Homeownership Done Right

During the presidential campaign, the housing debate sometimes had more to do with how many homes a candidate owned than about solutions to the nation's housing crisis. At other times, specious claims were made that the current foreclosure crisis was caused by Fannie Mae, or by policies started in the 1990s to get banks to expand homeownership lending to low- and moderate-income families.

We heard very little, unfortunately, about what has succeeded at enabling hardworking families with average or below-average incomes to afford a home or rent a decent apartment.

Nearly 95 million Americans, owners and renters, live in households paying more than 30 percent of income for shelter. More than 43 million Americans are paying more than half of family income.

But across the country, families earning below the national median income have bought and held onto homes -- when the homebuying process puts the borrower's best interests first.

The Massachusetts Affordable Housing Alliance, for example, has assisted more than 11,000 families of modest means in buying their first home. The alliance reports a delinquency rate roughly half that of conventional mortgage borrowers. Self Help, North Carolina has aided tens of thousands of similar families with comparable low default results.

Community land trusts in more than 100 working-class neighborhoods all over the country report a less than 1 percent foreclosure rate on low- and moderate-income mortgages. And the national intermediary organization Neighborhood Housing Services, which packages loans to borrowers whose income averages only two-thirds of the national median, reports delinquency rates only a fraction of the reported subprime default rate.

Successful programs approach homebuying with some common elements. Pre-purchase homeownership education is one key part. Prospective purchasers are taught carefully about the challenges and burdens of ownership, and the need to plan for financial setbacks.

Fixed-rate loans are also the norm, rather than the roller coaster variable rate products that are common among the current millions of defaulting borrowers. Many programs require some down payment and a savings program providing a cushion in case of emergency. And incomes and employment are carefully verified by counselors.

Undoubtedly, there are lessons to be learned about what is a "safe" loan for a family of modest income and assets. But blaming efforts to include lower- and moderate-income families in the American dream of homeownership comes dangerously close to writing off a whole swath of hardworking potential owners as "too risky" the next time around. That would be a tragedy both for those directly involved and for the continuing resurgence of our inner-city communities.

David M. Abromowitz, a Senior Fellow at the Center for American Progress, www.americanprogress.com, has 25 years experience as a practicing attorney working with affordable-housing groups around the country. This op-ed appeared in the November 17, 2008, opinion pages of the Baltimore Sun.

Comments

[BillMelater]

I remember buying my first home. I had 10% down and had to buy mortgage insurance. It took many years working a good job to save that 10%. The insurance added like $75 to my mortgage payment as well. When you own, you have to account for upkeep on the property as well. Mowing lawns, shoveling driveways, new water heaters, furnaces and plumbing maintenance, etc., all costs money.

In the 3 years I lived there, the house value went up 25%, so I made out when I sold it. My current home is paid for mostly from what I made on that first house. This was a repo house, so I got it for 30% of market value. I have lost alot of equity with the decline in housing prices around here. Fortunately, I did not bite on any of those sub-prime refi's that have alot of homeowners in real trouble. I almost did, though, as I always wanted a brand new pickup truck. I could have done a refi and bought one, but instead, I saved a big enough down payment to lower the monthly payment until it was acceptable - just this year.

Property ownership is not a right and it should not be a government give-away. It has to be earned. We need to emphasize good paying jobs in America so that people can earn their dream. Most people today can barely afford to eat - little less eat the right things.

http://billmel8er.wordpress.com

[dadw5boys]

YOU SEE NOW THAT WE ARE ALL IN THIS TOGEATHER !!!!!!!

IF YOU ALLOW YOUR FELLOW AMERICANS TO BE SCAMMED AND CHEATED WITHOUT SPEAKING UP YOU WILL ALSO SUFFER !!!!!!!!!!!

HOW DOES THAT FIT INTO YOUR CONSERVATIVE SCORE BOOK OF SCREW THE POOR ?

[KillTheMessenger]

There is nothing wrong with ARMs FOR PEOPLE WHO KNOW HOW TO USE THEM. We saved a ton of money on ours by having the ability to pay the loan off early before the rate adjusted. We still have an open line of credit at a rock bottom rate... but that's on a prime rate loan, of course, and the bank wants out business. Others might not be so lucky.

The key to home ownership is indeed education. We need to teach people what their options are and how these options change the risk profile of their loans. And first and foremost we need to teach people how to use the compound interest formula, because for long term loans it has some "killer" properties.

[iambusto]

i second that. spend 50 million in getting each citizen in the US a good TI Business calculator and a pamphlet explaining how to amortize a loan with that calculator. problem solved. :)

[KillTheMessenger]

There you go.

[BillMelater]

Actually, if they are reading this, they have access to those already on the web.

http:/billmel8er.wordpress.com

[iambusto]

NOBODY should get a loan WITHOUT 10% DOWNPAYMENT !!

problem solved !!

[KillTheMessenger]

Make that 20%.

[Veri]

Keep it at 10%. American were taught that if you work hard, keep your nose to the grindstone, they to would be rich. Capitalism is a brutal teacher. To keep the system going, you need poor people. And lots of them. Not only that, you need to keep them poor. Inflation, baby, inflation does such a good job of that.

We are all created equal? My derriere. To each their own abilities. Stupid people are just as often rich as poor people. Luck of the draw and who you know and what sucker you can get to give you their cash. Warren Buffet, of course, being an exception.

Now, back to everyone being a rich mo-fo. Ain't gonna happen. If everyone had a million dollars, a loaf of bread would be around $400.00 or more. And who would bother to go to work then?

20%, KTM? I could see that if when even the house maid is making three times minimum wage. I am not bagging on capitalism, just the current form of capitalism. Good for those that have the cash. Most of you worked hard for it. However, let us just kill the crack-pipe dream that all Americans can be rich if they only try hard enough. It is like living in Vegas were your friend tells you about his cousin's best friend's girlfriends uncle's son that walked out of a casino with a cool mil. Always happens to someone else, never to your friend.

[alphadominance]

Quite simply, for lower income Americans to afford a home, home prices need to return to a normative relationship with income. The problem we've faced in America over the past 35 years or so is that due to wages that have not increased after adjusting for inflation, and the increasing pass-through of benefit costs to the worker, our purchasing power has sunk astronomically. Additionally inflation statistics have been muddled with to disguise the true cost of inflation, and the expansion of the money supply has further devalued the annual salary of the median income earner. Wage disparity in America has never been wider, and despite stagnant incomes, our productivity has increase 40% in the past quarter-century. We've been witness to the biggest theft of our lifeblood in American history, and it's all flowed up the chain as intended under the asinine "trickle-up" doctrine. There are two solutions to bring the lower classes into houses: increase incomes dramatically, or allow home prices and those of other commodities to crater in a prolonged recession. With luck, both will overcorrect and for once the long suffering American worker will be able to pay down debt and establish some savings. Read more here: http://alphadominance.com/?p=37

http://alphadominance.com

[demar]

Right on! One person needs to be able to have a job that will support a family. We need to return to this model if we expect to stop climate change.

[NoMoFearNoMoHate]

As a start, any couple who can needs to have one of the parents staying home raising the kids. One car and a more modest lifestyle are key.

[Overd0g]

How will "hard working" families be separated from those that merely "muddle through". For example, a family of coal miners might be considered "hard working", whereas a schlub who stock shelves at the convenience store would be more of an underachieving lazy ass. Surely you don't want to reward mediocrity and lack of effort over true "hard work". So I say, let's form a council for the study of work, and determine criteria for ranking the "hardness" of different occupations. Combining this with recent performance appraisals (so the coal miner who just hides in the corner rather than breaking rock doesn't get any benefit), we can truly produce a just system. An additional dimension to consider is whether the "hard work" is actually being applied to create much of value. In other words, if a man (or woman) is slaving away every day making shrines to Ed Wood, should that work be valued as highly as the before mentioned coal miner, irrespective of the hardness of the work?

[rf dude]

Assuming that you 1) purchased a home that you could _really_ afford, and 2) were required to put up equity in the form of a down payment, then it's just a question of hanging on during this wild ride. Being "upside-down" on your mortgage is not bad by itself, and if you've got a 10% or 20% down payment tied up then you are motivated to stay-on until things improve.

Been there, done that back in the early 1990's during the last big downturn.

If you really couldn't afford that home, or got into a house through one of the many " creative " loans that were pushed (No Down, No Income, etc etc), then losing a home is not what it seems - you've just got to re-set your expectations, rent (and save for a down payment) for a few more years, and then get into a place you can really afford.

I don't want to sound insensitive, but homeownership is not a right - it is a responsibility. We are seeing the result of irresponsibile loans given out by banks to people who are in _way_ over their heads, and the readjustment will be painful for all.

Fortunately, these downturns are followed by a slow recovery and turnaround, and the next balloon is many years off. Housing prices have adjusted down and will stay down for many years - giving those who are in distress now a chance to reset and buy a home they can afford.

[KillTheMessenger]

I am fully with you. And one should probably mention that the key to homeownership for people with low income would be to acknowledge that a home is not a bank, it's not a hedge fund, it's not a retirement savings account. Because either use of homes has driven prices up beyond what the worth of homes used to be as dwellings and safety nets for those who could not reliably produce income. And consequently the people have priced themselves out of their own homes by using them as cash cows.

[rf dude]

Amen to that! I am amazed at the ease with which one can drain out home equity to buy " stuff ".

I don't propose that we live an austere life, but holy smoke - does it make sense to buy a house and fully depend on a rise in equity to allow one to make the payments in coming years? And pull out any excess equity to buy things we otherwise couldn't afford?

I think the answer, based on the meltdown, is NO!! It was always a bad idea, and with home values (and hence, "equity") falling many of those loans are going into default.

I am sympathetic to those facing forclosure, but also realize that it is my tax $$ that will be " helping them out ". Unfortunately for me, having equity in my home that is not affected by the current price drop (it's still worth more than I owe), I will not qualify for any re-adjustment in loan terms to reduce _my_ payments (which I, of course, consider higher than I'd like to be paying!)

So, in essence I am paying for both my home - that I can afford - and subsidizing others who bought homes they couldn't afford but will be allowed to keep anyway.

This is a Great Country, to quote Yakof Smirnof.

[NoMoFearNoMoHate]

Rents are too high to be saving any money with wages at the bottom of the barrel and everything else at top dollar to prop up the shareholder and the execs!

[rf dude]

I don't know your particular example here, NoMo, but things are not much different now - for us - than they were in earlier times. Wages have always been artificially low, Shareholders and Execs have always " made out" at the expense of workers.

But that hasn't prevented people from realizing homeownership by working their tails off and saving money. And by saving, I mean driving that old car, skipping vacations, eating in, and basically cutting the lifestyle "benefits" to the bone.

And expect to continue doing this for several years after buying that home, too. Eventually, as income rises (and it always does) the payments become less of a burden.

It is not easy, but many, MANY people have done it - it is not impossible!

Keep the faith!

[Downix]

Back in 2002, the wife and I were looking to buy a home, seeing how we made $35k a year, not great money, but not bad, and had only one debt to speak of, our car. So we figured, time to at least look. In August, we priced things out, saw the median prices for an area, and went "ok, not too bad, $85k average, we can do this." So we began saving up a downpayment. Three months later, we went back, those same houses we had seen for $85k were now going for $95k. That flipped a big red flag in the back of my mind. Houses do not jump $10k in 3 months. Then we saw it happening more and more areas, $5k here, $10k there. New mortgage companies appearing out of nowhere. New realtors out of the woodwork. We went "no way." and walked away. Those homes we'd originally spotted for $85k wound up at almost $400k in 2006-2007. Now they're down to "only" $190k.

I just remember, 6 years ago, $85k. Is a home worth a 130% price jump over 6 years? In the time that this boom has happened, the city sank millions into upgrading the streets with fancy lightpoles, to drive up the values. Tore down one home to make a park. But they jumped such that I will never buy one, because I remember that in the end, they are only $85k homes.

[Overd0g]

Perhaps, but remember that dollars are not a thing of constant value. Every year, your dollar is worth at least 3% less. At 3% currency devaluation over 6 years, that $85k is worth $101.5k dollars now. If you add some appreciation on top of that (depending on your area), the total is even higher. So, if you add another 3% for appreciation you get $132k. So while $190k still seems a little high, I wouldn't wait for $85k. You'll never see that again in your lifetime.

[KillTheMessenger]

Which is exactly why he might be better off renting for the rest of his life. Once you add the property tax and upkeep into it, homes are far more expensive than rental properties.

[Zeje]

You are smart. Only people with brains can survive in this society -- unless you're independently wealthy.

[Merewen]

"Nearly 95 million Americans, owners and renters, live in households paying more than 30 percent of income for shelter. More than 43 million Americans are paying more than half of family income."

Thank you for pointing this out. I was just trying to explain this to someone the other day. They didn't get what I was saying about affordable housing. Basically, there really isn't any. You can say people are living above their means. Or they shouldn't have bought houses they couldn't afford, but if that's all that out there..... what is a person supposed to do? No one seems to be answering that question and until we get that answered nothing is going to change.

I was looking to buy a house a few years ago, because I figured if I have to pay $700+ for the rent of a 2 bedroom apartment why shouldn't I just buy a house, that way I'm paying for what's mine. The house prices were ridiculous. $200,000 for shacks in drugged out neighborhoods. Come on?? Also, having a good credit score and stable income.... I kept being offered ARMS. WTF?? When I asked for a fixed rate I was constantly told I wasn't qualified. So I know exactly what happened to those people buying homes and it's a crying shame.
Renting... $1,000 a month to have drug deals go down on your front step while they use your car to rest their lazy carcases. Hard legally working people don't deserve this.

[Downix]

I wish I could get rent that cheap with those anemities.

[Merewen]

That's not cheap compared to what people make around here. And that doesn't include anemities. Sorry :(

[Overd0g]

Yeah, but most people don't really work all that hard. They put in the 40 hours with little or no passion. Nothing wrong with that, but most people are basically lazy.

[NoMoFearNoMoHate]

And laziness often consumes very little - it's a survival habit that is extraordinarily successful.

[Merewen]

How do you know they don't work hard? Do they have to pass out there desk? Have a heart attack or stroke? What does some one have to do to prove that they work hard?

40 hours is enough. You want my passion, my life, my children's lives.... pay me for it. And that's the kicker, they want all that but don't want to pay you for it. They want to be able to call you on the weekends to come in but don't want to reward you for it. Or to stay 4-5 hours later, but don't want to reward you for it. Over-time is a joke. So you can't throw that out there as an incentive.

Your arguement is crap.

[johnsopinion]

This is probably the most important post I've read on the housing situation.

Instead of standing around, pointing fingers and saying "It's his fault or their fault" and
what are we gonna do about it, someone has brought to our attention programs in
progress that work!

EXCELLENT!

[brooklyncitizen]

Great post and wonderful reminder. In my neighborhood one of the local black churches has almost single-handedly turned around swathes of "Do or die Bed-Stuy" through financial literacy programs that educated local buyers. By creating a development branch and partnering with the city they purchased property from the city which they renovated and sold to local residents as affordable housing. Thee is a competitive waiting list to be able to bid on these properties but it has been a win-win for everyone. It's allowed locals to stay as homeowners in neighborhoods as they gentrify.