WatchA realtor forwarded me the email below, showing that he is being pressured by the NAR to lobby against 20% downpayments. Lending without 20% down is very risky, but it generates realtor commissions -- and commissions are the only thing that the NAR cares about. The NAR clearly does not care that risky lending causes banks to fail, and forces taxpayers to bail out failed banks.
The email contains a dead giveaway that the NAR knows it is encouraging bad lending : "it would take 14 years for a typical person to save up a 20% down payment to buy a median-priced home."
If it would take a buyer 14 years to pay only 20% (one fifth) of the purchase price, it would take five times as long to pay it all off, and that's 70 years!
Anyone who needs 70 years to pay off a house should not be buying that house. If realtors can't get a commission because some math-challenged buyer can no longer borrow ten times his income, that would be a very good thing. If prices fall to the point where most people can afford a house without crazy amounts of mortgage debt, that would be an even better thing.
Please write congress and strongly support the QRM proposal. Your chance of getting a reasonably priced house depends on stopping the criminally insane lending that realtors are lobbying to continue.
Tell Congress: 20% Down Payments Put the American Dream Out of Reach
Could your clients afford a 20% down payment? Could you? Can you envision what your prospective client pool will look like if new regulations governing Qualified Residential Mortgages (QRM) take effect this year?Neither can we. And neither can many elected officials in Congress who did not intend for these regulatory provisions to be so narrowly defined. We must continue our efforts to explain how detrimental the new QRM rules would be to the ongoing housing and lending crisis in America.
According to NAR Research, 60% of recent home buyers made less than a 20% down payment, and it would take 14 years for a typical person to save up a 20% down payment to buy a median-priced home.
Please contact Congress today and ask them to make it clear to the regulators that this proposed regulation was not their legislative intent and to instead implement a more reasonable Qualified Residential Mortgage (QRM) that will keep credit-worthy buyers in the market and able to acquire a loan.
Take Action ButtonMessage Subject: Subject: Ask Federal Regulators to follow Dodd-Frank intent of QRM exemption provisions
Dear [Decision Maker],
As both a constituent and one of a million members of the National Association of REALTORS, I believe that our economic recovery depends largely on a housing market recovery. Implementing a new rule requiring a twenty percent or higher down-payments would stop the housing recovery in its tracks.
That is what will happen if the restrictions in the proposed Qualified Residential Mortgage (QRM) regulation are implemented. It is my belief that this was not your legislative intent.
I am writing to ask you as my Senators and Representative to sign on to a letter being circulated by your colleagues, Senators Landrieu (D-LA), Isakson (R-GA), and Hagan (D-NC). In the House, Representatives Campbell (R-CA), Sherman (D-CA), Perlmutter (D-CO), Capito (R-WV), Moore (D-WI), Miller (R-CA), Himes (D-CT) and Posey (R-FL) are circulating a similar letter. Both letters ask Federal Regulators to follow the intent and language of the QRM exemption provision contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The proposed QRM rule would create an enormous down-payment requirement and reduce the availability of affordable mortgages for qualified consumers. Few borrowers would be able to meet these requirements and those that do would be forced to pay much higher rates and fees for safe loans did not meet the exceedingly narrow QRM criteria.
Congress included the QRM to exempt safe, well-underwritten mortgages from the risk retention requirements. Well-underwritten loans, regardless of down payment, were not the cause of the mortgage crisis.
I urge you to insist that regulators to follow congressional intent. Please sign the Landrieu-Hagan-Isakson letter or the Sherman-Campbell letter today to help keep the American Dream of Home Ownership in reach.
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Whatever eventually works, hopefully financial irresponsibilty would not be encouraged. I do like the LVT as far as I understand it.
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tatupu70 says
It's not "fair" because the borrower is plowing their money into something other than their investment. It's the same concept as getting an absurdly-high interest credit card to make a series of purchases. People spend months or years trying to chase down their principal, but because they're stifled with interest, they're stuck in a debt trap. "But it's their option" is true, but financially it's really hurting them a lot.
So back to the home buyer, whose money which would have gone into the principal or DP later on, they're now paying hundreds per month in insurance while never really tackling their principal. Systemically, the risk is covered (assuming this is all a wash from the lender's perspective), but the buyer has a greater risk of default since their revolving cashflow is limited and they're more likely to be underwater without options.
So my contention with Troy above is "what's the point in doing all of this?" He believes that the ends (flooding the market with premature buyers) are worth the means (in this case, making those borrowers pawns, conduits for money in an insurance game). In the end though it doesn't benefit them at all. Sure, the lenders are covered, but do we want the system to be engineered for large defaults (which, again, are covered from the lender's position) at the expense of these buyers' financial viability? Is sacking "poor" people with mountains of debt really going to "stick it to the man", in this case, the landlord? Is it worth it?
tatupu70 says
Fair enough. But in the case where default occurs, it does drastically increase the chance that it will end in foreclosure. Above-water borrowers who default have options. Those who are on the edge or underwater do not.
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tatupu70 says
as an ad don to klarek as well it might look fair from a lenders perstive charge more for a higher risk, but the SAME fee is charged if u put down 19% or 0% until your principle is at 80% of the purchase.
Lenders just tack on a fee vrs actually trying to account for the expected cost due to foreclosure which would come from the exact % u have invested in the house. The whole point is they are legally allowed to try to take advantage if u dont have 20% down by adding the fee. If they were truly just trying to cover risk that fee would vary based on your equity AND would have skyrocketed in the past 10 years when having less then 20% down meant u could be underwater very quickly.
Just adding a flat fee isnt exactly fair, as it doesnt account for the risk they are claiming. While when u have 20% down your risk is determined by the available rate u get.
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Troy says
Hence why I'm not really taking it seriously any more. Basically, you're trying to solve a few simple things by making massive and sweeping changes that will cost a lot and probably won't achieve the end goals.
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corntrollio says
Housing being a $10T rathole
http://research.stlouisfed.org/fred2/series/HHMSDODNS
is pretty far from an inconsequential thing.
and sweeping changes that will cost a lot and probably won’t achieve the end goals.
These sweeping changes don't cost anything. The private capture of ground rent is an immense, systemic flaw in the system and is what is costing the actual productive element of this economy a trillion or more in losses to successful rent-seekers.
The sweeping changes essentially eliminate the foundational corruption of our current economy -- a very sizable number of people pocketing a significant chunk of the nation's GDP in return for providing nothing that did not already exist without their intermediary presence.
Eliminating this long-standing and continuously ongoing and even increasing theft of the commons could arguably solve "everything", and I have some very powerful minds in agreement with this, ranging from Adam Smith himself through Jefferson, Paine, JS Mill, Samuel Clemens and to the modern day:
"Social collection of the rent of land and natural resources serves three purposes. First, it guarantees that no one dispossesses fellow citizens by obtaining a disproportionate share of what nature provides for humanity. Second, it provides revenue with which governments can pay for socially valuable activities without discouraging capital formation or work effort, or interfering in other ways with the efficient allocation of resources. Third, the resulting revenue permits utility and other services that have marked economies of scale or density to be priced at levels conducive to their efficient use."
http://en.wikisource.org/wiki/Open_letter_to_Mikhail_Gorbachev
The critics are generally full of shit in their complaints:
http://www.cooperativeindividualism.org/pollard_response_to_rothbard.html
I don't argue that the LVT is flawless, but it has historically worked well where it has been tried. And I do like encouraging people to think about how the present world is arranged and how much these old 19th century ideas still make sense.
Discovering Georgism back in 2002 was simply the most mind-altering thing I'd been exposed to up to then.
Before then, I did not understand what capital, wealth, money, etc really was. With the classical division of the neo-classical concept of capital into natural capital (land) and physical capital (manufactured goods), how the world works became a whole lot clearer.
It's almost as if the neo-classical school was intentionaly muddying the picture.
http://homepage.ntlworld.com/janusg/coe/cofe00.htm
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Troy says
Riiiiight.
Troy says
Don't change my words. I said simple things about housing finance or policy could be changed quite easily, and you are now saying housing is not inconsequential.
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corntrollio says
Just bandaids on a broken system. We're spending $30B in section 8, $80B on food stamps, $120B per year on the MID (which reminds me, we should really kill that for non owner-occupied) etc etc.
Without purging the rent-seeking, all attempts at helping people end up in the LL's pocket at the end of month.
Even the minimum wage.
So there is no simple fix to all this. The system is corrupted to the core, because the land economy is the base of all human activity.
That's why Churchill called it the mother of all monopolies. Trying existing without land. Even on a boat it's difficult. If you try to live like a native American you will be arrested eventually. The only solution that would work would be investing in some sort of zeppelin or something, and living and working up in the sky.
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Troy says
Why not kill the MID period?
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klarek says
It should be phased out over 10 years, yes.
It was when housing boosters objected that this would give an asymmetric/unfair advantage to investors that it occurred to that we should just kill it for non-owner occupied SFH/condo too.
problem solved, as it were.
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"Why not kill the MID period?"
Why should we get rid of it when corporations are getting massive subsidies? Does that sound fair?
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HousingWatcher says
Only if you believe one evil justifies another. Maybe you should look into where the hundreds of billions in MID are going. It's disproportionally helping the wealthy people which statists like you want to draw-and-quarter.
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klarek says
actually, it's not even doing that. Giving a subsidy to absolutely everyone for a good with inelastic supply just shifts the cost of that good over by the subsidy.
Government could offer everyone $1/gallon vouchers, and we'd soon seen $5 gas here.
which statists like you want to draw-and-quarter.
Actually, it was Georgism that made me understand the difference between the good wealthy people and the wealthy people that are ungood.
It all comes down to what wealth *creation* they themselves contribute to society -- "wealth creation" here being the provision of new goods and services into the economy.
The Nordic countries, and mixed economies in general, do not punish entrepreneurial effort, though if they listened to me they'd tax wage income less and actual rentier income more.
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Troy says
Agreed, they're largely paying for it in the bloated price they're bidding up on their purchase. But the MID is giving more breaks to the wealthy, dollar-wise.
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The Zeppelin idea has legs - and you'd have higher ground in a fire fight. Still a couple of rounds through the gondola and you're on level ground with the attacker.
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Troy says
I agree. The system is designed to use the government to redistribute wealth -- UPWARD. Wealth gets redistributed from the middle class and the poor to the rich by force of law. It's socialism, but because it's socialism for the rich, it is somehow "good", so there are no complaints from the Fox News crowd.
Question: What's the difference between the people who do no useful work but get welfare checks and the people who do no useful work but get to use the police to collect rents and interest?
Answer: A few trillion dollars.
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Forgive me for not reading all of your posts, but I read as many as was comfortable. Everyone is talking about the housing bust as if it were over, and all the damage has been done. We're only in the third inning of this ball game. Thank you patrick for warning me in time, we were going to buy in Florida at the top of the market, and as fate would happen we didn't and ended up inherriting 100% free small house in Pgh pa, where there was no bubble. Now the houses we looked at are exactly 1/2 of the price we were going to pay. Every house in the plan is underwater by 1/2 a million dollars, and the developer has gone bankrupt. The systematic corruption of all of the entities will haunt us for decades. The banks have written down only some of the losses, and the fed is allowing them to lie to us and their stockholders. We have at most 8-12 years before the national debt is so large we will have to default. We are living with no credit cards, own our house, own a 10 year old car, shop with coupons, stockpiled and have weatherized our house. You can't change people, and yelling at them does no good, you can only save yourself and possibly your family, if they haven't taken out 70k in student loans. Cradle to Grave politics have given us cradle to grave debt. Glad I didn't have kids I feel sorry for the 20 somethings. Oh, and you don't really think cash and gold are going to save you do you? Futures of gold have been sold to 100x or more of the quantity of gold in the world, and well you know what is going to happen to the dollar. So go in and kiss your spouce and or kids, and appreciate the sunrise/sunset, and other free things. The gig is up.
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Right on, Jan.
Cannibal anarchy is inevitable, if not imminent.
Not even Stephen King could imagine the grim madness that will descend upon us.
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With all this pent up demand, there has never been a better time to buy!
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Right on, NarWhore!
With all that new money in China and India imagine what you can get for any property in the USA once all the Chinese and Indian speculators show up and go into bidding wars for your 3/2 in West Allis, WI!
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Most of the shrinking inventory is being sold over listing price with multiple offers
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When will Patrick.Net advocate 50% downpayments? Anything less is just asking for speculators to fuck up the market.
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APOCALYPSEFUCK isFrank Sinatra says
Hey,what happened to your cash only slogan?
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I can be flexible. As long as the housing is priced rationally - like a fair valuation from 1973, maybe all the way out to 1974.
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What if the house doesn't have tillable land or a water supply?
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APOCALYPSEFUCK isFrank Sinatra says
First time I have seen your milder side. Hehe.
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It's just better to ask Congress to stop the housing sector subsidies. We are running this nation bankrupt trying to subsidize every single bank and wall street gambling casino out there.
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jvolstad's website
Tell your Realtard buddy that In-N-Out Burger is always hiring if this RE thing doesn't work out.
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OK how about 25% downpayments then...
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This, and a lot of other legislation, could be read, "We do not believe in free markets. Please pass, or don't pass, a law to sway things back to favoring the people with most of the money."
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The NAR stands for one thing: financial crime.
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Ruki says
Exactly! And I'd add 'TODAY'S RIDICULOUSLY, FRAUDULENTLY, PEOPLE BEING GAMED BY WITHOLDING INFORMATION FOR PROFIT BY THOSE IN POWER, DEBT UNDER FALSE PRETENSES -FUELED HOUSING PRICE VALUATIONS..."
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Patrick says
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jvolstad says
Yeah, but why would they want to work much harder for less pay?
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APOCALYPSEFUCK is Shostakovich says
Why settle for only 50% down payments when you can advocate cash only?
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What bothers me more than the speculation and perceived "right-to-own-a-home" is that once the project goes south the taxpayers are on the hook for bailouts. If they never had provided a single penny of bailout the problem would have been solved long ago, a lot more people would be renting vs owning and proces would have cratered to their fair values.
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mell says
We can't have THAT. This is America. Too many bankers would lose money.
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PersainCAT says
I was getting quotes fairly recently, and I don't believe this is true (at least not in all cases). The fee was structured in at least 3 steps IIRC. 5%/10%/15% down.
The 5% fee doesn't morph into the 10% fee once you reach 90% LTV, though. It's there in full force until you get to 80% (or 78% or whatever)
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¥ says
Eh?
Wouldn't we have to consume enough additional fuel to get to get to that price on the supply curve? I don't anticipate that $1/gallon voucher would change my consumption habits by much, if at all.
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Patrick says
That's just stupid math.
While you are saving up your 20% down payment, you are paying for rent. Imagine a situation where monthly rent is 50% more than the monthly payment on a comparable house (Roberto says this is the case in Phoenix, no?)....
After 17 years, you save up 20% down. Now you buy a house...if you continue to save the same amount, and put the same amount as before towards housing, you will pay it off much sooner than if you had kept saving until you had 100% of the purchase price.
In the situation where rent is more than buying, you might in fact be better off buying with 3.5% down, or whatever the minimum is.
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swebb says
I took what was written to be more reflective of actual behavior rather than one of mathematical exercise. I agree with you, but that kind of understanding of the total costs of housing relative income is rare.