Idaho Real Estate >> ID Real Estate Specialist

Several members have written recently about the sub-prime loan debacle.  Many are concerned about the ramifications and what all those borrowers out there will do.  I would like to offer my opinion as to the history of mortgage lending over the past 20+ years.

In 1980 I had a young couple come into my office and wanted to buy a home.  At that time they had two options.  1)  They could save for the down payment (both were working) which at that time was about $2,500 including closing costs or,  2) They could have qualified for a Farmers Home Administration loan with no down-payment but they earned slightly too  much money to qualify.

I didn't hear from them for about 3 weeks.  They then came into my office and were so happy because the wife had quite her job and they now qualified for the FMHA loan.  Oh, by the way, they drove up to my office in a brand new car they had bought 2 days prior to coming to my office. 

What happened here is that the wife quite working so they would qualify and they also got farther in debt.  They didn't want to have to "SAVE" money so they took the highly traveled road of "Give me a loan I don't have to work for".

There isn't a year that goes by that I don't think about that sale I made 26 years ago and it still bothers me. You see our government created a program that took the incentive away from a lot of people to work for what they have.

A lot has been written about adjustable rate mortgages and they have been blamed for causing the high and growing number of foreclosures hitting the market.

This has been my observance in S.W. Idaho the last few years: Kids come into my office, write up an offer on a home. They come to closing and get their earnest money back and pay no money down, not one cent. You see they found a lender that would make them the loan and an appraiser that told them what they wanted to hear. They immediately move into their new home. Within months, if not weeks a new 4-wheel drive truck appears in the drive-way along side the Mrs. new sport car.  Neither vehicles fit in the garage because it is stuffed full of toys.

You see they want these toys because mom and dad have them and they want them too. Doesn't matter they can't pay cash for them because they are bombarded with credit card offers and "No down 1 year to pay" programs.  Pretty soon they get into this vicious circle of debt as described in the book Rich Dad, Poor Dad by author Robert Kiyosaki http://www.richdad.com/  

"A Federal Deposit Insurance Corp. (FDIC) report announced that the country's annualized losses on bank credit cards had ballooned to its highest level in 14 years. According to the Federal Deposit Insurance Corp. (FDIC), which issued the findings, the losses accounted for 5.22% of every $100 charged to the nation's credit cards; bankruptcy amounted to roughly half of "bank credit card charge-offs."

As soon as the bills start mounting up the first thing they let go of is their home.  Why? because they had nothing invested!  They had none of their hard earned money invested in that home.  They would rather hang on to their 4-wheel drive trucks, sports cars and motorcycles and just let the home go.

In many cases the debt of the home was more that the value to resell This is because closing costs were added to many sales prices and over mortgaged the home in relationship to it's market value. This has resulted in massive foreclosures.  Just drive through any entry level subdivision, USA.

In many cases borrowers just filed bankruptcy and turned around and bought another home months later until the bankruptcy laws were finally changed.  Thank God the bankruptcy laws were toughened. Can you imagine where we would be if they were not toughened?

What was really sad is that it was easier for a young couple just out of bankruptcy to buy a home than it was for a self-employed hard working couple that had good credit!  The self-employed couple was penalized because they were self-employed.  What is wrong with this picture?

When I grew up I was told that if I wanted something I had to work hard to earn the money I needed to afford what I wanted to buy.  Come this century of "I want, I want, I want" and "I deserve, I deserve, I deserve".

I can assure you that if buyers are told they must now come in with 3, 5 or 10% down they will find a way to get it if they really want a home.  And you know what? That would be a good thing because they then know they had to work for it and they have something invested in it.  They would have a little more pride.

I admit there are people that really needed and deserved sub-prime 100% financing but the vast majority of loans were made to couples that didn't have the discipline to own a home.

Lets bring back pride in home ownership. Lets GIVE our youth the opportunity to WORK for down payments and to qualify on their REAL ability to pay.