How would a larger down payment requirement impact you?


I have written several posts in the past about the proposed rules being debated.  These new rules could impose down payment requirement of up to 20%.  This is not to say that one could not get a mortgage through FHA for lower down payments or that banks wouldn’t make loans for lower down payments.  However, these new down payment thresholds would determine the pricing of the loan.  So in order to get the best rate you would be looking at a minimum of paying a 10% down payment.  How would this impact you and your ability to buy a home?  If you already own, how much longer would you of had to wait?  Would this make you move on from owning a home?  These are all questions that are being asked.  Please check out this video and then share how this could or would have impact you.

Visit http://cra-nc.org/your-stories and share.

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Wealth Gap Continues to Increase


There has never been a question about whether a wealth gap was present in this country.  The racial wealth disparity that exists, gets discussed a lot, but solutions seem hard to come by.  People have wondered during the current recession did the numbers begin to change any.  The answer is no and the answer to why is pretty simple.  A recent Pew Study has shown that during the recession the wealth gap has grown to their highest levels in a quarter century.  This is even with there being a wealth decline across the board.  However, the losses for minorities has been so extreme that it takes away whatever gains (if any) that had been made.

Often times this discussion is around whites and blacks, but this report shows that it is much broader than that.  The wealth of Hispanics dropped 66%, while among blacks the number is 53%. While whites dropped by 16%. The reason for this is simple.  The majority of minorities wealth was wrapped up in housing.  When the housing market collapsed so did their wealth.  Whites have a more diverse pool of wealth so even while being hurt by the housing crash, the fact that the stock market recovered their loss of wealth was minimized.

What is troubling is that as federal and state budgets are being cut, so are the programs that are helping to keep minorities and poor of all races above water.  If we continue to make these cuts it will grow increasingly difficult for this group to build wealth and the gap will continue to widen.

Rent, Don’t Buy, the American Dream


This article was originally posted on www.policymic.com.

Raising the debt ceiling, enacting budget cuts, and closing loopholes all seem to be popular topics of the day. There is a lot riding on a deal, including an increase in interest rates; and everyone (including myself) who is looking to buy a home has an eye on that, since any change in rates can impact the amount of home loans one qualifies for, which in turn affects what home one can afford. But are we putting too much stock in home ownership as the key to wealth and achieving the American dream? If we broaden our definition of how to build wealth, it becomes apparent that this is a flawed approach, and that instead an increased focus on affordable rental housing can go a long way to increase access to wealth.

With Fannie Mae, Freddie Mac, FHA, and tax subsidies, our government has a huge presence in the housing market (Charles Wallace wrote a great piece breaking down the impacts of the credit and what it costs and who it benefits). The mortgage interest deduction is a tax break designed to give homeowners a break on their taxes and encourage renters to buy homes, and has a 2012 budget line of $100 billion. The fact is, we have the credit, but the housing market isn’t booming — in fact, the last housing boom had more to do about access to credit than it did tax breaks. This makes a case to eliminate the deduction. As Wallace puts it, “Canada and Britain don’t allow it as a tax deduction, and the real estate markets are booming in both countries.”

Even if we ignore the tax breaks subsidizing home ownership, the benefits still do not fully add up for everyone. For a low to middle income family, their home purchase represents a significant piece if not all of their asset wealth. The cost to buy a home for these families makes their home and its equity their largest source of wealth, leaving all their wealth tied into one asset without diversification. When that asset doesn’t perform like it should, their ability to build wealth is gone.

Affordable rental housing can be a solution to these wealth building issues. Without the burden of paying a property tax bills or being responsible for repairs, a renter has an opportunity to use the money they save in those areas to diversify their investments. Thus, because we focus so much on home ownership being the key to the dream and wealth, we are ignoring another housing crisis we have: The lack of affordable rental housing. This shortfall leads to higher rental costs, limiting a renter’s ability to build wealth.

As I have written, I still also believe in other solutions to the housing crisis. However, if we invested more into affordable rental housing and provide less investment in home ownership, we would see an increase in wealth diversification and an elimination of the pressure to purchase. With so much invested in home ownership, people are not shown alternatives to building wealth. The path to the American dream has been defined for them, and it is highly flawed.  If we broaden our housing investments and ways to define wealth building, I believe that we can reshape how people define accessing the American dream, and realize there are many alternatives to home ownership.

 

Final thoughts on the QRM – Does it hurt the rental market as well?


After the policymic article and my posting yesterday, this is my final thought on the QRM.  You already know what I think it will do to minorities and first time home buyers, and what I think it will do to current home owners.  But what about the rental market?

Sine the number of people able to buy a home is going to diminish, you would think that it would lead to an increase in the rental market.  It will, if people can’t buy a home one way to improve their living situation is to search for better quality rental properties.  But the rental market is tied in to the selling of homes.  Most rental homes are done through investors buying vacant homes, renovating them, and renting them out.  These investors will likely be squeezed by the new rules as well.  Instead of keep more money on hand to do the renovations, investors will have to use that capital for down payments and if they don’t go to 20% they will pay the extra mortgage insurance.  I am not sure what investor wants to limit their cash flow and pay an additional premium.  Those that do this will pass the cost on to the renter with higher rents.

Paying higher rents will make it less likely they will be able to save a large down payment, making the renter more likely to stay where they are.  Other investors not wanting to take on the added cost risks will back out of being investors.  This leads to more of a stalemate in housing sales and limits the number of rental units available, making rental prices go up.  There are only but so many places to build apartments and apartments aren’t for everyone.

For both renters and home buyers, these new rules make it harder to improve your situation.  Limiting people’s options of where they can live is never a good thing.  Steering in both the renting and home buying process is discrimination.  These new rules are making that housing discrimination easier.  People are being forced to live where they don’t want because that is where the market is placing them.

Looks like now the regulators want to segregate minorities into certain communities.  Making it hard to buy a home is one thing, but when that trickles down into the rental market it becomes a bigger problem.  Now families that aren’t looking to buy a home will be saddled with higher costs and limited options for a growing sector.

With that I end my thoughts on the proposed rules.