" What's old is new and what's new is old." That adage stands today. As we all know, no more NINJA loans, no income, no jobs, no assets. And sometimes the old fashioned way is the best.
Putting 3.5% down on an FHA loan after January 1 is prudent. And conventional loans with 5% or more down, is also prudent. Where else could you purchase something costing $350,000 with no money down? It makes no sense.
But in 1999 Congress repealed Glass Steagall through the passage of the Gramm-Leach-Bliley Act. This permitted commercial banks and investment banks to compete.
Congress deserves to take it's lumps. The repeal of the Glass Steagall Act at the end of the Clinton administration combined with the loosening of terms and government encouragement to banks to make unworthy loans through the Community Revnvestment Act, lead us to this debacle.
Money was loose and abundant. And builders took advantage of this free for all, as did lenders, Realtors, investors in housing stocks, investors in property... anyone who thought they might make a buck. If you could fog a mirror, you could buy a house!
But now, returning to saner times, people are lamenting the lack of easy money. But in the 1990's, people needed a down payment, and they needed closing costs to purchase a house. In some areas of the country, there are 40 and 50 year mortgages...years ago, a 20 year mortgage was considered long.
If people have a vested interest in their home, chances are they will work hard to keep it and they will make their purchasing priorities accordingly. But if I have no vested interest in my home, why should I deprive myself of something I want in order to make a mortgage payment?
That simplifies the problem, I know. We have 80-20 loans out there with adjustable rates...there are rates resetting at much higher rates...and I know the forclosure rates are at their peaks. There is plenty of blame everyplace...some of which should be laid at the doorstep of Congress.
Let's hope this financial mess ushers in a period of stability where people begin to count their pennies again before making huge purchases. And maybe some reflection for all those people who tried to make a fast buck...and some consideration of business ethics and the fact we are dealing with people's lives and the lives of their families...and maybe...just maybe...some reflection about self responsiblity.
It's a blame game alright, but ultimately, the person responsible is oneself.
Resources:
http://my.opera.com/richardinbellingham/blog/show.dml/1796860
http://en.wikipedia.org/wiki/Glass-Steagall_Act
http://www.federalreserve.gov/dcca/cra/
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