people from themselves, it should at least encourage them to save money in something that actually makes more money (such as a pension fund or something), not a high-leverage, high-maintenance, illiquid commodity.

On the subject, see this recent post by Garth Turner: http://www.greaterfool.ca/2014/06/20/come-on-in/

I know this gets said a lot around here, but can someone explain it to me? Because my reasoning is yes, having a mortgage is basically just forced savings, BUT with the additional financial benefit that you don't have to pay rent in order to have a roof over your head. Well, I guess you could count your mortgage interest as being equivalent to rent (a monthly cost that doesn't increase your net worth), but I would think the amount would still be a lot less than typical rent. What am I missing??

ncornilsen

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Re: What could possibly go wrong with making home loans easier to get
« Reply #10 on: June 25, 2014, 07:59:10 AM »
maintenance. That's what you're missing.

Granted, my house was a bit of a project, and I knew it going in, but I've spent just as much on repairs and upgrades on my house in the last 4 years, as I have on the mortgage.

rocksinmyhead

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Re: What could possibly go wrong with making home loans easier to get
« Reply #11 on: June 25, 2014, 09:18:49 AM »
maintenance. That's what you're missing.

Granted, my house was a bit of a project, and I knew it going in, but I've spent just as much on repairs and upgrades on my house in the last 4 years, as I have on the mortgage.

good point. so I guess if maintenance+property taxes+mortgage interest comes out about equal to what you'd be paying in rent (not unbelievable), you are no better or worse off and it is merely forced savings.

Ayanka

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Re: What could possibly go wrong with making home loans easier to get
« Reply #12 on: June 27, 2014, 03:12:19 AM »
maintenance. That's what you're missing.

Granted, my house was a bit of a project, and I knew it going in, but I've spent just as much on repairs and upgrades on my house in the last 4 years, as I have on the mortgage.

good point. so I guess if maintenance+property taxes+mortgage interest comes out about equal to what you'd be paying in rent (not unbelievable), you are no better or worse off and it is merely forced savings.

Yes and no. In the end the mortgage payment will desappear. You guys treat equity as a savings, sadly this is not the case. Because if the market goes down again (and it is cyclical so it will), you will again have a housing bubble and house prices will drop. But if you don't have to pay the mortgage anymore, it also means the interest is gone, plus you are insured against housing problems (up to a certain standard). Therefor the market going up and down, doesn't mean you lose the roof over your head (or at least as easily).

From a pure financial point of view: when the mortgage is paid of the interest is gone. If the statement maintenance+property taxes+ interest = rent stays true, you start being ahead from this point.

YankeeSaver

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Re: What could possibly go wrong with making home loans easier to get
« Reply #13 on: June 27, 2014, 08:14:13 AM »
Well, this is a good news bad news sort of thing I think.  If it's true that American banks are declining mortgages to all but the the extreme upper end of credit scores then providing them assurances is a good thing.

They're really not, though. My wife and I got a mortgage a year and a half ago when lending standards were overall a little tighter than they are right now. We were told that we would need minimum credit scores of 650. While many Americans do not have a score that high, this is not outrageously high at all.

I obtained another mortgage for an investment property about a week ago working directly with a lender. Again I was told 650+.

YankeeSaver

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Re: What could possibly go wrong with making home loans easier to get
« Reply #14 on: June 27, 2014, 08:25:49 AM »
To my mind, if you can demonstrate adequate income, take the steps necessary to recover your rating to a certain point thereby demonstrating that you have learned from your mistakes and become a more responsible adult, and can provide a minimum of 10% down, you ought to be cut a little slack.

Agreed. Right now, lending standards have swung toward "too strict." IMO, the most important hurdles should be down payment amount (make sure the buyer has enough skin in the game) and solid employment.

I tend to disagree that they're too strict. I think that they're closer to what they should have been all along. What's holding home buyers back is that we're going through the worst economic recovery since the Great Depression. We still have a really poor level of employment when you consider the participation rate and the rapidly growing number of people on SSI and SSDI. Many people who are gainfully employed today are also recovering from recent unemployment and foreclosures.

Additionally, people near the bottom of income and education levels are disproportionately affected by the current job market. There is a huge difference in the rate of unemployment between those who have a college degree and those who do not.
« Last Edit: June 27, 2014, 08:30:08 AM by YankeeSaver »

plantingourpennies

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Re: What could possibly go wrong with making home loans easier to get
« Reply #15 on: June 27, 2014, 07:32:35 PM »

Well done Mr. PoP.



Haaahaha! Don't encourage me.


Blindsquirrel

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Re: What could possibly go wrong with making home loans easier to get
« Reply #16 on: June 29, 2014, 08:38:08 PM »
 Dunno on this, considering the USA government now has a chunk of most mortgages either good or bad credit risk for the banks does not matter much. In the last financial crisis, the tax payers got hosed for about $750,000,000,000 for the too big to fail banks. I speak only from experience in that our toughest years renting houses was 2004-2006 but GD we made bank on flipping them. Back then they would give a loan to anyone who could fog a mirror. If rent multiples stay reasonable, we will load up on rentals, if prices get high and the market frothy, it is time to fix and flip.  Have got some damn cheap fixed rate capital out of this so not all bad.

Le Dérisoire

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Re: What could possibly go wrong with making home loans easier to get
« Reply #17 on: June 30, 2014, 05:54:49 AM »
From a pure financial point of view: when the mortgage is paid of the interest is gone. If the statement maintenance+property taxes+ interest = rent stays true, you start being ahead from this point.

You are forgetting something very important here: opportunity cost.

The 300K$ you have in equity when your mortgage is paid off is growing at an average of 2,5% a year (the average long-term residential real estate appreciation). Meanwhile, the renter has the same 300K$ invested in something like the stock market, that has between 7% to 10% average annual return depending of the benchmark. That's almost 20K$ more a year in the pocket of the renter! And I'm not even compounding!

So interests + maintenance + renovations + insurance + taxes + opportunity cost - house appreciation = (+/-) rent in a balanced market.

EDIT: What I wrote here is true for small scale ownership (appartements, houses or small multi-plex). Big multi-plex and big condo towers are different (that's why the REIT own them).
« Last Edit: June 30, 2014, 06:02:00 AM by Le Dérisoire »

dude

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Re: What could possibly go wrong with making home loans easier to get
« Reply #18 on: June 30, 2014, 08:05:34 AM »
I really don't get why governments want to encourage home ownership (that is, beside getting more votes). A house is not an investment, it's a commodity. You do not get richer by owning a house rather then renting it.

This doesn't make sense to me. A house is more than just a house -- it is also the land upon which it sits.  And land is valuable for many reasons, not the least of which is, as the old saying goes, "they ain't makin' any more of it."  The value is regulated by the "laws" of supply and demand.  Own a piece of land/house close to a major economic center, like San Fran, San Jose, New York, Boston, etc., and you've got something with real value for a lot of reasons.

Jack

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Re: What could possibly go wrong with making home loans easier to get
« Reply #19 on: June 30, 2014, 09:04:27 AM »
You are forgetting something very important here: opportunity cost.

The 300K$ you have in equity when your mortgage is paid off is growing at an average of 2,5% a year (the average long-term residential real estate appreciation). Meanwhile, the renter has the same 300K$ invested in something like the stock market

The renter does not have that $300k to invest; he spent it on rent!

Any opportunity cost only applies to extra cost of ownership above and beyond what's spent on rent.

In some markets, including mine, that cost was actually negative: before I bought my house, I was renting a 2-bedroom apartment for ~$800/month. The mortgage (including taxes and insurance) on my 3-bedroom house is $~700/month.

What would have been the return on my -$100/month investment in the stock market, had I kept renting?

By the way: 4 years later, the rent for that same apartment is now ~$900/month. That same appreciation that causes the return in the case of owning property also reduces your return in the case of investing while renting!

ender

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Re: What could possibly go wrong with making home loans easier to get
« Reply #20 on: June 30, 2014, 05:10:26 PM »
What would have been the return on my -$100/month investment in the stock market, had I kept renting?

What is the return on your additional expenses associated with homeownership?

Or did you factor those into your mortgage payment?

There are a lot of factors into whether or not home ownership is more cost effective than renting. But please, for the love of all that is data-analysis, don't compare mortgage vs rent.

Le Dérisoire

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Re: What could possibly go wrong with making home loans easier to get
« Reply #21 on: June 30, 2014, 09:14:29 PM »
The renter does not have that $300k to invest; he spent it on rent!

If you read the small equation at the end of my last post, you can notice that I did not include "capital portion of the mortgage payment" on the owner side. I did not include it because it is not a cost. The "capital portion of the mortgage payment" is the cash that the renter can invest in the stock market or elsewhere. The owner has equity on his house.

"My" equation is true in a balanced market. You can use this equation to estimate the real cost of ownership. In some markets, it will be cheaper to rent. In others, it will be cheaper to own.

Finally, you compare your mortgage payment to your previous rent, which is the most common mistake people make regarding real estate. While the rent is a cost, only the interests part of your mortgage payment is a cost. It's like comparing apples to oranges. You also ignore every other costs that an owner has to support that a renter doesn't have to.

Disclaimer: this post is not meant to be harsh. I'm just a very bad writer.

Blindsquirrel

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Re: What could possibly go wrong with making home loans easier to get
« Reply #22 on: July 01, 2014, 09:46:33 PM »
Quote
This doesn't make sense to me. A house is more than just a house -- it is also the land upon which it sits.  And land is valuable for many reasons, not the least of which is, as the old saying goes, "they ain't makin' any more of it."  The value is regulated by the "laws" of supply and demand.  Own a piece of land/house close to a major economic center, like San Fran, San Jose, New York, Boston, etc., and you've got something with real value for a lot of reasons.
   Actually, I find that people have a very emotional attachment to houses in many cases. Rent or own it is where you live you life. We own 15 but I have a great attachment to the one I live in. The others are numbers on a spreadsheet to me but very, very important to the tenants. Some of which tenants have bought us the houses they live in and are working on buying it 2-3x. The appreciation in HCOL areas is great. The cash flow available in the Midwest will blow your mind.

usmarine1975

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Re: What could possibly go wrong with making home loans easier to get
« Reply #23 on: July 02, 2014, 12:51:07 PM »
Making home loans easier to get would increase sales which is what your realtor wants.  I am one of those risky borrowers from the 2000's.  I was self-employed and for the most part had trouble showing documents needed by most banks.  Most of my loans were no doc loans.  My credit score has always been good and my record for paying loans is good as well.  But by definition my loans are the ones that many defaulted on.  The difference being I don't blame the bank for giving me my loans. I am thankful they gave me the loans, it has put me in a great position now and an even better situation later.  I was able to leverage what money I had to build a net worth and a portfolio that will provide income for me until I die and hopefully if my children want income for them after I pass.

I think what needs to happen is common sense lending.  A loan officer should be able to make certain judgement's regarding a borrowers ability or interest in paying their obligations.  I signed the loan application and the final agreement in which the bank transferred money to another party for which I received ownership of a property.  The bank is not in the business of owning property I am, the bank is in the business of making loans to people like me that makes them a net profit or it's depositors a profit.  Sadly too many feel that they got screwed although some did.  Their realtor talked them into paying to much for a property or buying a property they couldn't afford.  Or they wanted a property and were willing to pay more then it was worth.  It's not an easy fix. 

The only issue I have ever pondered is how Realtors have been able to profit on both ends of the deal.  Selling the overpriced house to an individual and then once again selling it when it forecloses etc? 

joleran

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Re: What could possibly go wrong with making home loans easier to get
« Reply #24 on: July 03, 2014, 03:48:22 PM »
I think what needs to happen is common sense lending.  A loan officer should be able to make certain judgement's regarding a borrowers ability or interest in paying their obligations.
The bank will never let this fly, it opens them up to liability and lawsuits for discrimination against protected classes (race, age, gender).

usmarine1975

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Re: What could possibly go wrong with making home loans easier to get
« Reply #25 on: July 07, 2014, 09:13:44 AM »
Yea I agree I don't think it will ever happen.  On the flip side I would also like to see some reform in regards to frivolous lawsuits.  But what do I know.  I have good credit and a great history in regards to loans and I have to fly through hurdles like crazy to get loans.  Granted I have more loans then most.  I have multiple mortgages on Rental properties.