HARVARD study on The State of the Nation’s Housing

[HLS]

2014 report that will be taken seriously.

One perspective(that I disagree with) as a result of this was that loan qualifying should be easier so more buyers can qualify for loans.(this includes higher debt ratios and worse credit)

http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/sonhr14-color-full.pdf

There seems to be an attitude that EVERYONE, especially minorities, is entitled to ‘buy’ a house.

The reality is that if it were harder to qualify for loans and larger down payments were required,
houses would be selling for far less. Loans would be less risky.

It does not necessarily mean that fewer houses would be sold, but stronger borrowers could own multiple properties and rent them out.

The Govt programs that are supposed to make houses affordable, actually make them unaffordable to many.
Many buyers do not care how much they pay or what their interest rate is, they only focus on their monthly payment.

3.50% (or less) down payment programs still exist allowing buyers to be upside down from the day they move in.

[bearishgurl]

HLS, I’ll read the article.

I’ve posted a few times before here that I have never been in favor of 3.5% down mortgages (FHA 203(b) plan). Historically, the FHA has always had a very high default rate on 1-4 unit properties where they have guaranteed a mortgage under this plan.

see: http://piggington.com/fha_warning#comment-232383

Especially with the ridiculously high up-front and monthly MMI required with these loans made in recent years, of course these buyers are underwater from doc-signing forward and on into oblivion. In addition, MMI on these newer loans can no longer be canceled. Loan payoff or refinance to conventional financing is the only way to get rid of the MMI (now “MIP”). Do I have this correct, HLS?

As such, the FHA 203(b) program is nothing more than a debtor’s prison for “glorified renters.” In any case, the FHA loan ceiling in ALL US markets should have never been more than $300K, tops. This program was never intended for move-up and “luxury” home purchases. It was created in 1934 in part to assist low and moderate income buyers to purchase a “decent” home for their families.

3.5% of $300K is $10,500 and that is already a miniscule downpayment on a $310K home. That is not enough skin in the game to prevent ANYONE from walking on their mortgage if owning the property becomes the least bit inconvenient for them LET ALONE anyone being able to put a downpayment of ~$20K on a ~$565K home (using the current SD County FHA loan ceiling of $546,250 for a SFR).

https://entp.hud.gov/idapp/html/hicost1.cfm

The monthly FHA MIP payments are now so burdensome that they could cause a family to default all by themselves due to being a “monthly addition” to PITI. This problem is especially pronounced with FHA buyers who purchase properties with longstanding and substantial Mello Roos payments and also HOA dues in addition to PITI. In spite of low prevailing fixed interest rates, these addition(s) to PITI cause said FHA-mortgaged property to cost far more per month than if those same buyers had just rented it.

I don’t think the current up front and monthly MIP is or will be enough to compensate for the agency’s current and future losses from strategic defaulters and walkaways. As always, we’ll all be left holding the bag.

[joec]

Agreed…I think if like the old days, 20% down was required, the housing crash probably would’ve never happened and banks would probably not need to be bailed out.

20% down would eliminate probabl 85% of the buyers since people seem to have trouble saving money in general.

[bearishgurl]

[quote=joec]Agreed…I think if like the old days, 20% down was required, the housing crash probably would’ve never happened and banks would probably not need to be bailed out.

20% down would eliminate probabl 85% of the buyers since people seem to have trouble saving money in general.[/quote]

I think a 20% down requirement would eliminate some FTBs but repeat buyers, not so much.

The prospective FTBs who would be eliminated probably weren’t in good enough (financial) shape to be homeowners, anyway.

Then there is the VA zero-down mortgage (currently up to $527,500 for a SFR in SD County) to expose taxpayers to more deadbeat FTBs, many of whom default as soon as they get (predictable) “change of station” orders. Due to the VA “lender guarantee” equaling only 25% of the loan (and the vast majority of the VA’s defaulted properties returned to them in terrible condition due to the defaulted trustor usually moving in a hurry and leaving a ton of crap and filth behind), this is but one more failed gubment program which undoubtedly costs taxpayers billions in losses every year.

[scaredyclassic]

I have no idea what the future holds. But focusing on monthly payments strikes me as far more reasonable and prudent than focusing on prove which is in my view kind of meaningless.

[EconProf]

Another benefit to the 10% or 20% down payment buyers is that they had to develop self-discipline and budgeting skills over years in order to buy a house. So they not only had “skin in the game”, they had the habit of saving for the future. A no-down or little-down buyer has no such experience.

[spdrun]

As far as “minorities”, why do they deserve to own a home more than anyone else? It seems dirty to sell a home to people who can’t afford it based on their ethnicity and then have them end up being burnt.

As far as downpayments, you’re correct. Look at prices in Manhattan (where many apartment building HOA’s required 10-20% down) and Texas (where homestead laws encouraged larger down payments). No major downturn in 2008.

[Coronita]

So if interest rates rise, but lending standards are relaxed in the future (again), what will the net effect be?

I suspect fiscally prudent people will probably opt out of buying inflated home prices. But fiscally prudent people probably don’t make up most of america….

Maybe this time it will be different. (This time I have homes to sell…)

Dear Fed Gods,
Please relax lending standards again so folks can bid up 1/1’s in MM up to $300k again… Meanwhile, I’ll patiently wait to see if that ever happens, while my tenants pays for the mortgages and leaves a little left over in the process.

[spdrun]

On the one hand, you have a liberal twit Mel Watt in charge of FHFA (even he is going incrementally, trying deeper loan mods in Detroit first, which has nothing to lose). On the other, you have Julian Castro at HUD who wants to wind down Fannie and Freddie. We also has QM come into force this year.

I think the net effect will be zero-sum. And why would you want higher prices? Wouldn’t you rather be able to buy MORE rental property and have more tenants?

My ideal world would be cheap homes and high rents.

[an]

[quote=spdrun]On the one hand, you have a liberal twit Mel Watt in charge of FHFA (even he is going incrementally, trying deeper loan mods in Detroit first, which has nothing to lose). On the other, you have Julian Castro at HUD who wants to wind down Fannie and Freddie. We also has QM come into force this year.

I think the net effect will be zero-sum. And why would you want higher prices? Wouldn’t you rather be able to buy MORE rental property and have more tenants?

My ideal world would be cheap homes and high rents.[/quote]bubble => crash => more chance to buy more properties at a steep discount.

[spdrun]

I’d rather just have a gradual settling to norm since I’d rather not wait 10 years for a crash.

[HLS]

The housing market is a HUGE part of the economy in this country and correlates with the general mood of the country and a sense of wealth & security for many.

The govt has stepped in to create a market for mortgage backed securities along with govt subsidies, guarantees and insurance.

If there was no financing available for houses and
buyers had to pay cash, is there any doubt that houses would sell for less ?
If 50% down was required, they would sell for a bit more. If 25% down was required, prices would be even higher and when you get to almost nothing down, the prices become inflated.

What’s ironic is that the responsible ALL CASH buyer who has worked hard and saved to buy a house,
has to pay the same price that someone with crappy credit and no down payment has to pay.

Is it fair ?
If crazy financing didn’t exist, houses would sell for less. The prudent, responsible, all cash buyers would be able to buy 2 or 3 houses for the same amount of dollars and rent them out to those without the cash down.

The availability of financing a purchase allows for an inflated price.
If student loans were not available, I believe that higher education would cost less and those that truly wanted one would figure out how to pay for it.
Part of me believes that there shouldn’t be any auto financing and that credit cards should be ‘charge cards’ and required to be paid in full every month, carrying a balance should not be allowed.

[scaredyclassic]

Cars probably wouldn’t cost that much less without financing. They have long useful lives and help generate income. Financing at low interest therefore a good idea.

College would cost a tiny fraction of its price without financing.

[HLS]

An extreme example to make a point:
For those that only focus on the monthly payment,
on a 30yr mortgage the payment on $400K @ 4.25%
is the same as $612K @ 1.00% AND $328K @ 6.00%

To the buyer with a loan, the total payments on any of these loans over 30yrs will be $708,000, they may not really care what they pay for the house.

But the responsible cash buyer needs to come up with an extra $612,000 when rates are low and only needs to come up with $400,000 where rates are now but only $328,000 if rates were 6%

[HLS]

[quote=scaredyclassic]Cars probably wouldn’t cost that much less without financing. They have long useful lives and help generate income. Financing at low interest therefore a good idea.
[/quote]

Cars are a status symbol for many, and another large segment of the economy. NEW cars are not a necessity.
If there were no new cars produced for the next 10 years, I don’t think that there would be a shortage. Older cars would be kept running, people would still be able to get around and there would be a lot less debt carried.
If financing was not available, I think that cars would be selling for less.

If there were no new clothes produced for 10 years would people be walking around naked ??

[Author]

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