There is a lot of talk today about how the tax credit HAS to be preserved because it is stabilizing the housing market, etc. I do not buy it. The tax credit is not having an impact on the market like was predicted, and in fact, is hurting the people of the United States. I could get a lot of flack over this post, but I do not care. This article here explains how this happens. We can not keep giving people free money for buying a home.
The real key to keeping the housing markets moving is lower rates. The Fed, right now, is buying about 80% of all mortgages on the secondary market. When that stops, and the demand dries up, rates could go up 1-1.5%. If there is any program out there that should stay in place, to get some stability, it would be that.
Another issue that we are having, are the FHA insured loans. FHA loans are insured by the federal government. They now represent 1-4 new loans in the market. It is great that there is an avenue for people to get loans..the issue is that they are making the same loans that (partially) got us into this mess,subprime loans. Some of the key elements of a subprime loan make up the FHA loans; low down payment, lower credit standards. Those two factors in a loan predict the default rate the highest of all of the factors. The government has GOT to wake up and realize that these loans are not good for people...and will more than likely require a bail out, from you and I, sometime in the future. They are already leveraged 50-1; when BearStearns went out of biz, they were leveraged 33-1....HELLO!! WAKE UP!! This article here helps explain my point.
I am all for helping those that are worthy to get a home loan, I have staked my career on it. But, you have to have to have your ducks in a row. Saved up some money, worked on your credit, maybe some money in the bank after everything goes through in case your fridge dies after you move in (like mine did), or you need a new water heater.
Everyone needs to tighten their belts right now, and make smart choices with money; the government, our companies, and our people.
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