Wait a second! Didn’t we just go through this? Doesn’t this sound like déjà vu all…over again?
Let’s look back. Less than 20 years ago, in order to buy a home one had to meet certain criteria. That is: to have a verifiable job, have saved (yes, scrimped and done without to save) 20% to put down (certain qualified groups like vets could get loans with less down), and to have a history of paying bills in a timely fashion. It was a standard that not everyone could make.
But the government, your congress, in its infinite wisdom said, “Hey, we think everybody should be able to buy a home. After all, it’s the American Dream.” And Presto! They changed the rules. They told banks to accept less than verifiable job information. They told banks that people shouldn’t have to save money to buy a home. And they told banks that paying bills on time was an ideal, not a requirement.
Of course, we’re all for home ownership. But it comes with a price. Our family chose to do with less so that we could save money needed to put down on a home. We knew that there was a limit on what size of home we could afford. Common sense…and the mortgage company…dictated our price range. We bought our home hoping that the value would increase, but realizing that the five year balloon payment meant that we would have to refinance no matter.
But what happened? You know the story. Heck, it isn’t ancient history. The housing bubble burst less than ten years ago. People who couldn’t really afford to be in homes suddenly discovered they couldn’t make the payments when the real loans came due (the interest only and sub-prime loans only lasted so long). The market value of homes dropped and more new homeowners realized they owed way more than their home was worth. Many walked. Leaving banks holding the mortgages until the banks folded leaving, yes, you guessed it, taxpayers footing the bill.
After most banks were bailed out and scolded by the ‘smarter, wiser’ administration they went back to requiring certain criteria before they would loan money. A lesson learned. Or so we thought.
This week President Obama came out with a new proposal wanting banks to accept less than qualified people for home loans. After all, it’s the American Dream. You can read about it in the Washington Post.
Stop me if you’ve heard this one before.