cuckoldmepls
Posts: 855
Joined: 11/29/2007
Status: offline
|
Some very good comments especially on how we need to start doing business the old fashion way which is require down payments. I would even go so far to say that we need to return to the days when a local bank loaned money to buy a local home and actually held on to the loan for 30 years until it was paid for. Not sell it to some foreign bank for a quick profit. When banks are allowed to sell mortgages, there is not much incentive to make good, responsible loans to begin with, not withstanding the government agencies and regulations that force banks to make easy loans to begin with.
As far as the comments blaming this mortgage collapse on Bush, you should be aware that Bush warned Congress of the impending disaster years in advance, and Congress did nothing. I suspect their reasoning was about the same as not cancelling NAFTA. If you cancel NAFTA and the Chinese trade deal, and the economic collapse accelerated, then you will get blamed for it. Even though we all know our economy is permanently going down hill anyway. So if they made credit more difficult to obtain, and the economy took a nosedive, then they would get blamed for that too, even though this time their gamble failed, and it almost caused a depression.
This is the real reason that Senator Dodd's statement is so incredulous. If people can't afford to save up money for a down payment on large purchases such as a home, then they certainly won't be able to save up money for financial emergencies such as a major car breakdown, a/c heating system going out or plumbing emergencies etc.. This means that the first time they have an unexpected financial crisis, they most likely will have to put off their mortgage payment which starts the ball rolling. If they have a spouse and kids, that just triples the number of financial emergencies they will probably have. It's absolutely insane not to require down payments on large purchases.
From the banks point of view, banks use down payments as a method of first determining whether you can actually save up money, which is the first step in determining whether you can handle financial emergencies, then they are supposed to look at your take home income, and make a financial determination as to whether you can handle the payments. Out of greed, and government regulations that purposely made credit too easy, the mortgage industry failed miserably.
Another reason banks traditionally have required down payments for large purchases is so they can recover their losses should someone default. For example, let's say someone wants to buy a $20,000 used car. The bank loans the money with no down payment, and the guy blows the engine up within a week of purchasing it. Well the guy couldn't save up enough money for a down payment, so he sure doesn't have $3,000 for a new engine, and he decides to just let the bank have it back since he can't drive it any more. Well the bank has to spend $3,000 for a new engine to sell it, and most likely will take a $3,000 loss on it. Where as if they had required a 10% down payment, it would have only been a $1,000 loss. This doesn't sound like much, but it does add up especially when you consider the losses on homes that banks absorb without requiring down payments. There's also the reality of deflating home markets for various reasons, which means a bank has to take more losses when things go wrong. In short, down payments provide a cushion for banks to protect themselves from losses. Too many losses, and banks, and government mortgage industries go under. If you don't make credit more difficult to get, it will just continue.
The bottom line is this. If you make credit too easy, half the people out there are not responsible enough to make wise decisions and handle their finances responsibly. The people in charge have to do it for them. Some people are just not cut out for home ownership at least until they mature and learn some financial responsibility. With renting at least you don't have unexpected expenses on the home. For people who can't afford to save up a down payment while paying rent, then the most logical course of action is to split the rent with someone else like a family member, friend or significant other, until you can save enough for a down payment.
|
RE: The 5% Rule (IQ test) - 
Profile
New Messages
No New Messages
Hot Topic w/ New Messages
Hot Topic w/o New Messages
Locked w/ New Messages
Locked w/o New Messages
Post New Thread