I have noticed lately that in an effort to fix what is broken we look at the broken pieces and tailor our new and improved plan around the effects of the crisis. Not the cause. By way of example. There are lots of condominiums in Florida. Florida has one of the highest foreclosure rates. Condominiums must be the cause of the foreclosures. Solution: Raise the rates on mortgages on Condominiums. WOW! I must have fallen asleep during that class.
Here’s a thought. Let’s look at what has worked during the “mortgage meltdown” and tailor our “new and improved” plan around that.
Most of the articles I have seen over the past year from Realtors, economist, and politicians claim that “low down payments” are the root of all of the evil that befell the real estate market. The prevailing thought has been that with no “skin in the game” the borrower would simply walk away. I beg to differ!
We could all learn from VA loans. While VA loans make up a small minority of overall loan volume their continued stability provides a look at potential lessons to be learned. Remember the key mark to the VA loan is “No Money Down”. A staggering 90% of all VA loans issued in 2009 were with “Zero” down payment. Through the first half of 2010 the foreclosure inventory rates were as follows: Sub-Prime 14.4%, FHA 3.62%, Prime 3.49% and VA 2.50%. Service members struggle to pay their bills the same as non service members. The VA however does a better job of keeping homeowners in their homes.
So pause for a moment and think. No Money Down loans don’t necessarily represent a scalable fit when it comes time to defining “sustainable homeownership” in America. But some policies, procedures and points of view are worth exploring based on the aforementioned low foreclosure rates.
The VA looks at debt to income ratios differently. They add to their mix “residual income” (the amount of money remaining at the end of each month after subtracting all major expenses). Residual income guidelines vary by region and dependent status. Unacceptable residual income levels will stop a VA loan before it can get started.
Maybe we should look at what works best rather than make changes that effect the entire economy based on what broke.