Why We Need FHA Mortgages Now More Than Ever
Once upon a time, years and years ago, at a condominium I can't remember very well, for a buyer who may not even live there anymore, I presented an offer on a property in which the buyer was going to obtain an FHA-insured mortgage.
The seller agreed to the offer, we put the unit under contract, and the buyer applied for his approval meeting with the condo board. He never got the meeting. Some weeks later I found out that the condo board looked at the offer and held their nose in disgust. Later, I was told that the president said "we don't want those kind of people here." He meant that they did not want lower income people who had to "hang on by their fingernails to an FHA loan."
Today, as a result of the bursting of the real estate bubble, the overall financial crisis, the bank bail-outs, stagnant incomes, unemployment and all the rest, those people make up roughly 50-percent of America's population. They have an annual household income of less than $50,000. The purchase of their first home represents their best -- and perhaps only -- chance to gain some kind of financial security to help support them in their old age.
For millions of these people over the years, FHA has been the lifeline for finding a way to obtain home ownership.
Given today's economic climate, there are those in Washington, DC and elsewhere who feel we should stop loaning money to these people. They believe that low-to-moderate income families should qualify for a conventional mortgage rather than use an FHA program. Right now, they are drafting rules -- known as the Risk Retention/Qualified Residential Mortgage (QRM) rule -- that make home ownership possible but extremely difficult for most people because they limit FHA and encourage conventional mortgages.
How difficult? Try this on for size; the rule calls for people to make a minimum down payment of five, ten or even twenty percent of the purchase price.
What does that mean in real terms for a moderate income family?
Simply this. The Mortgage Bankers Association estimates that for a family earning the median income in this country, it will take up to five years to save the five percent down payment. It will take up to nine years to save a ten percent down payment. And if the rule calls for a twenty percent down payment, the middle class family will have to spend up to eighteen years saving to make a down payment.
Take a 28 year old couple who have just decided to start a family and buy a home of their own. If they are required to get a conventional mortgage with a 20 percent down payment, the estimate is that they may be about 48 years of age before they can make their dream come true.
That really is not fair.
Home ownership remains the fast track to financial security in this country. To make home ownership more difficult, or to force the delay of such a financial opportunity for so many of our fellow countrymen, is simply an outrage. What is more, in the long run denying the opportunity to obtain some level of financial security means that an aging population will have fewer assets and be less able to care for itself with the passage of time. Supporting this aging population in the future will put an even greater burden on future generations.
The QRM rules being considered now are unfair to the current population and will be even more unfair to the next generation who will have to support their seniors. Before these rules are finalized, all Americans need to take a close look at what they mean and their impact on the financial future of all of us.
Frankly, I think we need to keep FHA around. And VA, too!
The seller agreed to the offer, we put the unit under contract, and the buyer applied for his approval meeting with the condo board. He never got the meeting. Some weeks later I found out that the condo board looked at the offer and held their nose in disgust. Later, I was told that the president said "we don't want those kind of people here." He meant that they did not want lower income people who had to "hang on by their fingernails to an FHA loan."
Today, as a result of the bursting of the real estate bubble, the overall financial crisis, the bank bail-outs, stagnant incomes, unemployment and all the rest, those people make up roughly 50-percent of America's population. They have an annual household income of less than $50,000. The purchase of their first home represents their best -- and perhaps only -- chance to gain some kind of financial security to help support them in their old age.
For millions of these people over the years, FHA has been the lifeline for finding a way to obtain home ownership.
Given today's economic climate, there are those in Washington, DC and elsewhere who feel we should stop loaning money to these people. They believe that low-to-moderate income families should qualify for a conventional mortgage rather than use an FHA program. Right now, they are drafting rules -- known as the Risk Retention/Qualified Residential Mortgage (QRM) rule -- that make home ownership possible but extremely difficult for most people because they limit FHA and encourage conventional mortgages.
How difficult? Try this on for size; the rule calls for people to make a minimum down payment of five, ten or even twenty percent of the purchase price.
What does that mean in real terms for a moderate income family?
Simply this. The Mortgage Bankers Association estimates that for a family earning the median income in this country, it will take up to five years to save the five percent down payment. It will take up to nine years to save a ten percent down payment. And if the rule calls for a twenty percent down payment, the middle class family will have to spend up to eighteen years saving to make a down payment.
Take a 28 year old couple who have just decided to start a family and buy a home of their own. If they are required to get a conventional mortgage with a 20 percent down payment, the estimate is that they may be about 48 years of age before they can make their dream come true.
That really is not fair.
Home ownership remains the fast track to financial security in this country. To make home ownership more difficult, or to force the delay of such a financial opportunity for so many of our fellow countrymen, is simply an outrage. What is more, in the long run denying the opportunity to obtain some level of financial security means that an aging population will have fewer assets and be less able to care for itself with the passage of time. Supporting this aging population in the future will put an even greater burden on future generations.
The QRM rules being considered now are unfair to the current population and will be even more unfair to the next generation who will have to support their seniors. Before these rules are finalized, all Americans need to take a close look at what they mean and their impact on the financial future of all of us.
Frankly, I think we need to keep FHA around. And VA, too!
-30-
posted by Terry Ward at 12:13 PM
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