John Ransom

The geniuses running things now days have come up with an excellent way to bring down foreclosure rates: Make the down payment on a house so big that only rich people, who we are going tax extra anyway, can afford to buy homes.

Talk about creating class envy. Way to go Obama! Another mission accomplished.

So let’s say that the median home price is $163,000, more or less. Under the Obama proposal- authored by top housing experts Rep. Barney Frank (D- Fannie Mae) and Senator Chris Dodd (D- Countrywide Mortgage)- one would have to put down 20 percent or $32,600, regardless of credit history or income in order to qualify for a conforming mortgage.

The alternative would be paying a risk premium to the bank.  

To quote the movie Billy Madison, I think I speak for all of us in saying I’m a little dumber for having read this proposal by Dodd-Frank for solving the sub-prime housing crisis in America.

Only the guys who tried to solve the problem of the federal government being too involved in the mortgage business by making the federal government more involved in the mortgage business would try to solve the sub-prime housing crisis by making us all sub-prime borrowers.

Barney Frank's stupidity can only be matched by the people who vote for him time after time to represent them.   

“We need to strike a balance between reducing investor risk and providing affordable mortgage credit. Better underwriting and credit quality standards have greatly reduced risk. Adding unnecessarily high minimum down payment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I

The way to strike that balance is by getting the federal government out of the business of making and guaranteeing home loans and letting the market determine what the down payment and credit criteria should be for loans.

But allowing lenders to think, rightly as it turns out, that whatever decisions are made, Uncle Sam will stand by you was a recipe for disaster.

This new proposal makes it a double disaster. It ensures that the only entity that will be writing mortgages will end up being the government.  

It essentially tells banks that they are too stupid to make loans and that the only ones smart enough to be in the loan business are the Feds.        

“Saving the necessary down payment has always been the principal obstacle to buyers seeking to purchase their first home. Proposals requiring high down payments will only drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market,” said Phipps.

If you own a home, good for you.

If you don’t, congratulations: It will take you 20 years -probably more- to save up a down payment for a new home. Just about the time your kids are grown up and going to college, you’ll get to buy your first house.

Yes, we can ration healthcare, jobs, credit and housing. After all, we’re all Socialists now.

Even the National Urban League agrees the rule is dumb.

“When coupled with an additional requirement of near pristine personal credit standards, these proposed requirements could end the standard 30-year fixed mortgage and replace it with a new class of ‘high risk’ borrowers, formerly known as the responsible middle class borrower,” said Marc H. Morial president and CEO of the National Urban League.

“Clearly, what is being proposed is anti-jobs, anti-growth, and in absolute contravention of the American Dream,” he concluded.


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email: thfinance@mail.com


John Ransom

John Ransom is the Finance Editor for Townhall Finance.
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