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Separate but Unequal Borrowers
A proposed mortgage qualification rule could end home ownership as we know it.
Home ownership as we know it could be a thing of the past if a proposed Qualified Residential Mortgage Rule (QRM) takes effect. The proposed rule would be especially damaging to the homeowner aspirations of minority and working class citizens, as I recently explained in a letter to the heads of the six federal agencies charged with developing risk retention regulations under the Dodd-Frank Wall Street Reform Act. Here's why.
The rule would require prospective borrowers to present a 20-percent down payment, spend less than 28 percent of their monthly gross income on housing, and have total monthly household debt capped at less than 36 percent of their income. Most people can't afford to put 20 percent down. And, when coupled with an additional requirement of near-pristine personal credit standards, these proposed requirements could end the standard 30-year fixed mortgage and replace it with a new class of "high-risk" borrower, formerly known as the responsible middle-class borrower.
Housing industry experts agree. In April, a coalition of trade groups including the National Association of Realtors, the National Association of Homebuyers, and the Mortgage Bankers Association issued a joint report, saying in part that it would take 14 years for the typical American family to save enough money for a 20-percent down payment. "A 20-percent down payment requirement for the QRM means that even the most creditworthy and diligent first-time homebuyer cannot qualify for the lowest rates and safest products in the market," they added.
John Taylor, CEO of the National Community Reinvestment Coalition, calls this a civil rights issue. "What has been proposed essentially creates a separate and unequal system of finance for people of color and for blue-collar, working-class people where regardless of your creditworthiness, of whether you're someone who has a great credit score and pays your bills on time and plays by all the rules, if you're not well-heeled enough to come up with 20 percent or if your household debt-to-income ratios are high… you're going to go into a separate and unequal category of financing where you're going to have to pay more," he said. We agree.
Adding high minimum down-payment requirements will only exclude hundreds of thousands of consumers — including legions of minority renters — from home ownership. And any rule or action that further stifles an already severely depressed housing market for first-time buyers, including many people of color, will also negatively suppress the entire housing industry — realtors, builders, retailers, suppliers, and many others. Clearly, what's being proposed is anti-jobs, anti-growth, and in absolute contravention of the American Dream.
The American home, by definition, reflects much more than mere property. It represents the ability to build wealth for all those with a stable income and a demonstrated history of financial responsibility. It is the foundation of family and community, and represents the collective promise of the chance to build prosperity that lasts through generations.
This promise must be reaffirmed and protected in whatever form the new housing finance model ultimately takes.
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23 Comments so far
Show All"the National Association of Homebuyers"
surreal.
is there also a National Association of Homesellers?
Interesting point. I have owned (with a bank, or course) three homes in the last 25 years. But I have never been asked to join the National Assoc. of Homebuyers. I wonder who belongs to it.
Perhaps we should look beyond the name and think of it as an astroturf association. A writer once joked about a (fictional) group called the "Friends of the Tuna," formerly the "Tuna Fishermens' Association." Perhaps this one is being funded by the Koch brothers to lobby for whatever interests them these days.
Is there also a National Association of Homeless?
If this passes the price of existing homes will collapse. Then the Koch Bros. & the rest of the Oligarchs can buy up the rest of the country for pennies on the dollar.The destruction of the what was left of the Middle class will be complete. Mission Accomplished.
" pennies on the dollar. "
all it's worth.
If you don't own your home and pay rent, your never going to get out of that hole!
Financial Slavery
I'm consistently shocked that when discussions of "housing" & "housing prices" are mentioned anywhere, that the financial machinations of the past 10-15 years in the usa aren't waved like a flag to everyone! Why should the house I purchased in 1999 for 250g's, be worth $6-700,000 now (Brooklyn, ny)? Instead of the 50 or so grand we needed when we bought a house, a new buyer in our neighborhood would now need $100,000 - 150,000 to buy a house if they are putting 20% down. I say, that when housing prices have gone back to pre-2000 levels, maybe average people could afford them again. As it is, you need to be quite well off one way or another to buy.
As I understand it, home ownership has never been really high. As long as we have private property, it's not going to be affordable for everyone to buy. And yeah, you probably should put about 20% down! But since the prices have been raised by the crooked banksters & government, it's a whole new game. I think that The Bush administration & the Fed. Reserve, realizing we were headed for a depression in 2000, installed those extremely low interest rates to keep "money moving". Well, they moved it to where only rich people & corps. can get at it!
Oh, do we need that new constitutional convention! All these organizations mentioned above, are playing "Nearer My God To Thee", and rearranging deck chairs on the you-know-what...
People can not have it both ways . The single most determining factor in transferring wealth from the Working class to the Banks and their shareholders is the interest payments made on debt.
This article suggests that system be perpetuated by encouraging people to go into debt.
If it takes 14 years for the average worker to set aside enough money to afford the down payment on a home then I suggest two things are true.
That person does not make enough money.
Housing prices are too high.
If THAT the case then policies that ensure the Worker make a decent income and that housing prices do not escalate must be implemented rather then policies that encourage said worker to take on more debt.
A fairer distribution of wealth would be in order rather then an unfair distribution of debt. To the point of ensuring housing prices do not escalate out of reach, the market based system of "supply and demand" wherein housing is seen primarily as an investment vehicle and a storehouse of wealth rather then as shelter has to be ended.
This means ending the private ownership of land and having the land owned in Common. The purpose of that land "held in common" by its people should be to provide sustenance and shelter for the people and not profits for the banks.
In summary I disagree with every point in this article as it perpetuates a flawed system of debt , ownership and wealth transfer.
I second your disagreement.
Amen GwNorth,
Housing as commodity is bad enough, but prices being determined by fraudulent financial machinations which in the aftermath are allowed to stand is an outrage and turns into absurdity when new purchasing policies adapt to the resulting prices created by this fraud!
GW, I think you make a lot of good points til you get to the "land owned in Common" argument. There are a number of things we can do to make housing affordable including having national policies such as estate taxes, and progressive taxes on income that keep wealth spread to the masses. This article incorrectly is trying to still prop up housing prices artificially. Even getting rid of the property tax deduction is an artificial subsidy that doesn't make housing more affordable but rather just artificially raises the cost of all homes. If you get rid of the deduction, prices will adjust to people's income. This article argues for the same type of deregulation that built the housing bubble.
You still ascribe to the "market Theory" wherein you make housing a Commodity. So no I can not agree with your point.
Housing prices should not rise and fall based on the market. The ability to have shelter should not be predicated on ones income.
That some people live in the streets because of NO Income while others have 9 or ten homes each of 10000 Square feet because of an abundance of income is market based pricing and wrong at every level.
People should have a RIGHT to have a roof over their heads and society CAN afford this.
(I am adding this by way of example)
Here in Vancouver the Average price for a detached home, 4 bedrooms 2 baths is close to 1.2 million dollars. In Brandon Manitoba the same home would sell for 200000 dollars. How can wages earned by the worker adjust to this FAIRLY in a market based system? Should all the low wage people work in Brandon Manitoba and all the high wage people in Vancouver? That makes little sense and is hardly Democratic.
Vancouver sees much of its land and housing bought up by wealthy foreigners who see that lack of land as an investment opportunity. Developers will also buy up chunks of land, hold it off the market as prices rise then release it in drabs so as to maximize returns.
If any buy a home as prices inflate through these measures then the system must act to prop up those artificial values or said home buyer will lose wealth. This also results in entire neighborhoods protesting against low cost housing or senior housing and the like because it will deflate their own property values.
It a bad system all round.
Now if one looks to certain swathes of land and given the fact this statement is very conditional and based upon the integrity of the band council in charge....
Lands held by First nations people are surrounded by some of the most expensive real estate in all Vancouver. Were that land to be privately owned those prices would inflate out of control and would soon not be affordable by the First Nations peoples. Even more of them would become homeless.
Indeed a law to promote the private ownership of law on reserves in the USA was passed for that very reason. That to allow speculators to buy up that land, develop it and thus break up the size of the Reserve.
I have an abundance of other examples to demonstrate how this system of Housing as a commodity wherein the price based upon market fluctuations is a bad idea. The Concept of land being held in Common is a difficult one to grasp but it served the world well for thousands of years. I equate access to housing as the equal of access to health care and do not feel it serves the interests of a society to base either upon ones income.
Who exactly is making this rule? Is it the federal gov't? Some banking association? Why should there be a rule like this? Every situation is different and each lender should make its own rules, and, of course, live by them.
From a different perspective, if one cannot save for a down payment, I don't see how one can afford a house. We rented until we were 37 years old. Horrors! We couldn't buy a home for 14 years! In the last 18 years, I've had 2 3yr periods in which I averaged $300/month in repair and maintenance, from chimney repair to termite infestation to a $750 car repair with much in between like appliance replacements, etc. That was money that would have been saved. If it didn't exist, I'd have to spend savings. If savings didn't exist, my house would be someone else's.
Why is it so terrible to wait and save? Prices and wages do not go up forever.
"Who exactly is making this rule?" Great question. But I disagree that each lender should make up its own rules. We saw how that worked out. We need a uniform set of rules that protect those who want a home from predatory practices, from getting loans they clearly cannot afford, and at the same time rules that provide mechanisms for people of moderate means to own a home if they wish. We also need rules that prevent bundling of mortgages into funny money instruments and other casino-like practices.
With all the unemployment and job insecurity, it is a risky time to buy a home, or even to pay rent. People need help! Why not use the model of the post WW II GI bill, but leave out the factor of racist discrimination and redlining? Why not more public housing, but better designed with retail spaces and other amenities?
"We also need rules that prevent the bundling of mortgages..." This should be primary. Then lenders assume the risks. I could not believe it when we started hearing about all these mortgages being commoditized.
Regarding making the rules--Some lenders will be willing to take on more risk, some won't. Personally, if I were a loan officer, I would not make a home loan to someone who did not have at least 10% down, but each case is an individual one and should not be micromanaged. I don't think the problem was letting lenders decide, but 1) allowing the commoditizing of mortgages 2) artificially low interest rates encouraging homebuilding/buuying in order to stimulate the economy 3)allowing "too big to fail" lenders (repeal of Glass-Steagall) And probably many more.
As a practical matter I don't see the value of giving more power to the federal gov't that is basically a corporatocracy/kleptocracy
Given the subject of this article and the comments already made here, it seems to me that re-posting the following comment and video link is appropriate in this thread.
- -
"Any sensible person right now would join an anti-Capitalist organization."
That quote is pretty much the take away conclusion of this video..
This talk originally took place on April 26, 2010. At this point in time as the finance crisis has been transformed into a sovereign debt crisis and the ruling class has regained its footing the blame and scapegoating part of their class war has shifted again to accusations of the greedy unions the excessive power of labor.
Check out this very funny RSA Animate video on the Crises of Capitalism!
YouTube Video URL: www.youtube.com/watch?v=qOP2V_np2c0
Video length: 11 minutes, 11 seconds [April 26, 2010]
- - - - -
Originally posted in “Your Number is Up: Species Doomed by Mathematics”
by Kathy Marks in Sydney
Article URL: www.commondreams.org/headline/2011/04/09-2#comment-1801193
* * * * *
Excerpt from “A Primer on Class Struggle” by Michael Schwalbe, Common Dreams, March 13, 2011.
“The most important arena outside the workplace is government, because it’s here that the rules of the game are made, interpreted, and enforced. When we look at how capitalists try to use government to protect and advance their interests -- and at how other groups resist -- we are looking at class struggle.”
Article URL: www.commondreams.org/view/2011/03/31-4
* * * * *
Smarter,
Your comment about debt reminds me of a great animated video on the crises of capitalism, which is full of interesting and humorous images and lecture references.
The video starts slowly but the humor builds along with the explanations.
The video does mention predators. The problem of human predators has also been discussed here.
At a number of points in the video David Harvey speaks about the importance to capitalist and capitalism in increasing the debt of the working class.
Here is a description of the video:
"In this RSA Animate, renowned academic David Harvey asks if it is time to look beyond capitalism towards a new social order that would allow us to live within a system that really could be responsible, just, and humane?
This is based on a lecture at the RSA (www.theRSA.org)."
YouTube Video URL: www.youtube.com/watch?v=qOP2V_np2c0
Video length: 11 minutes, 11 seconds [April 26, 2010]
Let me get this straight.
The Federal Reserve invents money out of thin air.
Banks, despite a proven record of fraud, are allowed to "borrow" that money for 1%-2% while showing no hard assets except letters of credit i.e. loans.
The banks then lend the money to us at 5% but they skim 1.5% to 3.5% as "points" or "origination" fees.
The bank then sells the mortgage, and the risk BACK to the Federal Government (Fannie Mae but same difference) thereby pocketing their cut and eliminating their risk. Then they pay back the Fed. wash, rinse, repeat.
At no point are the executives or officers of these banks EVER taking a risk of losing their own money. Even when they engage in provable fraud they get to keep their salaries and bonuses.
Time to whip the moneylenders out of the temple folks. Real whips only please. No metaphor.
While whipping the moneylenders out of the temple does have a special appeal, the simplest way to stop this is to stop the sale of mortgages. Mortgages should only be sold when a bank goes into bankruptcy. We should not be commoditizing mortgages, period. You are absolutely right, we take all the risk out of it for the bankers and place it on the taxpayers.
There is no way to "tweak" this problem. We have been living in a credit bubble for decades, too many people believe borrrowing money is an answer. The banking establishment thrives on this. There is no way to stop downdrafts, homes are under water because they were oversized and overpriced, just like fast food. They were overpriced, in part, because banks got higher fees for bigger loans and were able to unload them by bundling, etc.
They keep covering up one bubble with another, eventually it's all going to blow.
I don't think its racist or anti-working class to expect fiscal responsibility from everyone. Lenders cannot be absolved from risk. If home prices come down, those priced out of the market won't be. The problem is allowing giant corporations to buy the houses wholesale. Corporate power is what needs to be fixed. Everything else is spitting in the wind.
"What has been proposed essentially creates a separate and unequal system of finance for people of color and for blue-collar, working-class people" - Why mention people of color? So wealthy blacks will be banned from home-buying? There's nothing in the proposal saying anything about black people so why not just leave it at working class people? And since when is it onerous to put 20% down? I thought that's what everybody has always done.
Separate but Unequal Borrowers
Since when is owing money to a bank instead of paying rent home ownership?
The bank is the landlord until you have paid off the loan. Read your contract to see the inspection clause and the maintenance clause.
Now when housing prices continue to drop "like a rock," it seems that despair must be the driving force to take on debt.
It might be worthwhile for those who wish to live better lives to spend some time thinking about the many ways that one can gain a "home" without being shackled to the debt schemes of bankers' agents and real estate agents.
A better world is possible when we step toward freedom.