Skip to comments.Buy a Home, No Money Down!
Posted on 12/19/2010 8:32:46 PM PST by logician2u
My new special Politicians Top 10 Promises Gone Wrong airs again tonight. One of their failed promises is that if government fosters home ownership, that will benefit most everyone. President Clinton even claimed: Our homeownership strategy will not cost the taxpayers one extra cent. Bush was on board: We want more people owning their own home. It is in our national interest. Most politicians agreed. But those conceits, like so many others, went horribly wrong.
When the housing bubble popped and millions lost their homes many blamed greedy bankers. Senator Bernie Sanders complained that: Outrageous greed, recklessness and illegal behavior on Wall Street caused the horrendous recession. But economist Russ Roberts has it right when he points out that greed has been around since about the Garden of Eden.
The problem was that government made it harder for bankers to do the right thing. If a banker stayed with safe loans, he missed out on profit he could make selling lots of high-risk loans to Fannie Mae and Freddie Mac.
This chart from Roberts shows how Fannie and Freddie, at Congresss urging, bought more and more loans with low down payments:
By 2005, 43 percent of first-time buyers got homes by putting no money down.
Another law that caused nasty unintended consequences, the Community Re-investment Act, allowed community groups like ACORN to pressure banks to loan money to people with dubious credit records. If the banks declined, their requests to merge could be denied.
Another group that pressures banks is called New Jersey Citizen Action. Executive director Phyllis Salowe-Kaye tells me on the show tonight: We said to banks: you have to make special products that are affordable to low and moderate income people particularly women and minorities any bank merging knows they have to come and talk to us. A bank making loans has to come and talk community activists? Sounds like extortion to me.
Because the housing bubble hurt so many people, it is tonights politicians promise gone wrong number 2. Tune in at 9pm for number 1.
Number One, as some would guess, is all the 10,000 spending programs that Congress routinely approves and for which there is absolutely no Constitutional justification.
This is why the nation is teetering on the edge of bankruptcy.
If you missed the first showing, it will be repeated at midnight EST and again, I believe, on Monday.
That's on Fox New Channel (not Fox Business).
Oh now see, we forgot punctuation on that phrase. It should read, “No. Money down!”
Or for some unfortunate lenders, “money down the drain.”
I hope it repeats Monday. There are a few people I'd like to have see it.
You'll need to give them a call right pronto, then.
I just checked the schedule and the only times I found for it are 12 midnight and 3 ayem EST. Have 'em set their VCR, DVD or TIVO box because it doesn't look as if it will be repeated for the day shift tomorrow.
Next it will be “Buy one, Get one free”.
Im in the middle of arguing a related subject with someone right now. All he wants to do is blame CDOs (mortgage pools).
I don’t see how a CDO can be blamed when it is only has good as the mortgages that are put into it. It’s like blaming a home’s structural members for breaking, when the foundation was bad to start.
Stossel's special tonight goes a step beyond many reports I've seen, and for that he should get credit for being persistent.
It was the low interest rates that spurred lenders to loan, even to non-worthy borrowers, which created the bubble ultimately burst.
And I believe you can guess what mechanism created those unrealistically low interest rates . . .
Flying fickle fingers.
it was the mandates by congress!!
No one should be allowed to buy a home with less than 20% down!
No one should be allowed to buy a home with less than 20% down!Your mandate or from congress? lol. It should depend on the bank who issues the mortgage.
If someone can provide accurate income statements and future employment, then don't punish that person. It's up to the bank to determine if that person is worthy.
Yeah..but weren't those non-worthy buyers loans being backed by Fannie Mae/Gov't? I can't see someone lending just because the rates were low--they had to have an out, a way to relived themselves of the toxic loan.
I agree though, cheap money will always create a credit bubble. The Fed is the first one to blame, then all these stupid Lefty laws, then all the stupid RINOS that won't do anything to repeal RAT legislation, regulation.
It doesn't help either when banks have to compete with something like FHA, when they used to require 20% down. Who would want 20% down when you can get an FHA loan?
Congress should not mandate period. Let the bank decide.
I think a bank would almost decide a down payment based on the price of the home these days. But what do I know...
When we bought our home no one could get a loan with less than 20% down at any bank.
We saved for 8 years to have the $7k to put down on our $34k home in 1966.
Awww...we knew what you meaned. ;o)
Excellent points, great discussion. Thanks.
Unfortunately, we will all be pushed in the future, with debt, more taxes, higher prices, and inflation/deflation because of the stupidity and greed of others.
“Your an example of someone who did it the right way”
At that time there was no other way, you either put down 20% or you didn’t buy a home no matter what your financial condition was.
Today the only way I buy property is for 100% cash.
We can't easily make the banks themselves at fault when their objective is to make money. They did, in a similar manner to the way the S&L's were paying above-market rates for time deposits in the '80s, knowing there was an Uncle Sugar backstop to keep them solvent and keep depositors and lenders from losing all their money.
I'm hoping Stossel will sometime do a program on the next nation-wide bubble to pop: that is the grossly underfunded (and overpromised) public employees' retirement plans.
Unlike the housing bubble, this one doesn't have any FANNIE MAE/FREDDIE MAC or even an FHA to bail them out when the state funds eventually become insolvent.
No need for national bank regulations. Credit requirements can vary by location, especially when you're buying something like real estate.
Bought my first home in 1998. The mortgage broker asked whether I could afford 20% down to get a "conventional loan." Wasn't entirely sure what it was at the time--but conventional sounded good--so I did it. No regrets.
Low interest rates spurred borrowers to borrow. If anything, it would have been a disincentive to lenders, had lenders actually been all that concerned about holding the notes to maturity. They weren't. They were being sold, divided into tranches and sold again. The lenders were profiting from fees and commissions for handling the transaction, not from the paper itself, which barely touched their hot little hands.
Poor credit risks were accepted and financed as a result of government pressure. The risk was not borne by the lenders so heck they didn't give a hoot, recall that they were profiting from fees and commissions, not from the note, which was promptly sold, right along with the risk.
The low interest rates were the result of high demand for treasuries from foreign nations, China for the most part, sending all their dollars back home to roost in treasuries, thereby driving down the yield of the ten year, to which mortgage rates are tied.
A true conservative has spoken. Good job.
I'm glad John Stossel's regular weekly programs are on the business channel which sticks to the announced schedule.
One more try in another hour and a half; this time I'll set it and forget it.
That’s why they want everyone’s IRAs and 401ks which ticks me off. I’m not rich, but it’s a decent sum of money at stake if they take it—enough to make me wonder exactly WHAT I would do.
Agreed! I watched the whole thing. Made perfect sense to me. What is it with the clueless in Washington? Why do we (collectively) vote these inept and dangerous people into office?