Homeownership: The Great Equalizer by David Reed
I wrote a column a couple of weeks ago about the recent IRS vs. Downpayments Assistance mess. It seems that FHA loans with seller-funded down payment assistance via a non-profit have a higher default rate than those without down payment assistance. I got an interesting email as a result, mentioning several things that were wrong with the government getting involved with this issue along with a couple of good points. But one thing that was said to me bothered me big-time. "Hey David," said the email, "The biggest problem is that many families should not be homeowners in the first place." If I was in front of the guy I probably would have punched him in the nose. But I wasn't so I didn't. But I did fire back, "Oh really," I wrote back, "Which families shouldn't be homeowners? Can you show them to me?" "I am not going to be the one to tell a family that they have no business buying a home. If they qualify for a loan program and they want to be a homeowner, who am I, or you for that matter, to tell them to forget about it and to go back to their nice little rented apartment?" Personally, I think everybody should own their own home. Heck, I think they should own two if they can afford it. And I think it's snobbery for anyone to tell someone else that they have no business owning a home. If you look around and pay close enough attention, you see a lot of people saying the same thing, "tsk, tsk-ing" all the while. "You have no business being a homeowner, only certain people should be homeowners and you're not one of them." Owning a home brings people out of poverty. Owning a home gives people pride in themselves which then brings even greater rewards. They feel confident, they get better jobs, they buy stuff. They're one of "the Joneses." Only in retrospect can someone say, "You shouldn't have bought that house" or "you bit off more than you could chew" but that's different than a slap in the face telling someone they're not worthy. When loans go bad it's typically because something changed AFTER the loan was issued, not before. Mortgage lenders can't be lenders very long if all they're doing is foreclosing on properties that they're upside down on before the gavel falls. Instead something happened such as a loss of a job, divorce or other financial emergency that pushes people into corners they can't get out of. If the home owners are forced to sell the property to pay off the lender or be foreclosed on, there's no equity to sell the home. The owners can't break even on a sale and they probably don't have any money to bring to the closing table to settle up. Are zero down loans bad? Should someone have a down payment before they can qualify for a loan? Before you answer, ask the VA if anyone is complaining about the VA zero down loan programs. No, zero down loans aren't bad. Can bad things happen with a zero down loan? Sure. It takes longer to build up equity. But so what? Home prices might be inflated by 2-3 percent, but again so what? If the owners have to sell the property they can't because there's no equity but that scenario is played out in areas where homes have depreciated in value. And what about giving loans to those who have damaged credit? Are they also unworthy? Should someone who has been foreclosed on in the past be banned from owning another mortgage? It would appear someone in that scenario "shouldn't have any business being a homeowner" either. If a lender has a loan program and a consumer wants that loan program to buy a house then what's the problem? Or maybe we should simplify the process. Maybe we should tell certain people before they apply for a loan that they should just stop their insanity and go back home and not waste anybody's time because after all it's been proven that zero down loan programs have a higher default rate than loans with down payments. Maybe that's what we should do. In fact, let's take it a step further and tell a single woman she has no business buying a four bedroom home or tell a family with one child that the house they're wanting to buy is too small especially since the wife is still of child-bearing age? Perhaps the best idea would be to determine which type of home is best for each buyer or groups of buyers. We could form a new government agency to help. The Department of Exact Housing and Urban Development, or De-HUD. That way the consumer would get exactly what the government agency said they needed along with the government-approved mortgage loan. Nothing more and nothing less. If the government said "no" then that would be that. After all, some people simply have no business buying a home. | 
