Bob Hope said “A bank is a place that will lend you money if you can prove that you don’t need it.”
Bob Hope died in 2003 and apparently this philosophy died with him.
Banks are again embracing borrowers who can’t afford the down payment on a home because governments are committed to the dream of home ownership for nearly everyone.
The Wall Street Journal reported that state and local governments are stepping up efforts to help low to moderate income citizens become home owners with generous down payment assistance programs. According to the article, the assistance programs now number over 1,000 nationwide, up 3-5% in the last six months.
Banks are in hot pursuit of these newly empowered borrowers who only 18 months ago were shunned as being too risky. Some might say they are still too risky having never owned a home before or not in a long while. They will have very little of their own cash in the deal which reduces the incentive to ride out a financial mistake.
My favorite is Florida’s home buyer assistance program. The state will lend a homeowner up to $7,500 for the down payment and repayment is deferred for 30 YEARS at 0% interest. In some cases the money doesn’t have to be repaid until the house is sold which could in theory be never. FLORIDA? Don’t they have an ongoing housing crisis?
Aren’t we riding out the consequences of a similarly flawed mortgage policy in the U.S.?
I posted earlier that:
Your primary residence is not an investment rather consumption of shelter
We need to understand the history behind The American Dream
There are at least ten reasons to not sign up for that new mortgage
The logic behind governments’ effort to increase home ownership seems to be following this logic:
Someone buys a house
The new owner decorates and buys new appliances
The local appliance store sells more ovens and hires more salespeople
The salespeople spend their commissions in the local businesses which spurs more hiring
Or so the theory goes.
Now prospective homeowners are instruments of public policy to increase job growth. Whether they need a new house or not, they are being encouraged to sign up for these incentive programs.
If you’ve been a reader here for awhile, you know what I think about mortgages and home ownership.
Do you think the country is engaging in mortgage insanity by expecting a different result from the same failed borrowing ideas? Join the discussion by posting a comment.
- Blue Sky or Head in the Clouds? Home Ownership Dreamin’ (proborrower.wordpress.com)
- Mysa.com: Dreams of home ownership get closer (mysanantonio.com)
- Is Home Ownership Right for You? (homeownersinsurance.org)