We have a "no money down" loan thanks to the VA. Was the VA "irresponsible?"

[CTyankee]

Seventeen years ago we bought a nice 3 BR, 1 1/2 BA, house in a good, if modest, neighborhood in New Haven. We didn't have enough money for a 20% down payment. My husband is a veteran and was eligible for a VA mortgage with no money down. Nobody has ever said diddly about how the government was promoting irresponsible borrowing by offering veterans this deal (it's a one shot deal or it was then). Our loan is 18% of our gross monthly income.

This Republican talking point is ridiculous. The whole thing is designed to demonize poor and nonwhite people who believed in the American dream of home ownership. People have been told for YEARS that home ownership is stabizing for families, neighborhoods, and the larger community.

I guess the IRS is guilty, too. After all, they "subsidize" mortgages with a tax break that renters don't get. So every Republican who has a mortgage is living in government subsidized housing...

[acmavm]

1. You just laid out what I feel to be the biggest lie out of all this misery.

Not everyone was a scammer. Not everyone was a fraud.

And everyone deserves a home.

[CTyankee]

6. They always circle back to the poor and non whites, don't they? No matter what.

Just who designed the mortgage lending schemes that got people in so much trouble, anyway? It wasn't the borrower.

This is the old, old game of "divide and conquer." Get white people all riled up against "them." And "them" are always the same set of people. Ronald Reagan did it very well in the early 1980s with welfare (even tho there were more whites on welfare than blacks).

This is the WORST form of demoguogery, in my book...

[TBF]

13. "Divide and Conquer" is wider than that - it is used to separate everyone.

If you think about it, about .5% of this country controls most of the wealth. Looking at income isn't even that helpful because doctors/lawyers can make $100-500K and still be virtually poor while they're paying off their student loans.

You have to look at total wealth, and look at the families like the Bushes who control everything. They divide and conquer not just minorities, but also pit middle class folks against each other. If everyone is busy fighting over who is getting what amongst the poor/middle class, they are not focused on who is really controlling it all.

I would argue republican/democrat is a similar divide in many ways. Look to who is really controlling - it's not your neighborhood welfare queen (likely democrat) or the small business man who can barely make ends meet each month (likely republican). Look to the families with the inherited wealth, and the Warren Buffets behind the scenes controlling everything.

VA loans are most decidedly NOT the problem.

[Nicholas D Wolfwood]

2. No money down is really not the problem.

The problem is agreeing to terms that are outside of one's ability to pay. Period. Especially these days, a 20% down payment in my market (which is at least $80,000) is nearly impossible to achieve, given what I have to spend in rent every month ($1,600/month). I more than ably afford my monthly rent, mind you, and have for several years now, and considering that this amount is not far from where my mortgage payment would be, it's unrealistic to suggest anyone starting out would be able to save that amount of money in any reasonable amount of time.

20% was reasonable when you could buy a house in a safe neighborhood for $100k. Here, you can't even get a shack in the least safe part of town for that much.

The bottom line is that it should be based on affordability - how much you earn versus how much monthly debt you hold.

[ipfilter]

3. I have a VA loan. It's a good program.

In my case I was able to buy my "move up" home. It didn't make any sense to use my VA entitlement on my first home. One of the biggest benefits to a VA loan is that lenders are forbidden to charge mortgage insurance since 20% of the loan is guaranteed by Uncle Sam. This gives the homeowner more buying power. I probably would not have bought my current home without the VA loan for this reason.

[ejpoeta]

4. i remember bush touting the home ownership boom

i don't remember when that was. but he was claiming it as a victory. now the repulicans are basically blaming all these homeowners for the mess we are in with housing and banks and such. it was the deregulation. who was giving out loans without any verification of income???? i mean, come on!!! but blame the borrower. unsophisticated people who believed what they were told by the lenders. in some cases, yes, there may have been those trying to flip houses or whatever. but mostly people just wanted to be a homeowner. bush was pushing this. he was touting it. it's just backwards and ridiculous!!

[ipfilter]

7. Don't forget Greenspan encouraging banks to create

more financial products to allow home ownership.

[cobalt1999]

5. "no money down" is only part of the equation

I bet the VA had a limit on how much you could borrow so even with no money down there was a good chance you weren't overbuying.

A personal experience of "irresponsible" loaners. I looked at some vacation beach property in Florida. The property was about $500,000. I inquired at my bank for how much I could get a loan for. The answer: $2 million! There is no way in hell a person in my income bracket should EVER be given a $2 million loan. I was smart enough to laugh at it, but many didn't and actually took out those loans.

It's not just the amount down, it's the total amount, the payments, the length, the terms in TOTAL that make a loan irresponsible.

[ipfilter]

8. The VA limit is $417,000. nt

[CTyankee]

14. We bought our house for $167,000. Even in our economy, our house's value

has not dropped to that level. Ours is an interesting neighborhood in that it is within walking distance of an Orthodox synagogue, an important factor in our community with a large number of Orthodox Jews eager to buy a "starter" home near shull.

[CTyankee]

10. Of course, you are right. I was "responsible" in that I had a legit loan officer

and real estate agent. They did not lie or misrepresent the loan deal in any way. The truly irresponsible people were those who designed these loan packages. Poorer people desperately wanted to get on the next rung up the ladder and they had been told that home ownership was the key. In that sense, they were being responsible but they were lied to.

[cobalt1999]

18. I don't think you can place all the blame on one party or the other

Were the lending institutions being irresponsible? Absolutely.

However, the people taking those loans have some responsibility too. It wasn't only poorer people that took those loans either.

Where both sides of this argument lose credibility is when they try to place ALL blame and responsibility on one party. Just because a person can get 20 credit cards, doesn't mean they are blameless if they do and run them all up.

I walked away from what was an "irresponsible" situation, if I hadn't I'd put a good bit of the blame on myself.

[SmileyRose]

9. Renters are subsidized with taxbreaks too.

The apartment owner/management company deducts all sorts of expenses from taxes. Many newish complexes get property tax abatements and state money in the development and building stage. The expectation is that this is returned to renters in the form of lower rents.

[TBF]

17. So you think that works - that they pass it along in the form of lower rents?

I've got some land on a little island called Galveston...

[SmileyRose]

20. sometimes it does, sometimes it doesn't

I know quite a number of people who own property with less than 6 apartments. Without exception, their rents would be at least $100 more a month without the tax incentives, often more. A large complex that went up nearby about 10 years ago got a lot of incentives, the rests for the last 10 years have been extremely reasonable and the complex is very well maintained. For roughly the same monthly outlay that I have with my home, renters there get about the same square footage plus professional landscaping, all maintenance provided, water, trash, a pool in the summer, a fitness center, and free use of a community building for large gatherings. The accountant who handles their business said their rents would be, on average, about $150 a month more without the tax advantages.

On the flip side, there is a large complex in the city of Atlanta that is older, has quite a lot of section 8 residents, gets enormous tax breaks and was recently condemned by the city because it is not being taken care of and water was shut off due to 2 years of non-payment (2 years?).

[AP]

11. If you're a Veteran, you're getting a veterans pension, no, and a little extra if you were wounded,

and you have the option of much cheaper health care, so the fed gov't is making a calculated judgment that you'll be able to repay the loan (and, furthermore, you paid up front for the loan by giving the government some of the most productive years of your working life to the military for little pay).

When Bank of America gave nothing down loans to people they probably knew weren't good for it, it's a different thing. And who's to blame? If the bank is willing to give you money, do you second guess their team of accountants and MBAs? Or do you think they must know something about math and finance that you don't?

Who would have known that it was part of a boom and bust strategy to make as much money in bonuses in the short term and to destroy the economy so that the super rich could have even more power when things went bust for the rest of America. Not your average home buyer, that's for sure. And that's why we're supposed to have a government -- to prevent things like this. We just had the wrong people in charge of the government at a critical time in American history.

[ipfilter]

16. I only served one enlistment in the Navy.

It does not take much time in the military to earn veteran status. Those with pensions and health care are retirees who served something close to 20 years or more.

A VA loan is simply a loan that carries a 20% guarantee by the government. The risk to the bank is offset by the governments' implicit guarantee. My loan looks like any other note except there is a VA addendum and my loan was underwritten by VA guidelines. Otherwise, it's just a standard 30 year fixed loan.

[treestar]

12. There are also FHA loans requiring very little money down

And some counties have programs helping people to buy houses.

It's not like people weren't encouraged to do it, and it's a major part of the American culture, and then the economy goes bad and it doesn't work out and people are "irresponsible?"

The judgmental jerks are probably the same people who voted for Bush and thus got us into this mess.

[seabeyond]

36. first home buy.... i did that. put a thousand down and was to cover stuff

made a lot on that house too.

i thank that program

[JackRiddler]

15. Did they bundle your loan and securitize it for a profit?

Did they give you an ARM knowing the payments would shoot up into the stratosphere later? Did they try to deceive you in any way about the terms of the loan?

Did they give you or others terms they knew you probably could not carry so that they could issue more bonds?

Did they tout these loans as an opportunity to potential buyers?

Did they present a future earnings model based on the idea that the price of your home and others would perpetually rise, allowing one to keep borrowing against it?

Did they pay off Moody's to understate the risk and get a AAA rating?

Did they sell bonds to Norwegian pension funds?

Did they buy or sell Credit Default Swaps on the same set of loans they had issued?

Did they clone the bond on the basis of CDS payments, as a pure speculative investment with no actual collateral?

[wartrace]

19. No, the VA actually VERIFIED your loan application.

The VA probably wanted to see two years of your tax returns or pay stubs. They probably limited your loan amount to 28% of your monthly income and they actually RAN A CREDIT REPORT! In other words, the VA doesn't do "Liars loans".

[slackmaster]

21. There are a lot of stringent requirements for VA loans

You can't get one without documented income and a decent credit score. There is a strict debt-to-income ratio. It used to be something like no more than 22% of your income spent on housing.

[Thothmes]

34. Had these procedures been industry wide

we would not have the mess that we have now. JMO

[slackmaster]

35. I absolutely agree with you!

I have spent most of my career working in one aspect or another of the financial services industry. Back in the early '80s when I started, interest rates were very high and underwriting standards were strict.

[TwilightGardener]

22. Yep--all I paid was closing costs and a "funding fee" for my house, thanks to the VA.

Just because you get a break doesn't mean you're going to fuck it up.

[customerserviceguy]

23. The irresponsible ones

were the realtwhores, the scammy mortgage loan brokers, and all the others who feed off the fees and commissions generated by every closing, no matter how little sense the deal made.

Those are the ones who kept pumping away at inflating the housing bubble until it finally burst. They killed the goose that was laying their golden eggs, but the rest of the country is stuck with the cleanup of the slaughterhouse.

[TBF]

24. Those are people trying to make a living to feed their family. You are doing

the "divide and conquer" thing. Who really benefits from those fees & commissions? It's not the salesforce. It's the owners.

[customerserviceguy]

32. Did well over two decades in the title insurance business

and while there were intelligent, honest, and ethical people, I saw a lot more just plain greedy bastards. They knew this day was coming, they just lived in denial about when it would get here.

[FarCenter]

25. For a good insight into how the scummy wholesale mortgage business worked

Read Mortgage Lender Implode at http://ml-implode.com/

They have list of 334 major mortgage lenders that have "imploded".

[FarCenter]

26. New Haven is different from California

In New Haven, your mortgage was a personal obligation and the lender could go after your other assets and force you into bankruptcy.

In California, practically speaking, the typical mortgage is secured as follows:

"In a deed of trust, the borrower (trustor) transfers the Property, in trust, to an independent third party (trustee) who holds conditional title on behalf of the lender or note holder (beneficiary) for the purpose of exercising the following powers: (1) to reconvey the deed of trust once the borrower satisfies all obligations under the promissory note; or (2) sell the Property if the borrower defaults (known as foreclosure). Foreclosure involves the process of selling the Property to a third-party bidder or, in the absence of a sufficient third-party bid, acquiring title to the Property. The foreclosure sale, in most cases, satisfies the debt."

From http://www.dre.ca.gov/pdf_docs/re35.pdf page 6.

Note that "homeowner" doesn't have title to the home, it is owned by the trust.

The lender is only secured by the property, and the lender normally doesn't pursue the borrower's other assets with an "action for a deficiency judgement". In general, no bankruptcy is involved.

So in Connecticut, you expected to pay your mortgage or go bankrupt. The California homeowner expected the price of the house to go up or to walk away from the mortgage.

The states with the high foreclosure rates have mortgages that work like California, in that the lender ordinarily cannot force the homeowner into bankruptcy.

See the Federal Reserves map of foreclosure rates for subprime and Alt-A mortgages at http://www.newyorkfed.org/mortgagemaps/

[WorseBeforeBetter]

27. "18% of our gross monthly income" is responsible.

I bought my first place at 33%, and that made me nervous. Many (white, black, Dem, Repub, young, old...) were taking on mortgages WELL above acceptable thresholds. 60% of gross income is irresponsible on the part of: 1) lenders offering the mortgages; 2) buyers accepting the mortgages; and 3) regulators who weren't phucking regulating.

You're right about demonizing minorities and the poor. Wingnuts I encounter still spout nothing but "Acorn" and "Barney Frank."

[CTyankee]

28. Also, I decided at the time that I was planning to get the mortgage that I HAD to have a written

budget. It is simply imperative that you know and can see in black and white how much income/expenses you are dealing with.

[WorseBeforeBetter]

29. I think that's good advice for at all times.

I keep a simple Excel spreadsheet: income, monthly expenses, debt, savings, investments. I'm not rolling in dough, but it helps to see where everything is going. I can better reach goals when I see everything in black and hopefully not red. :-)

[CTyankee]

30. The best thing about a budget is that you can see where you can make adjustments.

If you have a big bill one month you can look at your discretionary income (which everyone has even if they say they don't) and figure out how to make up for the expense. It saves you a lot of worry. I tell people that having a budget is liberating...

[Johonny]

31. no, money down!

punctuation is always important.

[Thothmes]

33. But when you got your VA

backed mortgage, you had to go through a very thorough financial vetting process to ensure that you could pay back the loan. I got my VA loan in 1983.
Had to produce Federal and State tax returns for the proceeding 3 years, copies of current bank statements, etc. In the past few years, people could
no money down loans based on nothing more than their word that they made enough money to pay the loan back. No vetting process, no investigation into the financial backgrounds of the borrowers.