Feds rethink policies that encourage home ownership

[The Northerner]

Just how much should Uncle Sam do to help Americans buy their own homes?

For 70 years — and for the last 15 in particular — the answer has been: Whatever it takes.

Now, policymakers are pausing to reconsider. In the next few months, they'll weigh whether there can be too much of a good thing when it comes to helping families finance the American Dream.

The rethink could mean a shake-up for a mortgage market addicted to government subsidies.

"This process of figuring out the government's role is going to involve some hard choices," says Alyssa Katz, author of Our Lot: How Real Estate Came to Own Us. "The moment you start changing the nature of what is guaranteed by the government, what is subsidized, you start to change the alignment of winners and losers. ... We took for granted that anyone could get a mortgage."

Using guarantees and tax breaks, the government pushed home ownership past 69% in 2004. Then it all came crashing down.

Read more: http://www.usatoday.com/money/economy/housing/2010-08-11-housing11_cv_N.htm

[mike r]

1. A mortgage is not for everyone

contrary to your local friendly realtor/broker.

[DesertFlower]

3. i agree. nt

[DJ13]

2. And another liberal ideal heads towards the trash

[marginlized]

6. Was it idealistic liberals or an unregulated banking sector?

The assumption that the American middle class was based on home ownership goes back to the 1940's, long before any recent mayhem in the financial markets. Allowing for deductable mortgage interest isn't breaking the Federal budget. That problem has more to do with a-typically low income tax rates on the wealthiest few percent. Typically above 60% during periods of economic recovery like the one we're in now.

[sandnsea]

4. This is fucking bullshit

People did fine paying their mortgages. The morgages were set up as money-making schemes for Wall Street. Wall Street thought they could reset interest rates forever and people could just keep forking over dollars. Wall Street failed, not the homeowners. If people can pay rent, they can pay a mortgage.

[madrchsod]

8. in my market area my total house payment is cheaper.....

than what i could rent out my house.

[QC]

18. +1

[RandomThoughts]

5. If the economy was not tanked then the people getting those houses

could have paid for them. The market tanked by the drop in incomes as much as some percieved opening up of home ownership possibilities.

[sandnsea]

11. If Wall Street hadn't played mortgage roulette

The economy wouldn't have tanked.

[madrchsod]

7. i never thought we`d turn into a nation of cowards but we have

i guess my generation will be the last to grow up in a nation that had a vision and the spirit to overcome all obstacles.

oh well, at least i have my memories.

[Poboy]

9. The 'ownership society' will be coming for your houses.

This is on the backburner though, Soc. Security is next.

In 20 years, they'll own everything and we will live to pay 'rent' to even exist.

[mcollins]

10. I've lost 40k on my home's worth since 2006.

Not sure who was behind the housing bubble, but I know I owe more that it's worth now.

[sandnsea]

12. Well you need to be sure

I was going to link you to the WSJ article from 2006, but it's gone! Maybe you can find enough in the google results so that you know Wall Street is 100% responsible for this meltdown.

http://www.google.com/search?hl=en&source=hp&q=%22market+bets+on+loan+defaults%22&btnG=Google+Search&rlz=1R2ADFA_enUS354&aq=f&aqi=&aql=&oq=&gs_rfai=CvZgHzPFiTIq1MZf-6wPV89y5CAAAAKoEBU_Qs8bz

[Common Sense Party]

14. 100%? No...there is plenty of blame to go around.

Wall Street, bank quants, an orgasmic real estate industry (complete with shady and unethical lenders, realtors, appraisers), greedy flippers, AND consumers wanting McMansions or no down payment/interest-only loans, so they had no skin in the game.

[sandnsea]

16. And it all started with mortgage roulette

Wall Street created the mortgages that all the rest of those people sold.

Do you see rich people homeless from foreclosures? I don't. I see working class folks who were trying to get a foot into home ownership who had mortgages rest to 15% for absolutely no reason except Wall Street greed.

I do not understand the desire to blame regular folks over the damn financial industry that nearly crashed the entire global economy. They Lost, at least, $3 Trillion Dollars.

[Common Sense Party]

21. Wall Street is not synonymous with banks. That's too simplistic.

Banks and lenders--Countrywide, big banks, little banks, Fannie, Freddie--came up with ninja loans, liar loans, adjusting ARMs, no-interest time-bombs, etc. Why did they come up with those loans? Two reasons: they could make a LOT of money--by charging higher interest and fees, and because of massive consumer demand. People WANTED these loans.

WHY did people want them? Because they wanted a house--or, many of them, they wanted a bigger, nicer house. But they really couldn't afford the houses they were buying on their incomes, but extremely low interest rates + no interest or no down payment loans + home equity prices that seemed, for years, to ONLY go UP all combined to make people think they COULD afford something they really couldn't. People bought the homes, then used them as ATMs and pulled out their "equity" so they could buy other stuff they couldn't afford.

So much money was pouring into the real estate market, that builders went nuts, building FAR too many homes in the hopes of selling them for a ridiculous profit. As long as house prices kept going up 7-10% (or more) per year, everything was fine.

Yes, the banks were complicit. They threw all their rules about lending standards and credit risk out the window and loaned to people they had no business loaning money to. And Congress egged them on, wanting "all Americans" to "own" a home, even if they couldn't afford it.

The Fed kept interest rates far too low for far too long, and that helped fuel the insanity of the bubble. Credit was too easy to get. And Fixed Income investors began searching for "safe" investments that could give them a better yield than cash or T-bills.

Enter Wall Street. They began to "securitize" all these crappy mortgages, wrapping them all up into bonds (CMOs) and selling them as "safe" investments, even though there were a significant number of mortgages in the mix that were in high risk of foreclosure, especially if interest rates went back up or (unthinkably) if home prices dropped. This distanced the bank that originated the loand from the actual borrower; now if you had a mortgage, you didn't know who you owed the money to--it could be a hedge fund in Singapore. Wall Street started making a fortune selling these CMO's, and then they came up with a way to put insurance contracts on companies that invested in and held a lot of these smelly CMOs, in the form of credit default swaps.

All this insanity was predicated on home prices increasing. But what comes up must come down. Bubbles eventually pop.

Wall Street didn't create the bubble. We did. They sure as hell profited from it, as did the banks, the whole real estate industry, the builders, the politicians like * who pretended that this was real economic growth, and the American public profited, too--for a time. We got to buy and live in bigger homes that we couldn't afford, without that pesky 20% down payment, credit was loose, and that goosed our 401(k)s.

[sandnsea]

22. Enter Wall Street

Enter Wall Street. They began to "securitize" all these crappy mortgages, wrapping them all up into bonds (CMOs) and selling them as "safe" investments.

Banks and lenders--Countrywide, BofA, Wells Fargo, big banks, little banks, Fannie, Freddie-- needed to push these "securities" so that they could make money as well. Why did they push these loans? The books looked fantastic with massive profits that would be created when all the interest rates reset.

WHY did people want them? Because as the housing market continued to heat up, people began to be scared shitless that even their rent would go up and up and up and they would have no place to live. The only way to try to set a monthly housing payment, long term, was to try to buy a house. If someone can make that monthly payment for 3 months, they can make it for 3 years, barring a job loss which would hurt ANYBODY, at ANYTIME.

THAT, for the most part, is what happened.

[Common Sense Party]

13. Were you planning on selling soon?

[Warpy]

15. I benefited from those policies

because I was able to put down 17% instead of 20% and keep a cash reserve instead of spending the first two years cash strapped and unable to do repairs that needed to be done.

In fact, I was fairly typical of poor folks getting houses. That mortgage payment came first, even when food came second. Poor folks have a much lower default rate than yuppies and upper middle class speculators.

Only the continuing souring of the economy and high unemployment are causing poor folks to start losing their homes, something that can't be laid at the feet of the program that allowed them to buy when they had jobs. It has to be laid at the feet of the bankers, the hedge fund managers, and all the other speculators who used other people's money for gambling and crashed the economy.

[Arctic Dave]

17. This sounds dumb on so many levels.

Maybe if we turn our homes back into homes instead of "investments" and maybe if we built homes instead of our own "McMansion"s we would would be in a little better shape too. Also, do actual oversight of the financial industry and create actual penalties for misconduct.

[county worker]

19. If the Administration thinks it has problems with the left now, just

get rid of the mortgage interest deduction, cut social security and medicare benefits and anything else the cat food commission can come up with, no body is going to vote in 2012!

[HillbillyBob]

20. It all came crashing down because realtors and brokers

pushed unlawful or what should have been illegal loans on folks who depended on them to be truthful.
They did not fool us this time.
We got a loan we could afford , a house we could afford at a fixed rate we could make the payments on ...

I have bad experience with adjustable rates and balloon payments. I Ended up walking away from a home when I finally got the full contract (parts had been illegally hidden from us, we were young and naive 19 yr olds.
There was an 18,000$ balloon payment in 2 yrs and a hidden interest rate hike.

The realtor put a clause in that if you were an hour late with a payment..he could take it back or not, his choice.
He did this to several friends. We had a choice stay or leave while we were not too far behind, we had gotten notice that the interest rate was going to jump from 8% to 22% then a balloon 2 yrs later no reason for rate hike given and no questions were answered... We left.

My now partners mother was a credit specialist for many years so he knew what we were doing more so than I. We got a house for well under market and appraisal, 6.18% rate, which we did refi to 5.18% rate and payments the next year with no equity taken out.

Edit ( preview keeps posting on me)
in agreement with there is enough blame to go around. I guess we are po folk because the mortgage or rent comes out first, before everything else even meds. We had several realtors and brokers try to push us into more expensive houses with funnyfinancing We did not go for it. I went to see several and called more realtors.

Yes! the deregulation of the last 30 years is the real basis of the pain our economy is.