patrick.net

Do we want to have a nation of homeowners or a nation of tennants! Viva Freddie's Fannie and FHA!

4X - UNFORUTNATELY you are CORRECT in your well stated post. Alton...who said America would be a nation of tennants without (the unconstitutional entities ) FHA, Fannie Mae, Freddie Mac and the like??? Who said private sellers wouldn't offfer private financing if we didn't have FHA? Who said its the governments job to make people homeowners??? Do we want a uniform nation of anything??? FYI, any time the government ATTEMPTS to MANIPULATE anthing - the result is negative unintended consequences. For example - by offering FHA financing, and "backing" the loans - each loan that goes bad is now the taxpayers responsibility. That sucks - don't you agree? (I would wager anyone who disagrees is a "collectivist"). Do we as a nation want "everyone" doing anything the same - lockstep - that the governments chooses??? [Big brother is watching].

Without FHA, Fannie & Freedie, home prices would be LOWER, simply because as cheap financing becomes more available, housing gets more expensive (student loans get more expensive for the very same reason). Even worse, there are now $ BILLIONS in yearly costs for additional, UNNECESSARY layers of government employees to work, moniter and process all the loans that get created. An incomplete list of costs would inclued rent for all the office space needed, salaries for all workers, health care, cost of living increases, and a cushy government retirement plan for all. All at taxpayer expense of course.

Here is a simple chart even government economists might understand:

Financing available Housing cost

No financing, pay all cash..............................hosuing cost low (most people don't have all cash)

20% cash down, 80% fixed loan.....................housing cost is higher (because financing is available)

20% cash down, 80% VARIABLE rate laon.......housing cost even higher (due to more "favorable" financing)

10% cash down, 90% fixed loan.....................housing cost even higher (due to more "favorable" financing)

10% cash down, 90% V.I.R. loan....................housing cost even higher (due to more "FAVORABLE" financing)

5% cash down, 95% fixed loan..................................HOUSE PRICES CONTINUE TO RISE

5% cash down, 95% V. I.R. loan................................ " " " " "

FHA loan.................................................................. " " " " "

ETC.........................................................................." " " " "

ITS REALLY RATHER OBVIOUS - ISN'T IT?

Well meaning "feel good" government programs always end up hurting the very people they claim to be helping...always at the taxpayer's expense. I propose a line item on the 1040 tax form that would indicate the amount of money each taxpayer WANTED to CONTRIBUTE to various "feel good" programs. That way all the people who wanted to contribute to the governments stupid programs could donate ALL THEY WANT. The people who know better would not be FORCED to.

Vote Honest Abe for President - 2012 !

Honest Abe says

Well meaning “feel good” government programs always end up hurting the very people they claim to be helping…always at the taxpayer’s expense. I propose a line item on the 1040 tax form that would indicate the amount of money each taxpayer WANTED to CONTRIBUTE to various “feel good” programs. That way all the people who wanted to contribute to the governments stupid programs could donate ALL THEY WANT. The people who know better would not be FORCED to.
Vote Honest Abe for President - 2012 !

Excellant post Abe.

@4x - "The greatest effects of the Federal Housing Administration can be seen within minority populations and in cities. Nearly half of FHA’s metropolitan area business is located in central cities, a percentage that is much higher than that of conventional loans. The FHA also lends to a higher percentage of African Americans and Hispanic Americans, as well as younger, credit constrained borrowers. Because some feel that these groups include riskier borrowers, it is believed that this is part of the reason for FHA’s contribution to the homeownership increase."

Could it be that minorities in central cities have created an environment that only they want to live in?

Abe: "Alton…who said America would be a nation of tennants without (the unconstitutional entities ) FHA, Fannie Mae, Freddie Mac and the like???"

That would be a realtor on the active rain website from a link someone posted here a week or two ago. My post was indeed sarcasm. :)

http://activerain.com/blogsview/1274926/raising-the-down-payment-for-fha-insured-loans-to-5-is-o-k

I dispute the notion that overpriced housing is crucial to the overall economy.

So no we do not need the FHA, Fannie and Freddie and in fact these organizations hurt people by making housing overpriced.

"The greatest effects of the Federal Housing Administration can be seen within minority populations and in cities. Nearly half of FHA’s metropolitan area business is located in central cities, a percentage that is much higher than that of conventional loans. The FHA also lends to a higher percentage of African Americans and Hispanic Americans, as well as younger, credit constrained borrowers. Because some feel that these groups include riskier borrowers, it is believed that this is part of the reason for FHA’s contribution to the homeownership increase."
we need to subsitute the words minorities in cities with poor people. I'm sure an african american or hispanic american living in the city who is making 100k and has an 800 credit score would have no problem getting a loan from any bank. when they (the government or anyone else attempting to justify the FHA existance) use the word minorities it makes the banks sound raciest for not providing them loans when the reality is poor people tend not to have money to pay back the loan and the banks are making a logical decision not to make a risky loan. so if the argument is poor people can't get loans because their poor and the FHA needs to help them out i'de then i'd would suggest they could be better helped by a free government program for job training, or education, or money management classes, or hell even babbysitting so the parents can work. then once they are less poor they can get a traditional loan at a bank at a lower cost since prices wont be prompted up so much by government programs

The main post was all from Wikipedia .... was there anything original here?

Umm...I wasnt saying we did or did not need either of the services. Just attempting to create dialogue on the subject. It seems that it could go both ways from the article.

@still Looking

I dispute the notion that overpriced housing is crucial to the overall economy. So no we do not need the FHA, Fannie and Freddie and in fact these organizations hurt people by making housing overpriced.

I agree, i just think its the easiest path for the government and Fed Reserve to take, plus from what I read in a post the other day some of the banks are dependent on the securitization of the loans. Meaning, the banks sell the loans to Sallie Mae at our costs to turn a profit. We need to create more industries and find ways to keep our exports higher than our imports. We cannot fund GDP on equity.

@honestabe

Without FHA, Fannie & Freedie, home prices would be LOWER, simply because as cheap financing becomes more available, housing gets more expensive (student loans get more expensive for the very same reason). Even worse, there are now $ BILLIONS in yearly costs for additional, UNNECESSARY layers of government employees to work, moniter and process all the loans that get created. An incomplete list of costs would inclued rent for all the office space needed, salaries for all workers, health care, cost of living increases, and a cushy government retirement plan for all. All at taxpayer expense of course.

I would assume the only downside would be that less people would be able to purchase a home and go to school. I agree on the housing part, but the poor will need education to get out of their predicament, whether they know it or not. When i was 18, I took out a loan with Sallie Mae 15 years ago to go to college, at which point in between classes I worked 3 jobs to make ends meet. It was hard work that got me out of poverty. A few years later, I started my career in IT and I bought a house using FHA at my agents advice. Because i was too early in my career and too yound to understand how to save these programs were the only options for me. FHA allowed me to get more house in a better neighborhood....the only difference is that I was a working professional and not poor at that time. I think the programs works to improve the lives of those that have a strong work ethic (My College Years) and it enables those that want to simply take advantage of the low down payments (My Home Ownership Years). I could have simply saved for the next 10 years and bought, however, I would have bought at the peak in 2005 and would have been in deeper.

Recently, even with cash reserves, I have also looked at FHA loans but due to the fall in the market I have decided to postpone my search until next year.

Does my story fit your idea of how FHA, Sallie Mae should be used? If not, would their be other avenues for the poor to take out school loans?

@Honest Abe

UNFORUTNATELY you are CORRECT in your well stated post.

this is a wikipedia post, not mine. I just wanted to start dialogue.

http://en.wikipedia.org/wiki/Federal_Housing_Administration

If memory of my history class still serves, taxes pre-dated democracy. Even back when kings, sultans, emperors, and shoguns ruled, most everything done by the government was at taxpayer expense.

What caused the Great Depression? Certainly was not FHA, Fannie Mae, or Freddie Mac. Right before the Great Depression there was a housing bubble. Yet, there was no FHA, Fannie Mae or Freddie Mac. Granted they played a part in the mess we are in now, but the root of the problem did not lie with them in the Great Depression and it does not lie with them now.

Fix the problem...break up the big banks until they are small enough to fail in the economy without taking the economy down if they can't prove their worth in the market.

Good point, but tax dollars should not insure poor business decisions either.

But tax dollars are being used to insure poor business decisions. The mega banks have tied their existence to the US economy. Now instead of using the bankruptcy laws (like the rest of us) or being put into FDIC receivership, the US Treasury is pumping them full of money. The free market would have sent several major financial institutions to the proverbial grave and consequently there would not be any million dollar bonuses flying around if these banks were not "too big to fail." Now the free market looks at this in accessing risk and says, "oh boy, the US will step in to back my investment in Goldman Sachs, Bank of America, Wells Fargo, etc. regardless of their bad business decisions.

At least FHA, Fanny and Freddie (if you believe them to be encouraging bad decisions), are giving American people a place to live while making a bad decisions. That's as opposed to lining the pockets of multi-millionaire CEOs with more millions of dollars for making their bad decisions. If you're going to frak up, might as well give an American family a house to live in for a while rather than give a millionaire another Ferrari to play with. But, hey...maybe that's just me.

"At least FHA, Fanny and Freddie (if you believe them to be encouraging bad decisions), are giving American people a place to live while making a bad decisions. That’s as opposed to lining the pockets of multi-millionaire CEOs with more millions of dollars for making their bad decisions. If you’re going to frak up, might as well give an American family a house to live in for a while rather than give a millionaire another Ferrari to play with. But, hey…maybe that’s just me."

This is completely wrong. You cannot give these poor Americans a place to live without lining the pockets of the millionaire bank owners. In the long run everything the federal government does to help prop up home prices is not for Main St. it is for Wall Street. Case in point the recent $8,000 give away if you buy a house. You must have read the article about people using that money as the down payment on a FHA loan. It can really do a lot to prop up the value of a home (in fact if you do the rough math about $200,000). This is not really to help the consumer it is there so the banks can take a smaller loss on the foreclosed home. The new Toxic loan with no money down is the FHA backed loan with the $8,000 credit for your down payment. In the end these people will lose there homes and the banks will scramble to figure out another scam to keep there losses in order.
GOVERNMENT INTERVENTION IN HOME OWNERSHIP DOES NOTHING TO HELP ANY AVERAGE US CITIZEN. IT IS MERELY A SCAM TO KEEP YOU IN SERVICE TO YOUR DEBT (BANKS).

GOVERNMENT INTERVENTION IN HOME OWNERSHIP DOES NOTHING TO HELP ANY AVERAGE US CITIZEN. IT IS MERELY A SCAM TO KEEP YOU IN SERVICE TO YOUR DEBT (BANKS).

Well stated, and I agree, but don't tell any of that to my cabdriver from last night. She bought too much home during the bubble (had one built, in fact) and just recently got her mortgage adjusted to a two percent interest rate for the life of the loan (30 years) and has a monthly payment reduced from 1500 a month to 720 a month. Pretty good deal, eh? She's even making double payments (which made me wonder why she needed the adjustment in the first place) and is looking to buy another home as investment property, especially if the tax rebate is extended/expanded. By all accounts, she has it made, thanks to ol' Uncle Sam.

dt,

I'll put aside the fact that the FHA, Fannie and Freddie were around for 70+ years before the $8,000 tax credit. And, for argument's sake, take it as the gospel truth that everything the FHA does props up home prices. All you are saying is that choosing to be in debt servitude is a bad decision. Ok. So be it.

I'll say it again. Supporting bad decisions that give American families a home to live in is better than supporting bad decisions that give millionaires another Ferrari to play with. Both may be bad decisions, but one is worse than the other.

@Ryan

But tax dollars are being used to insure poor business decisions. The mega banks have tied their existence to the US economy. Now instead of using the bankruptcy laws (like the rest of us) or being put into FDIC receivership, the US Treasury is pumping them full of money. The free market would have sent several major financial institutions to the proverbial grave and consequently there would not be any million dollar bonuses flying around if these banks were not “too big to fail.” Now the free market looks at this in accessing risk and says, “oh boy, the US will step in to back my investment in Goldman Sachs, Bank of America, Wells Fargo, etc. regardless of their bad business decisions.

I agree, I just think the Democrats folded because they knew if they didn't Republicans would have trounced on the opportunity to say look at how nothing was done to prevent the economic downturn. And this would have been vice-versa if the Democrats were on the outside looking in...I often wonder how much of the bills we see gain traction just simply to avoid looking bad to the other side and loosing votes. I get the feeling regardless of whether Obama was for or against the economic recovery act he would have been labeled poorly, so I figure he took a page out of George Bush Sr. playbook and bailed out the banks.

I’ll put aside the fact that the FHA, Fannie and Freddie were around for 70+ years before the $8,000 tax credit.

Fannie and Freddie and the FHA were not around in the capacity that they presently are, so this isn't a valid argument.

Supporting bad decisions that give American families a home to live in is better than supporting bad decisions that give millionaires another Ferrari to play with. Both may be bad decisions, but one is worse than the other.

I agree that nobody should end up on the street because of some bad decisions. I propose the government intorduce a program whereby they cosign leases as guarantor for rentals for displaced/foreclosed families with wrecked credit.

As for the Ferrari driving prick and the dispossessed, they are, in this instance, strange bedfellows. The two complete a circuit.

It's hard to feel bad for willing slaves, just like it's hard to stick up for the woman who's husband mistreats her when she stays with him.

I vote to let the foreclosures continue in attempt to reset the markets to where they should be. Unless you know of a way to allow home prices to drop and bail out homeowners for their poor decisions too.

dt_mcgrath says

Case in point the recent $8,000 give away if you buy a house. You must have read the article about people using that money as the down payment on a FHA loan. It can really do a lot to prop up the value of a home (in fact if you do the rough math about $200,000)

Please show me that math--where an extra $8K drives house prices up $200K.

And the idea that it's a conspiracy to keep us in servitude to the banks is just plain ridiculous.

The government probably determined at some point that home ownership serves the public good. Likely there were studies showing that people took better care of their homes and yards, etc when they owned them, rather than when they rented them.

4X,

I think you are probably right about the political aspect, but it does not change the market dynamic. If someone does not move the Federal government to break up mega banks, then investors in the market will continue to invest in companies that make poor decisions because they know Uncle Sam will step in and save their hide. Pure and simple: When you reward bad behavior, you can continue to see it.

A possible way to have home prices drop and bailout homeowners could be to allow "cramdowns" in Bankruptcy court. The BK courts could decide what people could afford, the people keep their homes, the BK records are public so people can begin to value properties based on the new values set by the BK courts. Only a possibility.

Austin,

I'm not to sure that a non-existent argument can be invalidated. The capacity of the FHA may have changed (though I don't quite understand what you mean by such a generic term as "capacity," i.e. total users, tools available, changes in personnel, etc. ), but its purported goal of homeownership remains the same. It is still the FHA. No two snowflakes are alike, but they are still snowflakes.

However, I do like solutions. The one you propose "gov't co-signing rental leases" seems plausible. But, when it comes to use of tax dollars, tell me what is the difference between the government co-signing rental agreements and co-signing mortgages?

As for "willing" slaves. If one is raised in slavery, taught that they are a slave, accepts the fact that this is the way of the world, is that a willing slave? I'm sure you could make a very good arguement for the return of true slavery by saying the slave was willing. Then, it is only a small step to say the slave was willing after we beat the living daylights out of him/her. The reality is that we, as a society, draw minimum standards when it comes to taking advantage of other people. We do not permit true slavery, fraud, murder, etc. We can just as easily not permit negative amortization loans. And, as of 2010, in CA they have. It's quite easy to stick up for people, all it takes is a little sympathy and courage.

@ Ryan

I’ll put aside the fact that the FHA, Fannie and Freddie were around for 70+ years before the $8,000 tax credit. And, for argument’s sake, take it as the gospel truth that everything the FHA does props up home prices. All you are saying is that choosing to be in debt servitude is a bad decision. Ok. So be it.
I’ll say it again. Supporting bad decisions that give American families a home to live in is better than supporting bad decisions that give millionaires another Ferrari to play with. Both may be bad decisions, but one is worse than the other.

I wish we had an economist on here, because this brings me back to my point that we cannot continue to finance GDP with equity. To me, it seems the Governments plan to grown our economy is to keep allowing more and more people into our country and to encourage population growth...in order to increase their tax receipts.

For some reason, i get the feeling what we are doing is not sustainable change.

Correct. A debt based economy is doomed (as is ours). But what all this is about is controlling the masses. When you keep people in debt, you control them. Government programs, whatever they be, are about control over people. Period. And stupid people are very easy to control. We have them by the hundreds of millions in this country. When the rioting begins and the tanks roll, the people will just roll over because they will have surrendered every aspect of their lives to the government. Stupid Americans getting what they deserve.

The capacity of the FHA may have changed (though I don’t quite understand what you mean by such a generic term as “capacity,” i.e. total users, tools available, changes in personnel, etc. ),

Of course I'm referring to the FHA Expansion Act. It's a big can of worms, but it includes, among other dubious measures, lax credit rating standards for buyers (you can be fresh from bankruptcy court and still qualify), increased loan amounts, and diminutive down payments, often paid for in full by the tax credit. Low to no down payment and high LTV loan amounts are each hallmarks of subprime, and this why I think we will witness another real estate shitstorm in the coming years.

All of that is fine, however, as long as we make these cheap-o loans recourse loans. You play you pay, as they say.

but its purported goal of homeownership remains the same.

Could someone please make the definitive thesis statement as to why a stable rental is less good than an overpriced home? The more time that goes by, the more I remain convinced that it's mostly a manipulation of popular opinion. Read: FAD.

However, I do like solutions. The one you propose “gov’t co-signing rental leases” seems plausible. But, when it comes to use of tax dollars, tell me what is the difference between the government co-signing rental agreements and co-signing mortgages?

The difference is great. Just for starters, if a family did default on their 6 or 12 month lease, the tax payer wouldn't be on the hook like they are with an FHA loan default. Smaller grub stake, smaller loss to the tax payer. Good thing. It also wouldn't act as a false bottom for house prices. I might add that it helps subsidize a lot of what the recent uptick in homes sales numbers are based upon: speculators, buying up foreclosures for rental properties. Not that my heart bleeds for landlords.

As for “willing” slaves. If one is raised in slavery, taught that they are a slave, accepts the fact that this is the way of the world, is that a willing slave? I’m sure you could make a very good arguement for the return of true slavery by saying the slave was willing. Then, it is only a small step to say the slave was willing after we beat the living daylights out of him/her. The reality is that we, as a society, draw minimum standards when it comes to taking advantage of other people. We do not permit true slavery, fraud, murder, etc. We can just as easily not permit negative amortization loans. And, as of 2010, in CA they have. It’s quite easy to stick up for people, all it takes is a little sympathy and courage.

My point was that it is hard to feel sympathy for anyone who exhibits an almost masochistic sense of willing ignorance. Like my cabdriver from the other night who managed to get the mortgage on her bubble-era custom built two story home renegotiated to a 2% interest 30 year loan with a monthly payment of 1400 a month to 720 a month, and is now doubling up on payments and looking to buy a second home next year. Sticking up for her right to my tax dollars is not my first instinct. Mostly, stories like that just make me want to smash shit.

Not to worry, as there's always more amnesty reserved for fools than for the prudent or thoughtful.

The government probably determined at some point that home ownership serves the public good. Likely there were studies showing that people took better care of their homes and yards, etc when they owned them, rather than when they rented them.

Not really. Several studies show the opposite. Here's a synopsis of one such:

http://www.youtube.com/watch?v=LYY1r1NDc_c

@Austinhousingbubble

The government probably determined at some point that home ownership serves the public good. Likely there were studies showing that people took better care of their homes and yards, etc when they owned them, rather than when they rented them.

Not really. Several studies show the opposite. Here’s a synopsis of one such:

http://www.youtube.com/watch?v=LYY1r1NDc_c

This rhetoric is misleading many into believing the Goverment does not have stake in the housing markets. Rising home values have made Americans feel wealthy. And tapping into the Home Equity has been the source of purchasing power. Fuelling consumption and GDP growth. Since 1980 the Housing Valuation has exceeded GDP. Since 2000, it also appears that The Housing Bubble has not been pushing up the GDP as much, and the Gap between the two has been rising. May be the Housing Bubble is no longer effective in pushing up the GDP as much. This last bust was it’s final sprint before busting after a 40 year expansion.

The below GDP growth chart shows exactly how our government has financed GDP with equity. Why do you think Congress is fighting so hard to push these 8K tax credits?