Home Buyers: Conspicuously Missing Legislation

A lot of top-down financial legislation is in arrears, but there is nothing relating to actual home buyers. That is, the quaint 20% down on a home purchase? The income-to-debt levels? In crazy times those things weren't verified, and there were non-profits organizations receiving money from the federal government that paid for down payments so that everyone was happy. To blame this on 'derivatives' is absurd.

That's the front end of the mortgage meltdown, the prime mover. David Reilly of Bloomberg asks why not require 'borrowers have some of their own money on the line?' Or as a Saturday Night Live parody notes, a profound but counterintuitive bankruptcy advice is merely don't buy things you can't afford.

Indeed, the government still (i.e. today!) has a prominent 3% down home buyer initiative. Given home volatility, a 3% down no-recourse mortgage is a giveaway given the option value (keep upside, lose 3% if wrong). But that's related to hard-working people as opposed to abstract caricatures like 'bankers' and such.

The obvious answer is this would have disproportionate impact on the poor, which does not play well when grandstanding new legislative initiatives. By logical extension, this would disproportionately affect non-Asian minorities (NAMs). Better to blame this on the greed of rich people, mathematical mistakes by quants, anyone but actual people instigating the necessary instruments for this boondoggle, or their 'well intentioned' legislators.

This urge to blame the wealthy for anything that goes wrong clearly plays well to the median voter. Perhaps I should pitch a book for a new 'grass-roots' movement against the plutocracy: My Struggle: How Smart, but Greedy and Rich, Bankers Screwed Us. I just have to find a comp to convince my publisher this kind of work has a natural audience...

This is why Plato hated democracy. Popular means crap, as in public golf course, school, bathroom, recreation center. It means placating the mob unrelated to the weight of their opinions. Our founding fathers fought to establish a republican democracy, but now all we see are democracy fetishes, indeed, legislators go out of their way to emphasize their low origins and how their legislation helps the lowest levels of society (ignoring illegal immigrants, of course).

So current rectifications conveniently exclude actual home buyers who got us into this mess, because, they aren't empathetic to the median voter.

Comments

[Houston]

If anyone ever put you in charge of lending out a billion dollars for home mortgages...don't lend it to people that clearly can't afford it. If you pick a kid up off the street that just got out of school and tell him that you possess the ability and the will to put him in the house of his dreams that week...99 out of a hundred times he'll take it.

If you've got the billion bucks, you're supposed to have the big smarts.
If I was the boss of such a lender and he came back to me insolvent and blamed it on a kid in blue jeans or a low socio-eco minority...The first thing I'd say to myself is why did I hear such a clueless fool to do such a big job?...or is he just lying?

2009 Jun 25 05:58 PM

[Houston]

last sentence..hear should be hire

2009 Jun 25 05:59 PM

[rm]

I don't disagree at all with the concept of buyers having skin in the game.

However, a price will have to be paid to accommodate this shift.

The average American has a small-to-negative savings rate.

What's the median home value now? 180,000?

180,000 * 5% = $9,000.

I look at people's personal financials all day long.

Most people don't have a month's worth of expenses saved up, never mind a 5% down payment.

If we're going to move in that direction overnight, then we're going to have to wait awhile for people to buy houses.

2009 Jun 26 09:29 AM

[Rico44]

RM; Maybe this is over-simplistic, but if we had requested (demanded) the 5% down payment over the past 5 years, perhaps there would not be so many people living in, or giving up the keys to, houses they cannot afford, and should have never been in, in the first place. There's a reason you don't give a house to just anyone. Make them prove they can afford it first, then talk...

2009 Jun 26 12:56 PM

[Houston]

Rico44

If reasonable guidelines had been followed, such as that and thoroughly verified credit, a lot of houses would not have been built or bought and the result would have been growth "closer" to a reasonable trend line.

But the money was there and the origination fees were there to be had. The guy that ran countrywide knew, Fannnie and Freddie knew, but no one wanted to call the party off.

Blaming consumers for taking the easy money that lenders were willing to give is like blaming gravity for making things fall to earth.
..or...like blaming lenders for making reckless loans to wrack up commissions and fees.

BTW...I've never not had a mortgage I could not afford.

2009 Jun 26 01:19 PM