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President Obama’s Latest Gamble

Please skim this and come right on back here.

President Barack Obama’s administration is pushing banks to extend home loans to people whose credit ain’t perfect.

 

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Listen. I don’t really have the time.

Home ownership is something that, I feel, should be given to responsible people. Now, I understand that depending solely on a FICO score to determine responsibility is flawed, but it’s what banks use to determine credit-worthiness. I think a better idea would be to trace or track monthly expenditures over a 6-month period (via bank and credit card statements) and determine how much money they’re really working with in addition to the credit score, which I feel can be subjective as much as it’s supposed to be the solution of complicated astrological, satanic, and mathematical equations.

If the administration proposes banks working with people in a fashion like this along with outlawing those crappy loans, I could get behind this 100%. As it is, I am not fully on board. Some folks should not have had loans. There should be an equation that takes mostly salary into account to determine how much of a loan you can get (cap it at 3 times gross salary if you don’t have other things like child support and debts over $5000). If banks want to ensure that they’ll get their money and not loaning to people whose financial history reads like the struggles of a sharecropper trying to make it as a corporate executive, then they should do their part to ensure they’re offering products that won’t leave them having to chase down people for money. Why not offer just a basic loan on a 30-year fixed term to less-than-worthy people who can pay and keep up a home? Outlaw these 1-year ARMs that jump up 10% after the first year is done. Outlaw balloon payment loans where you pay only principal but owe interest at one time at the end of 7 years. Maybe just make it illegal for those borrowers to get those types of loans. Make it easier for them to get good products more than just getting into a home.

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I’m not of the mindset that everyone needs to own a home. A lot more folks are better off renting than we’re willing to admit. There is a lot that goes into owning a home and many folks are not ready for those associated costs, especially if you have land with your home or the dreaded condominium association fees on top of your mortgage. I think more people can own homes now, though, than banks are willing to lend. Some people’s credit histories are jacked up a bit because they lost jobs in succession when they were trying to build something and fell behind in payments. Banks won’t ask those questions if the score is too low, though. And even if they do, the underwriter may not want to take the risk on the person regardless.

So, if the banks do their part to make sure they’re not doing stuff that will hurt them in the long run should the gamble fail, and if the government is willing to do its part in regulating the products offered and even help guide the banks toward a workable solution, this could be a shot in the arm for the economy.

In any case, this is one of the things I’ve never liked about President Obama. For all of his talking about stimulus and TARP II, he never ever offered anything to bail out homeowners. I guess it’s better late than never, but I think we would have been much better off if this was done first…or if something was done first for homeowners before banks. Banks would have been okay if the citizen was helped first. “Too big to fail.” Whatever, dude.

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