Hi Kirk,
I guess I look at it like a banker looks at it.
There are some tried and tested sound principles about lending.
If you have not proven you can pay a loan back, you pay a higher rate to establish that track record. Your credit must be proven to obtain a low interest rate.
If you really want a low interest rate, you must have far more assets accumulated than what you are requesting and those become listed in Chattel agreement. If you don't pay back the loan, they can go after those assets listed.
Almost all commercial loans require a personal finance "list of assets" (including a personal cash flow analysis), ALL of which supports the thesis you are able to repay the loan PLUS INTEREST!
In the Great Financial Crisis of 2008, many who had 100% mortgages, and/or No stipulation loans or loans made to people with bad on NO credit walked on the repayment of the mortgage.
The reasoning was "Why should I continue to pay for a loan on an asset , when the value of the assets is less than amount owed.
The old 20 percent down is a safe mortgage for local banks to make.
Historically real estate value declines are few in number and not long in duration.
There were so many loans made to people who had zip for down and poor to bad credit.
Once the word got out that "MANY were mailing back the keys or just quit paying. Enough so that banks that were involved in warehousing mortgages lost all or at least a substantial portion of their working capital.
Pundits of the loose credit and/or no down payment would assist their constituents to "Reach for the American Dream".
The violation of sound and tested loan norms went on so long that a substantial portion of many banks had extended a large portion of their working capital on these errant loans. When the value of American housing declined it also vaporized the working Capital of MANY members of the banking system.
As a net result of this long lived poor political policy, the losses from risky loans not only depressed the values of the homes involved, it cascaded down to impact virtually all real estate owners. More than those it was supposed to help.
Proves the idea that we need better politicians with better ideas!
There is a reason that 20% should still be a loan requirement - ESPECIALLY FIRST TIME BUYERS!
The REASON IS CALLED: "SKIN IN THE GAME".
Those of us here at SI, learned long ago that you never really track a stock until you have put some skin in the game!
That 20% or "skin in the game" It covers the usual loss of a home mortgage foreclosure.
It preserves the working capital of the banking system. Do that and all of us who put skin in the game do not get hurt, by those who didn't go the route of saving a dow payment.
If you have 20% down in your "American Dream" you keep making the payment so that you don't lose your 20% when the market recovers.
There is a homeowner class in America, AND an Renter class.
To climb the social ladder to become a "homeowner class", you live frugally and save your money so you can ascend to your dream of owning a home.
You don't take expensive vacations.
You do not buy $7.00 coffees and $9.00 lattes.
You spend LESS than you make and save or you enjoy renting your apartment .
Politicians pander to lower income constituents by offering things that are free.
Their view of winning an election doesn't hinge on sound business practices.
When it gets so extreme that it impacts all of the American home owners - we all have to learn that some ideas are not good ideas.
DITTO Price Controls.
Ditto tax increases.
What we need is less taxes, more growth.
What we need are less regulations and more business formation by new small business entrants.
When you form more businesses, you build higher income amongst the working class/owner class.
In general, if the working class makes more money, they'll spend it.
We as a country need to police our politicians.
We can NOT afford to have their "BAD IDEAS/POLICIES take us into the next "GREAT"financial crisis, just because they wanted to stay in power!
To prosper as a country, the class warfare that takes from one sector and gives to another is divisive. It invites hatred between groups.
If we choose politicians who have great growth ideas and policies - all of the citizens can benefit.
The renter class sees greater opportunity and joins the work force and boosts their income to where, saving can become a reality!
These are economic rules of the world.
A country's wealth and prosperity of all its citizens are maximized when we live with in these realities.
All countries compete for the same prosperity.
Growth and prosperity for all citizens is not an easily achieved goal.
One thing for sure though, is it is harder to achieve when a politician starts taking from one group and giving to another. It at the very least is divisive.
Listen to your politicians and learn their techniques to attract voters - it's the most important decision you can make for directing our country to higher levels of wealth formation/creation.
Wealth can never be shared, until it has been created!
Learn the rules of the world and work toward a mutually satisfying approach for the USA and it's combined wealth creation/building.
Those politicians who do not have that BIG PLAN of Wealth Creation are simply carnival barkers and surface operators who quite frankly implement gimmicks and nice sounding word!s to earn your vote.
That is just simply not enough!
With the land and resources the USA has - learn to expect more from our politicians!
Bob |
