Many low-to-moderate income earners have talked themselves out of owning a home.
At least that's what bank officials said when they met in Orlando last week for the Mortgage Bankers Association convention. The officials say too many worthy candidates dismiss their chances of owning a home. How to lure Americans in this income bracket into the home market was a major issue for lender
"A foothold in real estate is a foothold," says Bank of America's Jackson. "Ownership has to start somewhere, and we need to let people know that it's OK to look around at the possibilities of owning rather than renting."
A foothold is not inherently a positive thing. Without a safety rope a foothold here ( on the left ) would be a very scary thing. For many, having an ARM and Interest Only loans are like climbing a mountain with an avalanche coming downhill. A foothold here is highly problematic.The members of the Mortgage Bankers Association have done enough damage peddling their toxic loans to ill-informed or greedy homedebtors. They should stop trying to find new groups to lure with toxic mortgages and instead focus on raising lending standards.
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This is so true.
ReplyDeleteOne of the biggest lies (of many) during the bubble is that "homeownership" is some magic pill that cures poverty.
Until about 1998 or so, home ownership meant saving for a 20% downpayment, and then taking out a loan no more than 3 times your income. It showed you had been responsible and would continue to be.
Of course people like that and the neighborhoods they lived in were less likely to be afflicted with poverty. But it wasn't because of their legal status as homeowners.
Now, a homeowner is someone who can borrow a few thousand on a credit card (at very low standards) and get a loan for 6-7 times (or even more) their annual income, at a payment that is 50% of their current income and will rise to much higher than that in 5-7 years.
That is OBVIOUSLY not the same thing.
I hope some of these new "homeowners" get off o.k., since most are basically getting tricked. I suspect many will, as long as they are aware of their rights under bankruptcy (which, if I understand correctly, are still the same for people making less than 50% of the area's median income). But the people who ultimately own these loans are going to really get screwed.
As well as, I suppose, the people in these neighborhoods who did buy responsibly.
The real estate website I sometimes check for home prices seems to be showing a lot more interior pictures rather than exterior pictures. I wonder if this is a subtle acknowledgment that the hosue itself looks like trash, but we'll show a few pictures of nice furniture instead.
ReplyDeleteI agree that getting low- and moderate-income Americans into houses they can't afford is bad business. I wrote a story about this last year in BusinessWeek (When Home Buying by the Poor Backfires, Nov. 1, 2004). We've also been covering the bubble at our BW housing blog, Hot Property: http://www.businessweek.com/the_thread/hotproperty/index.html
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