CONLEY COMMENTARY (WSAU) – The Biden Administration will be the least-friendly for new homeowners in my lifetime.
Now they have a hair-brained scheme to lower the closing costs and bank fees for people with lower credit scores. They’ll pay less to close on a mortgage than people with good credit. The goal is to make it easier for people with lower incomes to become homeowners.
The last time we tried something like this, under the Clinton administration, the results were disastrous. You remember NINJA loans – No income, No job applications. Anyone could qualify for a mortgage. The mortgage processing company didn’t verify the applicant’s income, or whether they even had a job. The loans would be packaged and sold to investors. Hypothetically, when sold in bundles of a-thousand mortgages, statistics say a certain percentage of the deals would be bad. As long as there were enough good loans to prop up the bad ones, the risk was acceptable. That didn’t work when almost all the loans didn’t meet the most basic lending standards.
What’s the best way to manage the housing market? Through old-fashioned economics. A home buyer who’s managed to save up for a 20-percent downpayment has managed their finances responsibly. They’re a good risk. Someone whose finances aren’t as good pay a higher interest rate. People who can’t afford the monthly payments are… renters, not homeowners.
Homes are less affordable now. Builders are less likely to build new homes and hope a buyer will show up. Interest rates are much higher now, and so are construction costs. That’s the result of Biden policies that led to inflation and supply chain problems. Of course, the administration can’t acknowledge that they’re the cause of those problems. Now they’d like to tinker with the closing costs of a home. No one is well-served when people who can’t afford a house are told they qualify. A poor housing market is bad for everyone who already owns, and is bad for the already shaky banking sector. And a default is financially disastrous for a family that loses their home. They may never get another chance at ownership, and even renting becomes much more difficult.
Chris Conley
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