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Special Govt. Home Ownership Policies
The 30-year mortgage
• Mortgage interest paid is tax deductible
• Property tax is tax deductible
• Interest on 2nd mortgages (equity lines of credit) are tax deductible
• Favorable mortgage interest rates
• Mortgage interest paid is tax deductible
• Property tax is tax deductible
• Interest on 2nd mortgages (equity lines of credit) are tax deductible
• Favorable mortgage interest rates
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All these programs…
FHA LOANS
First Time Home Buyers
Good Neighbor (teachers)
Disaster Victims
Adjustable Rate Mortgage
Military Persons
Urban Renewal (neighborhood)
30 year mortgage
Age is a protected category within the Equal Credit Opportunity Act, a federal law that also bars credit discrimination based on a borrower's race, color, religion, national origin, sex, marital status or receipt of public assistance benefits.
Tax deductions
Mortgage interest
HELOC (Home Equity Line of Credit)
2nd Mortgage
First Time Home Buyers
Good Neighbor (teachers)
Disaster Victims
Adjustable Rate Mortgage
Military Persons
Urban Renewal (neighborhood)
30 year mortgage
Age is a protected category within the Equal Credit Opportunity Act, a federal law that also bars credit discrimination based on a borrower's race, color, religion, national origin, sex, marital status or receipt of public assistance benefits.
Tax deductions
Mortgage interest
HELOC (Home Equity Line of Credit)
2nd Mortgage
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Adjustable Rate Mortgage
• An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes
. • Starts very low, then increases dramatically in a couple of years!!!!
. • Starts very low, then increases dramatically in a couple of years!!!!
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Home Ownership in the Roaring 90s
• The 1990s economic boom in the United States was an extended period of economic prosperity, during which GDP (Gross Domestic Product) increased continuously for almost ten years (the longest recorded expansion in the history of the United States).
• Relatively affordable mortgage interest rates ( roughly 7-9%)
• Community lending initiatives (recall those programs again)
• Strong consumer confidence
• Relatively affordable mortgage interest rates ( roughly 7-9%)
• Community lending initiatives (recall those programs again)
• Strong consumer confidence
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Lead Banks to Offer Additional Risky Mortgage Products
• 100% financing, stated income, interest only, adjustable rate mortgages
• Higher interest rate loans for credit challenged buyers
• These are fondly referred to as “predatory lending practices”
• Higher interest rate loans for credit challenged buyers
• These are fondly referred to as “predatory lending practices”
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Types of Predatory Lending
• Lender charges an excessive interest rate on a loan made to a person with excellent credit
• “Loan targeting” - loans target a specific population or group of people
• Lender continually encourages you to refinance, thus incurring additional fees
• “Loan targeting” - loans target a specific population or group of people
• Lender continually encourages you to refinance, thus incurring additional fees
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Subprime Mortgage Loans
• Loans given to households with poor credit history. They almost always have a higher than average interest rate
• Subprime market grew from $210 billion in 2001 to $625 billion in 2005
• Subprime market grew from $210 billion in 2001 to $625 billion in 2005
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The Housing Bubble…
• Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes
• The mortgage and credit crisis was caused by the inability of a large number of home owners to pay their mortgages as their low introductory rate mortgages (ARMs) reverted to regular interest rates
• Low interest rate now becomes high interest rate; meaning your low mortgage payment now becomes UNAFFORDABLE MORTGAGE PAYMENT!!!
• The mortgage and credit crisis was caused by the inability of a large number of home owners to pay their mortgages as their low introductory rate mortgages (ARMs) reverted to regular interest rates
• Low interest rate now becomes high interest rate; meaning your low mortgage payment now becomes UNAFFORDABLE MORTGAGE PAYMENT!!!
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The Subprime Mortgage Crisis Explained:
• 2005 was the peak of the subprime boom. At this time, 1 in 5 mortgages was subprime.
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Remember these two…?
• Fannie Mae and Freddie Mac do not lend directly to home-purchasers. Instead, Fannie and Freddie are in the business of loan securitization.
• They buy loans from banks; thus the local banks can/did lend more money to sketchy consumers!!!
• Fannie and Freddie then bundled the mortgages and resold the loans to investors as a Mortgage Backed Security
• Before the Collapse….F and F held about 75% of American’s mortgages!
• They buy loans from banks; thus the local banks can/did lend more money to sketchy consumers!!!
• Fannie and Freddie then bundled the mortgages and resold the loans to investors as a Mortgage Backed Security
• Before the Collapse….F and F held about 75% of American’s mortgages!
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What happens?
• When the consumer (home owner) cannot pay his/her mortgage payment?
• Is just the home owner impacted?
• No, then who else?
EVERYONE
• In other words, the government implicitly guaranteed Fannie and Freddie's securitized loans.
• So when those loans started going bad, because consumers could not pay their mortgage payments; the government came in to bail F and F out!!!
• By November 2010, Fannie Mae and Freddie Mac cost the taxpayers close to $150 billion; final estimates from that time have the total cost somewhere near $400 Billion up to $1 Trillion dollars.
• Is just the home owner impacted?
• No, then who else?
EVERYONE
• In other words, the government implicitly guaranteed Fannie and Freddie's securitized loans.
• So when those loans started going bad, because consumers could not pay their mortgage payments; the government came in to bail F and F out!!!
• By November 2010, Fannie Mae and Freddie Mac cost the taxpayers close to $150 billion; final estimates from that time have the total cost somewhere near $400 Billion up to $1 Trillion dollars.
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What did consumers do? To create the housing crisis?
• BOUGHT MORE HOUSE THAN THEY COULD AFFORD!
o 100% Mortgages
o ARMs
o 2nd Mortgages
o NINJAS: No income, no job, no assets!
o 100% Mortgages
o ARMs
o 2nd Mortgages
o NINJAS: No income, no job, no assets!
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What did consumers do?
HERDING BEHAVIOR CONSERVATISM BIAS
o Aka: Social Epidemic
o Consumer belief that the housing market opportunity of the 21st Century was not something that a savvy consumer would want to miss out on!
o It was a critical investment opportunity
• Encourages consumers to rely too heavily on past experiences and not revise our expectations for the future in a timely fashion.
o Aka: Social Epidemic
o Consumer belief that the housing market opportunity of the 21st Century was not something that a savvy consumer would want to miss out on!
o It was a critical investment opportunity
• Encourages consumers to rely too heavily on past experiences and not revise our expectations for the future in a timely fashion.
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What did lenders do? To create the housing crisis?
• Lent money to unqualified consumers.
• Lent money to too many property developers
• They themselves invested poorly (since FDIC covers consumers)
• Lent money to too many property developers
• They themselves invested poorly (since FDIC covers consumers)
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What did Freddie and Fannie do? To create the housing crisis?
• Bought up way too many mortgages.
• Bundled the mortgages into investments known as Mortgage Backed Securities.
• LIED LIED LIED!!!
• Bundled the mortgages into investments known as Mortgage Backed Securities.
• LIED LIED LIED!!!
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Mortgage Backed Security
• The mortgages are sold to a group of individuals (a government agency or investment bank) that securitizes, or packages, the loans together into a security that can be sold to investors
• The structure of the MBS may be known as "passthrough", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs.
• The structure of the MBS may be known as "passthrough", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs.
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The lie :(
• Fannie and Freddie lied about the QUALITY of these MBSs…….they said they were safe.
• And truthfully, they were until what happened?
• MORTGAGE HOLDERS STOPPED MAKING THEIR PAYMENTS!!!
• And truthfully, they were until what happened?
• MORTGAGE HOLDERS STOPPED MAKING THEIR PAYMENTS!!!
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So how did the housing market collapse set up?
• Start of 21st century…..rapid increases in the valuation of real estate/and land until unsustainable levels are reached (tie this to policies)
• Mid 2005-2006; home prices began falling "almost like never before, with the exception of the Great Depression.
• Decreases in home prices that result in many owners finding themselves in a position of negative equity o Referred to as being “upside down” on your mortgage or also called being “under water” on your mortgage.
• Mid 2005-2006; home prices began falling "almost like never before, with the exception of the Great Depression.
• Decreases in home prices that result in many owners finding themselves in a position of negative equity o Referred to as being “upside down” on your mortgage or also called being “under water” on your mortgage.
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The First Domino
• Can’t pay your mortgage, the creditor will respond with a FORECLOSURE.
• Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
• Foreclosures shot up by 81 percent through 2008 and increased by 225 percent since 2006, according to RealtyTrac, a real estate organization specializing in home foreclosures and bank repossessions.
• In all, 3.1 million households submitted foreclosure filings in 2008, or one in every 54 households.
• Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
• Foreclosures shot up by 81 percent through 2008 and increased by 225 percent since 2006, according to RealtyTrac, a real estate organization specializing in home foreclosures and bank repossessions.
• In all, 3.1 million households submitted foreclosure filings in 2008, or one in every 54 households.
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What your neighbor does to you……..
• "Living in an area with multiple foreclosures can result in a 10 percent to 20 percent decrease in property values"
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Race/Ethnicity Race/Ethnicity
Hispanic and Black: These are the groups that were targeted by predatory lenders
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Age
Elderly folks were targeted as well; they could lose their home because of this.
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Warning signs..
• As early as 2001, the late Federal Reserve governor Ed Gramlich warned of the risks posed by subprime mortgages
• September 2003, Congressman Ron Paul identified the housing bubble and foretold the difficulties it would cause: "Like all artificially-created bubbles, the boom in housing prices cannot last forever”
• September 2003, Congressman Ron Paul identified the housing bubble and foretold the difficulties it would cause: "Like all artificially-created bubbles, the boom in housing prices cannot last forever”
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And this one:
• mid-2004 Richard Syron, the CEO of Freddi Mac, received a memo from David Andrukonis, the company's former Chief Risk Office, warning him that Freddie Mac was financing risk-laden loans that threatened Freddie Mac's financial stability. In his memo, Mr. Andrukonis wrote that these loans "would likely pose an enormous financial risk to the company and the country".
• Warning was ignored.
• Warning was ignored.
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Why NOT buy a home?\`
• You may be putting nearly all of your liquid financial assets into one single piece of property.
o That is a huge RISK!
o Unless you purchase……………..INSURANCE!
o Insurance is NOT cheap, and may not cover some of the risks you face (flood, hurricane)
• Cities with high rates of homeownership also have equally high rates of unemployment!
o You sacrifice mobility; in that, if your job relocates, you cannot move unless you do what?????????????????
o If you can’t sell the house, you can’t take the new job!
o In a typical year, 40 million Americans move and 20% of those moves are job related moves.
With homeownership comes additional easy credit in many different forms.
o Recall what a HELOC is……….Home Equity Line of Credit. Where you borrow against the equity in your home.
o What happens if your home drops in value? …………….good bye equity!
o You will likely receive multiple credit card offers :(
This is bad, because consumers jacked up on easy credit availability lack the ability to just say no to additional purchases.
o That is a huge RISK!
o Unless you purchase……………..INSURANCE!
o Insurance is NOT cheap, and may not cover some of the risks you face (flood, hurricane)
• Cities with high rates of homeownership also have equally high rates of unemployment!
o You sacrifice mobility; in that, if your job relocates, you cannot move unless you do what?????????????????
o If you can’t sell the house, you can’t take the new job!
o In a typical year, 40 million Americans move and 20% of those moves are job related moves.
With homeownership comes additional easy credit in many different forms.
o Recall what a HELOC is……….Home Equity Line of Credit. Where you borrow against the equity in your home.
o What happens if your home drops in value? …………….good bye equity!
o You will likely receive multiple credit card offers :(
This is bad, because consumers jacked up on easy credit availability lack the ability to just say no to additional purchases.
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Recall
• There is NO program that allows you to deduct interest paid (finance charges) on your credit cards!
• So, if you are carrying large amounts of credit card debt, making large credit card payments; on top of making a mortgage and maybe a HELOC payment as well……….
• You are likely to go into default!
• So, if you are carrying large amounts of credit card debt, making large credit card payments; on top of making a mortgage and maybe a HELOC payment as well……….
• You are likely to go into default!
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DEFAULT
• "Default" essentially means a debtor has not paid a debt which he or she is required to have paid.
• With most debt (including corporate debt, mortgages and bank loans) a covenant is included in the debt contract which states that the total amount owed becomes immediately payable on the first instance of a default of payment.
• With most debt (including corporate debt, mortgages and bank loans) a covenant is included in the debt contract which states that the total amount owed becomes immediately payable on the first instance of a default of payment.
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CURRENT MARKET
• Fortunately, we’re not currently in a crash-like scenario. A correction, though, might be in the works.
• Home prices have fallen across 2023, though not significantly. According to Realtor.com, the median home price in June was $445,000, up slightly from May but down nearly 1% since last June.
• “The typical home sales price has experienced some months of decline on a month-to-month basis, and although seasonally adjusted data shows that prices are advancing month to month, this year's prices lag behind year-ago levels,”.
• Those falling prices could indicate that the market is correcting — coming down from the soaring highs caused by bargain-basement mortgage rates in 2020 and 2022.
• Home prices have fallen across 2023, though not significantly. According to Realtor.com, the median home price in June was $445,000, up slightly from May but down nearly 1% since last June.
• “The typical home sales price has experienced some months of decline on a month-to-month basis, and although seasonally adjusted data shows that prices are advancing month to month, this year's prices lag behind year-ago levels,”.
• Those falling prices could indicate that the market is correcting — coming down from the soaring highs caused by bargain-basement mortgage rates in 2020 and 2022.
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• Sheltered Homeless Persons
–People who reside in an emergency shelter or in transitional/supportive housing for homeless persons
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• Unsheltered Homeless Persons
–People who reside in a place not meant for human habitation, such as cars, parks, sidewalks, abandoned buildings, encampments, dilapidated buildings
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Precariously Housed Persons
– People who are temporarily staying with family or friends due to loss of housing or economic hardship
– People who are living in motel situations due to loss of housing or economic hardship
– People who are living in motel situations due to loss of housing or economic hardship
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What do we know about homelessness?
• “The reality is that the homeless population is quite fluid—people move in and out of homelessness and most are homeless for short periods of time. \[It is estimated\] that between 2.3 and 3.5 million people each year experience homelessness”
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Characteristics of Homeless Families
• Most families are headed by women
• Mothers in their late 20s
• 2-3 children; average age 5
• Racial/ethnic minorities overrepresented
• Mothers in their late 20s
• 2-3 children; average age 5
• Racial/ethnic minorities overrepresented
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Characteristics of Homeless Children
Many Stressors
• 25% have witnessed family violence
• 22% separated from family in past year
• Frequent moves in past year (mean = 3)
• More likely to be hungry or food insecure
• 25% have witnessed family violence
• 22% separated from family in past year
• Frequent moves in past year (mean = 3)
• More likely to be hungry or food insecure
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Main Causes of Homelessness
Factors associated with homelessness are diverse, complex and interrelated. Causes identified by the survey cities include:
• Mental illness and the lack of needed services
• Lack of affordable housing
• Substance abuse and the lack of needed services
• Low wage Jobs
• Domestic violence
• Prisoner re-entry
• Unemployment
• Poverty
• Mental illness and the lack of needed services
• Lack of affordable housing
• Substance abuse and the lack of needed services
• Low wage Jobs
• Domestic violence
• Prisoner re-entry
• Unemployment
• Poverty
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Central State Mental Hospital, Milledgeville, GA
See reading on ELC about this facility and its thousands of patients. It was once the worlds largest mental hospital
Closed, yes. But where did the inhabitants go? Many were just put out on the street.
• Reduce concentrations of poverty by creating smaller-scaled mixed-income developments matched to Section 8 and other programs, to open housing opportunities in neighborhoods with stronger economic prospects.
Closed, yes. But where did the inhabitants go? Many were just put out on the street.
• Reduce concentrations of poverty by creating smaller-scaled mixed-income developments matched to Section 8 and other programs, to open housing opportunities in neighborhoods with stronger economic prospects.
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Section 8
• The Housing Choice Voucher Program is a type of Federal assistance provided by the United States Department of Housing and Urban Development (HUD) dedicated to sponsoring subsidized housing for low-income families and individuals
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Reality Check….
• A family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two-bedroom apartment anywhere in the country.
• In order to build units for the 6.4 million households with severe affordability problems, programs must provide capital subsidies for the production of units for occupancy by extremely low-income households.
• Recall HUD and the funding they put in place decades ago!
• In order to build units for the 6.4 million households with severe affordability problems, programs must provide capital subsidies for the production of units for occupancy by extremely low-income households.
• Recall HUD and the funding they put in place decades ago!
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Ah, but NIMBY :(
• NIMBY is an ugly acronym for
– NOT IN MY BACK YARD!
– a person who objects to the siting of something perceived as unpleasant in their own neighborhood while raising no such objections to similar developments elsewhere.
• Yes, people want to help those less fortunate……..they just don’t want to have to look at them, or walk by them, or run into them in their grocery stores or or or…..
Oconee County NIMBY…the bulk of the homeless shelter/services are in the much poorer Clarke County
– NOT IN MY BACK YARD!
– a person who objects to the siting of something perceived as unpleasant in their own neighborhood while raising no such objections to similar developments elsewhere.
• Yes, people want to help those less fortunate……..they just don’t want to have to look at them, or walk by them, or run into them in their grocery stores or or or…..
Oconee County NIMBY…the bulk of the homeless shelter/services are in the much poorer Clarke County
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ATHENS GEORGIA HOMELESS NUMBERS
• In the 2023 count, members of the Athens Homeless Coalition counted a total of 342 homeless individuals – 165 sheltered individuals and families; 177 unsheltered individuals.
• The number of unsheltered individuals increased while the number of sheltered individuals decreased.
• The number of unsheltered individuals increased while the number of sheltered individuals decreased.
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ATHENS GEORGIA: FIRST STEP CAMP
▪ Located outside a vacant elementary school, First Step has a maximum capacity of 55 people.
▪ AAC provides a cot, blanket, and hygiene products, in addition to allocating donations received from outside parties.
▪ Residents are served meals twice a day in a kitchenette area, and around-the-clock security ensures a safe environment.
▪ Representatives from Advantage Behavioral Health Systems visit twice a day to give mental health counseling, help residents obtain documents like Social Security cards and driver’s licenses, and begin saving money.
▪ The director says residents can remain on the property 24 hours a day and are allowed to stay as many nights as it takes to get them permanently housed.
▪ AAC provides a cot, blanket, and hygiene products, in addition to allocating donations received from outside parties.
▪ Residents are served meals twice a day in a kitchenette area, and around-the-clock security ensures a safe environment.
▪ Representatives from Advantage Behavioral Health Systems visit twice a day to give mental health counseling, help residents obtain documents like Social Security cards and driver’s licenses, and begin saving money.
▪ The director says residents can remain on the property 24 hours a day and are allowed to stay as many nights as it takes to get them permanently housed.
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Still don’t believe we have a problem??? Embark@UGA
• Embark@UGA is a campus-based effort providing direct support to students who have experienced homelessness and/or foster care.
• Embark@UGA is part of a statewide network that seeks to increase college access and retention for homeless or foster care youth in all University System of Georgia or Technical College System of Georgia institutions in Georgia.
• By connecting with Embark@UGA, students will receive individualized support from members of the Student Care and Outreach team and connections to a resource and referral network, whose aim is to promote success and well-being in and beyond the classroom.
• Embark@UGA is part of a statewide network that seeks to increase college access and retention for homeless or foster care youth in all University System of Georgia or Technical College System of Georgia institutions in Georgia.
• By connecting with Embark@UGA, students will receive individualized support from members of the Student Care and Outreach team and connections to a resource and referral network, whose aim is to promote success and well-being in and beyond the classroom.
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This program would not be here on campus if there was not a documented need.
YOU might not be homeless but your classmates could be. That student who sits by you who maybe is a little less clean…do you know if s/he has access to a shower? That kid that you are angry at because s/he can’t meet at night on a group project….are they not able to because they have to be in the homeless shelter before lock down at 6PM
Just because its not YOUR problem doesn’t mean another student isn’t dealing with homelessness……..
Just because its not YOUR problem doesn’t mean another student isn’t dealing with homelessness……..
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Putting home buying into market perspective
• HOUSING MARKET SPRING 2018:
• High demand and very short supply continue to drive up home prices.
• The supply of homes has been dropping for three years.
• While more homes came on the market this spring, they have been selling at the fastest pace on record, according to the National Association of Realtors.
• FAST PACE = HIGH PRICE
• High demand and very short supply continue to drive up home prices.
• The supply of homes has been dropping for three years.
• While more homes came on the market this spring, they have been selling at the fastest pace on record, according to the National Association of Realtors.
• FAST PACE = HIGH PRICE
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Housing Market Supply and Demand
Demand has decreased since December 2017 yet still outpaces supply
Supply is short….there are not enough houses to meet the demand
In THIS scenario who is in control? The owner of the home you and everyone else wants to buy! The current owner can charge a very high price for his/her home because the demand is high.
Supply is short….there are not enough houses to meet the demand
In THIS scenario who is in control? The owner of the home you and everyone else wants to buy! The current owner can charge a very high price for his/her home because the demand is high.
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Same scenario prior to Housing Market Collapse
1997-2007….same issue: limited supply of houses = unsustainable price increases in market
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Great Recession
• 2001-2006 home prices rose rapidly. Median price for home: $147,800 to $221,900.
• THEN………..dropped to $166,200 by 2011.
• The real estate bubble encouraged people taking out 2nd mortgages which went into increased consumption!!!
• When the market fell, they have a home that wasn’t worth what they owed on the house.
• THEN………..dropped to $166,200 by 2011.
• The real estate bubble encouraged people taking out 2nd mortgages which went into increased consumption!!!
• When the market fell, they have a home that wasn’t worth what they owed on the house.
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WHY???
• Part of it was herding behavior.
• People responded to other people getting bigger better houses and they followed their behavior.
• Thus driving up the price due to supply and demand issues.
Despite what the country went through during the housing market collapse and the Great Recession….we still want to be homeowners
Post Great Recession fewer folks see the “home” as their best financial investment. Why? Because so many lost thousands of dollars in wealth when they lost their home.
Some markets survived better. Iowa for example: We did not have a huge “demand” for homes because NO ONE wants to move to Iowa; thus prices were stable
Ouch to Florida, Texas, Arizona….places where retirees moved and drove up prices….then lost their homes; thus driving down the value!!!
Some folks were/are in hot markets like Vegas.
• People responded to other people getting bigger better houses and they followed their behavior.
• Thus driving up the price due to supply and demand issues.
Despite what the country went through during the housing market collapse and the Great Recession….we still want to be homeowners
Post Great Recession fewer folks see the “home” as their best financial investment. Why? Because so many lost thousands of dollars in wealth when they lost their home.
Some markets survived better. Iowa for example: We did not have a huge “demand” for homes because NO ONE wants to move to Iowa; thus prices were stable
Ouch to Florida, Texas, Arizona….places where retirees moved and drove up prices….then lost their homes; thus driving down the value!!!
Some folks were/are in hot markets like Vegas.
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Housing Affordability Index
• Broadly Defined
o The relation of a consumer’s housing costs to his/her available resources
• Median family income divided by annual income needed to buy average house (with 20% down & conventional mortgage)
o National Association of Realtors
Recall median is not the AVERAGE. It’s the number that divides the amount in half. So half of the incomes lie above this and half lie below
o The relation of a consumer’s housing costs to his/her available resources
• Median family income divided by annual income needed to buy average house (with 20% down & conventional mortgage)
o National Association of Realtors
Recall median is not the AVERAGE. It’s the number that divides the amount in half. So half of the incomes lie above this and half lie below
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Housing Affordability Index: National Association of Realtors
• When index falls below 100, median family income is less than what is needed to buy a median priced home •
When index is above 100, median family income is more than what is needed to buy a median priced home
o Index value of 110 means that a family earning median family income has 110% of income necessary to quality for an 80% loan
What does this 80% loan mean? It means that you, the home buyer are putting 20% of the price of the home down as a down payment and financing only 80% of the price of the home.
When index is above 100, median family income is more than what is needed to buy a median priced home
o Index value of 110 means that a family earning median family income has 110% of income necessary to quality for an 80% loan
What does this 80% loan mean? It means that you, the home buyer are putting 20% of the price of the home down as a down payment and financing only 80% of the price of the home.
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Comparing Options for Housing
• Single Family Houses
o free-standing dwellings
• Cooperatives
o multi-unit dwellings
• Condominiums
o multi-unit dwellings
• Planned unit developments (PUDs)
o planned development with common land
• Apartments and other housing
o multi-unit dwellings
o free-standing dwellings
• Cooperatives
o multi-unit dwellings
• Condominiums
o multi-unit dwellings
• Planned unit developments (PUDs)
o planned development with common land
• Apartments and other housing
o multi-unit dwellings
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Single Family Dwelling
• A housing unit detached from others, own the land, building, and all improvements.
Advantages
• Resale value generally the highest on single-family detached homes • Home offers an investment option; causes you to save as you accumulate equity as you pay down your mortgage
• Some tax benefits
• Your own space – can modify or improve it as you wish
Disadvantages
• Maintenance time and costs
• Repair costs
• Resale hassles
• Typically more expensive
Advantages
• Resale value generally the highest on single-family detached homes • Home offers an investment option; causes you to save as you accumulate equity as you pay down your mortgage
• Some tax benefits
• Your own space – can modify or improve it as you wish
Disadvantages
• Maintenance time and costs
• Repair costs
• Resale hassles
• Typically more expensive
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Cooperatives
o Corporate-owned dwellings in which the residents, as shareholders, own stock representative of the value of their unit. Monthly owner’s fee.
This is truly a “your home is an investment” scenario. You buy the home from the corporation and then generally sell it back to them when you move out. You have a vested interest in making sure all of the units are not sitting vacant. Vacant = your unit is worth less.
Advantages
o Low maintenance
o More amenities
o Higher security
Disadvantages
o Only own a share of the legal entity
o Limited equity
o Co-op has rules about pricing of shares when sold
o Board of Directors which decides all policy matters
This is truly a “your home is an investment” scenario. You buy the home from the corporation and then generally sell it back to them when you move out. You have a vested interest in making sure all of the units are not sitting vacant. Vacant = your unit is worth less.
Advantages
o Low maintenance
o More amenities
o Higher security
Disadvantages
o Only own a share of the legal entity
o Limited equity
o Co-op has rules about pricing of shares when sold
o Board of Directors which decides all policy matters
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Condominiums
• Residents have sole ownership of the living space but joint ownership of the land and common areas. Monthly maintenance fee
Advantages
o Less exterior maintenance and repairs
o Often more reasonably priced
o May have higher security
o More amenities
o Building equity
Disadvantages
o Responsibilities for condo association fees
o Can be difficult to sale o Less privacy
o Only own from your interior walls inward
Advantages
o Less exterior maintenance and repairs
o Often more reasonably priced
o May have higher security
o More amenities
o Building equity
Disadvantages
o Responsibilities for condo association fees
o Can be difficult to sale o Less privacy
o Only own from your interior walls inward
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Planned Unit Developments (PUDs)
• Own home and land it sits on as well as shared ownership of the development
• Monthly homeowners’ fee for maintenance and common expenses
We see these on the East Coast and a couple now in D.C. They are controlled neighborhoods with various amenities including: coffee shops, theaters, green space.
• Monthly homeowners’ fee for maintenance and common expenses
We see these on the East Coast and a couple now in D.C. They are controlled neighborhoods with various amenities including: coffee shops, theaters, green space.
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Apartments and other housing
• Multi-unit developments
• Rental properties
Advantages
o Mobility
o No liability for mortgage; no down payment
o No responsibilities for repairs and maintenance
o No property taxes
o No responsibility for vacancies
Disadvantages
o Limited remodeling/decorating ability
o Limited lifestyle choices (e.g., no pets)
o Less privacy
• Rental properties
Advantages
o Mobility
o No liability for mortgage; no down payment
o No responsibilities for repairs and maintenance
o No property taxes
o No responsibility for vacancies
Disadvantages
o Limited remodeling/decorating ability
o Limited lifestyle choices (e.g., no pets)
o Less privacy
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Do Your Housing Homework
• Compare your needs versus wants for housing
• Compare your options for housing and the costs of each
• Weigh your alternatives of renting versus buying
• Compare your options for housing and the costs of each
• Weigh your alternatives of renting versus buying
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Comparing Needs Versus Wants for Housing
• Decide on the fundamentals such as bathrooms, bedrooms, and closet space
• Decide on property size
• Compare other considerations like school systems, proximity to shopping centers, or safety
• Consider the future -- such as additional family members
• Determine what’s most affordable
o Lending standards
• Your financial history
• Your ability to pay
• The appraised value of the home
o Maximum mortgage
o The down payment
o Prequalifying
This is HUGE. What you do financially as a young person can haunt you for years!!! Charged off credit cards, bankruptcy, collection activity stays on your credit report for 7+ years!!
• Decide on property size
• Compare other considerations like school systems, proximity to shopping centers, or safety
• Consider the future -- such as additional family members
• Determine what’s most affordable
o Lending standards
• Your financial history
• Your ability to pay
• The appraised value of the home
o Maximum mortgage
o The down payment
o Prequalifying
This is HUGE. What you do financially as a young person can haunt you for years!!! Charged off credit cards, bankruptcy, collection activity stays on your credit report for 7+ years!!
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What’s involved in homeownership?
One-time or initial costs
Recurring costs
Maintenance and operating costs
Recurring costs
Maintenance and operating costs
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One-Time or Initial Costs
• Down payment
• Opportunity cost of down payment
• Closing or settlement costs
o Loan origination fees
o Loan application fee
o Appraisal fee
o Other fees and costs
The percentage of the home’s price that you pay upfront……..in that, you put your own money towards the value of the home and finance the rest. Standard mortgage = a 20% down payment! Where can you get this money? Mom/dad; grandma/grandpa can “gift” you $15,000 this year and you don’t pay taxes on the money!!! (true story)
Some of these fees can be rolled into the cost of the mortgage…some have to be paid up front, like the appraisal fee: this is to determine what the house is worth BEFORE you buy it.
• Opportunity cost of down payment
• Closing or settlement costs
o Loan origination fees
o Loan application fee
o Appraisal fee
o Other fees and costs
The percentage of the home’s price that you pay upfront……..in that, you put your own money towards the value of the home and finance the rest. Standard mortgage = a 20% down payment! Where can you get this money? Mom/dad; grandma/grandpa can “gift” you $15,000 this year and you don’t pay taxes on the money!!! (true story)
Some of these fees can be rolled into the cost of the mortgage…some have to be paid up front, like the appraisal fee: this is to determine what the house is worth BEFORE you buy it.
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Recurring Costs:
• Monthly mortgage payments(PITI)
• Maintenance and operating expenses
• Maintenance and operating expenses
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Monthly Mortgage Payments (PITI)
• Principal -- what you borrowed
• Interest -- the cost of borrowing
• Taxes -- support of government
• Insurance -- protection of your dwelling and contents
Note: T & I are held in an escrow account.
• Principal -- what you borrowed (THAT 80%)
• Interest -- the cost of borrowing (YOUR FINANCE CHAGE)
• Taxes -- support of government (DEPENDS ON VALUE OF THE HOME)
• Insurance -- protection of your dwelling and contents (IN CASE OF A LOSS—THE LENDER CAN RECOVER FUNDS FROM INSURANCE COMPANY
Note: T & I are held in an escrow account (because they are NOT paid every month..usually quarterly).
• Interest -- the cost of borrowing
• Taxes -- support of government
• Insurance -- protection of your dwelling and contents
Note: T & I are held in an escrow account.
• Principal -- what you borrowed (THAT 80%)
• Interest -- the cost of borrowing (YOUR FINANCE CHAGE)
• Taxes -- support of government (DEPENDS ON VALUE OF THE HOME)
• Insurance -- protection of your dwelling and contents (IN CASE OF A LOSS—THE LENDER CAN RECOVER FUNDS FROM INSURANCE COMPANY
Note: T & I are held in an escrow account (because they are NOT paid every month..usually quarterly).
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Maintenance and Operating Costs
• Repairs to the structure
• Replacing appliances and fixtures
• Landscaping
• Replacing appliances and fixtures
• Landscaping
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Objective Costs of Buying Housing
•Opportunity cost of down payment
•Closing and settlement costs
•Mortgage principle and interest payment
•Property insurance and property tax
•Repair and maintenance costs
•Closing and settlement costs
•Mortgage principle and interest payment
•Property insurance and property tax
•Repair and maintenance costs
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Objective costs of buying housing: Opportunity costs of down payment
• Opportunity Cost = down payment \* rate of return that could be earned on down payment (% rate if invested instead)
• Down payment: initial cash payment toward purchase of house
o a shift in assets from one form to another (not a cost per se)
o could have used the down payment for some other purpose
• Down payment = Price of house \* % down
• 95% loan-to-value ratio = 5% down payment
• 90% loan-to-value ratio = 10% down payment
If you take $20,000 out of your retirement account for a down payment and the account was earning 11%.....this is the opportunity cost of those funds being spent on a down payment instead.
An 80% loan-to-value ratio is indicative of a standard/conventional mortgage; in that, you are putting 20% down.
• Down payment: initial cash payment toward purchase of house
o a shift in assets from one form to another (not a cost per se)
o could have used the down payment for some other purpose
• Down payment = Price of house \* % down
• 95% loan-to-value ratio = 5% down payment
• 90% loan-to-value ratio = 10% down payment
If you take $20,000 out of your retirement account for a down payment and the account was earning 11%.....this is the opportunity cost of those funds being spent on a down payment instead.
An 80% loan-to-value ratio is indicative of a standard/conventional mortgage; in that, you are putting 20% down.
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Objective costs of buying housing: Mortgage principal and interest payment
• Mortgage payment - payments on loan made up of:
o Principal payment: reduces the loan amount (equity build up)
o Interest payment: interest due on the outstanding loan
• How it works:
o 50,000 loan o 8%; 30 year; monthly payment =366.88
• 1 Month
o Monthly Interest payment = 333.33 o Principal payment = 366.88-333.33=33.55
o New outstanding loan balance = 49,966.45
Initially the bulk of your payment goes to finance charges; eventually you start paying more toward the principal borrowed
o Principal payment: reduces the loan amount (equity build up)
o Interest payment: interest due on the outstanding loan
• How it works:
o 50,000 loan o 8%; 30 year; monthly payment =366.88
• 1 Month
o Monthly Interest payment = 333.33 o Principal payment = 366.88-333.33=33.55
o New outstanding loan balance = 49,966.45
Initially the bulk of your payment goes to finance charges; eventually you start paying more toward the principal borrowed
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Objective costs of buying housing: Property Insurance and Property Taxes
• Property insurance: .25 -.5 % of home’s market value per year o protect against disasters
• Property taxes: .5-2% of home’ s market value per year
• \*\*\*these two are held in an escrow account because they don’t necessarily need paid every month like the Principal and Interest do!!!
• Together with principal and interest we have PITI
• Property taxes: .5-2% of home’ s market value per year
• \*\*\*these two are held in an escrow account because they don’t necessarily need paid every month like the Principal and Interest do!!!
• Together with principal and interest we have PITI
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Objective costs of buying housing: Maintenance and operating costs
• Will vary widely by type of housing, type of heating/cooling, etc.
• Granite countertops versus laminate!
• White appliances versus stainless steel (fingerprint proof) appliances ☺
o Seriously, just tell your family members to wash their darn hands!!!!
• Granite countertops versus laminate!
• White appliances versus stainless steel (fingerprint proof) appliances ☺
o Seriously, just tell your family members to wash their darn hands!!!!
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How much house can you afford?
Lender guideline #1:
(front-end ratio)
Monthly housing expenses < 28% of gross monthly income
Including:
mortgage principal & interest (PI)
property taxes (T)
insurance on home (I)
Gross income HAS NOT HAD TAXES FACTORD OUT YET!!
Lender guideline #2
(back-end ratio)
Housing expenses + other debts < 36% of gross monthly income
Including:
mortgage principal & interest (PI)
property taxes (T)
insurance on home (I)
all other debt payments
THIS includes your student loans, car payments, credit card payments…..all other debt payments
(front-end ratio)
Monthly housing expenses < 28% of gross monthly income
Including:
mortgage principal & interest (PI)
property taxes (T)
insurance on home (I)
Gross income HAS NOT HAD TAXES FACTORD OUT YET!!
Lender guideline #2
(back-end ratio)
Housing expenses + other debts < 36% of gross monthly income
Including:
mortgage principal & interest (PI)
property taxes (T)
insurance on home (I)
all other debt payments
THIS includes your student loans, car payments, credit card payments…..all other debt payments
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To qualify for a mortgage
36% - 28% = 8% Which means all of your other debt has to be less than 8 % of your gross income!!!
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Other factors that might affect mortgage eligibility or terms
• Consistently paying monthly rent close to amount of monthly PI proves your ability to pay
• Making a larger-than-average down payment (>20%)
• Having a very good credit record (don’t mess this up)
• Eligibility for special mortgage programs
o low and moderate income first-time homebuyers’ program
o veterans’ programs (military personnel get deals on interest)
o rural housing programs (places that need homeowners!)
• Making a larger-than-average down payment (>20%)
• Having a very good credit record (don’t mess this up)
• Eligibility for special mortgage programs
o low and moderate income first-time homebuyers’ program
o veterans’ programs (military personnel get deals on interest)
o rural housing programs (places that need homeowners!)
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Objective Benefits of Buying Housing
• Equity build up (when you pay down your mortgage = you actually own more of the home and the bank owns less—this is you growing your equity)
• Tax deductions
o mortgage interest-some of the finance charge you pay is tax deductible
o Property taxes
• Some of the property tax you pay is tax deductible
• Capital gain from appreciation (increase) in value
• Tax deductions
o mortgage interest-some of the finance charge you pay is tax deductible
o Property taxes
• Some of the property tax you pay is tax deductible
• Capital gain from appreciation (increase) in value
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Subjective Costs of Owning
• Lack of easy mobility
• Psychic costs (inconvenience, frustration) of maintenance/repair
• Psychic costs (inconvenience, frustration) of maintenance/repair
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Subjective Benefits of Owning
• Allows for a good deal of personal freedom to remodel, landscape, and redecorate to suit your taste
• No chance of rent rising over time (relatively predictability of most of the costs of your housing
• Other research:
o Feelings of security, safety, permanence, attachment to community
o Wider choice of locations in many local housing markets
• No chance of rent rising over time (relatively predictability of most of the costs of your housing
• Other research:
o Feelings of security, safety, permanence, attachment to community
o Wider choice of locations in many local housing markets
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Rent Ratio
• The ratio of the average house price to the average annual rent, which provides insight into the relative attractiveness of buying a house versus renting in a given area.
• Bigger cities likely more attractive; also likely much more expensive.
• Bigger cities likely more attractive; also likely much more expensive.
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Rental Contract
• Lease Agreement: oral agreements are generally binding; a written contract protects both you (lessee) and the landlord (lessor).
• NOTE: typically when you sign the lease it is a binding legal contract and you cannot just “get out of your lease”
o If you sublease……………get your name off the lease contract!!! You are liable for damages if you do not!!
• The Landlord Tennant Act protects you both and varies by state.
• NOTE: typically when you sign the lease it is a binding legal contract and you cannot just “get out of your lease”
o If you sublease……………get your name off the lease contract!!! You are liable for damages if you do not!!
• The Landlord Tennant Act protects you both and varies by state.
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Objective Costs of Renting
• Rent
• Renter’s insurance (you need this to protect YOUR stuff in a rental unit)
• Maintenance and repairs
• Opportunity cost of security deposit (where else could this money have been spent???)
• Renter’s insurance (you need this to protect YOUR stuff in a rental unit)
• Maintenance and repairs
• Opportunity cost of security deposit (where else could this money have been spent???)
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Subjective Costs of Renting
• mobility may be determined by someone else
• lack of freedom and control over dwelling
• lower social status
• lack of freedom and control over dwelling
• lower social status
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Subjective Benefits of Renting
• Very mobile, can relocate without incurring real estate selling costs
• No down payment required
• Avoids the risk of falling housing prices
• Many times, extensive amenities
• No (or fewer) home repair and maintenance responsibilities
• No grounds keeping responsibilities
• No down payment required
• Avoids the risk of falling housing prices
• Many times, extensive amenities
• No (or fewer) home repair and maintenance responsibilities
• No grounds keeping responsibilities
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The Case Against (and for) Ownership
CONSUMERS WERE TOLD HOME OWNERSHIP WILL TOTALLY DO ALL OF THESE THINGS………………!
• President Hoover: “change the very physical, mental and moral fiber of one’s own children”
• George Bush’s HUD secretary: “save babies, save children, save families, save America”
• Roosevelt: a country of home owners is “unconquerable”
• WILL PREVENT CAVITIES! (ok, I just made that up)
• President Hoover: “change the very physical, mental and moral fiber of one’s own children”
• George Bush’s HUD secretary: “save babies, save children, save families, save America”
• Roosevelt: a country of home owners is “unconquerable”
• WILL PREVENT CAVITIES! (ok, I just made that up)
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And maybe these…….
HOME OWNERSHIP MIGHT:
• Create social and financial stability o live by the same people = a social neighborhood o Have a mortgage to pay…..might cause you to take your job seriously and be financially responsible
• Create Safer neighborhoods o You live around people you might recognize strangers and want to protect your neighbors/children
• Create smarter children who do better in school o Homes provide resources that enable children to do better in school
o \*\*BUT NOTE: The correlation between families who have automobiles is a stronger indicator of school success than homeownership is!!!
The propaganda and incentives from the government to consumers to become home owners have increased over the years. WHY? Why does the government want/need us to own our homes?
Think about it….if you own a home…you need to buy stainless steel appliances, marble countertops, tile and hardwood floors—which means someone needs to manufacture those things, ship them to stores, the store sales person needs to sell it to you, contracts need to put them in your home—this creates job. AND the government gets property tax dollars from home owners—not renters!
• Create social and financial stability o live by the same people = a social neighborhood o Have a mortgage to pay…..might cause you to take your job seriously and be financially responsible
• Create Safer neighborhoods o You live around people you might recognize strangers and want to protect your neighbors/children
• Create smarter children who do better in school o Homes provide resources that enable children to do better in school
o \*\*BUT NOTE: The correlation between families who have automobiles is a stronger indicator of school success than homeownership is!!!
The propaganda and incentives from the government to consumers to become home owners have increased over the years. WHY? Why does the government want/need us to own our homes?
Think about it….if you own a home…you need to buy stainless steel appliances, marble countertops, tile and hardwood floors—which means someone needs to manufacture those things, ship them to stores, the store sales person needs to sell it to you, contracts need to put them in your home—this creates job. AND the government gets property tax dollars from home owners—not renters!
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\~100 years ago: Rent v Own
• Social Renting:
• is an term referring to rental housing which may be owned and managed by the state, by non-profit organizations, or by a combination of the two, usually with the aim of providing affordable housing.
Social renting has increased since the Great Recession due to so many people losing jobs and their homes!!
• is an term referring to rental housing which may be owned and managed by the state, by non-profit organizations, or by a combination of the two, usually with the aim of providing affordable housing.
Social renting has increased since the Great Recession due to so many people losing jobs and their homes!!
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20th Century
• A century ago, in 1910, the U.S. homeownership rate was 46%. It rose to 48% in the great boom of the 1920s, then called “the Coolidge Prosperity,” after the U.S. President of the time.
• This was when the U.S. government had its first home ownership promotion: the “Own Your Own Home” campaign, begun in 1922 under then-Secretary of Commerce (later President) Herbert Hoover.
o — originally launched by the National Association of Real Estate Boards in the aftermath of World War I — was taken over by the U.S. Department of Labor in 1917, and became the first federal program explicitly aimed at encouraging home ownership. The program was largely promotional; there were no financial incentives offered.
• This was when the U.S. government had its first home ownership promotion: the “Own Your Own Home” campaign, begun in 1922 under then-Secretary of Commerce (later President) Herbert Hoover.
o — originally launched by the National Association of Real Estate Boards in the aftermath of World War I — was taken over by the U.S. Department of Labor in 1917, and became the first federal program explicitly aimed at encouraging home ownership. The program was largely promotional; there were no financial incentives offered.
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During the Great Depression
• With the great bust of the 1930s, U.S. home ownership had dropped to 44% in 1940. The decade brought numerous government programs to support home ownership…..
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Instrumental Programs….
• One was the Federal Home Loan Banks (FHL Bank) under Hoover in 1932,
o 12 Government-sponsored banks that provide stable, on-demand, low-cost funding to American financial institutions (not individuals) for home mortgage loans, small business, rural, agricultural, and economic development lending.
You could not/cannot get a loan for a home through these banks…….ONLY financial institutions can. THEY can loan the money out to at-risk-financially consumers who might need extra assistance to purchase/build a home. And again….why??? Because the government needs us to be home owners.
o 12 Government-sponsored banks that provide stable, on-demand, low-cost funding to American financial institutions (not individuals) for home mortgage loans, small business, rural, agricultural, and economic development lending.
You could not/cannot get a loan for a home through these banks…….ONLY financial institutions can. THEY can loan the money out to at-risk-financially consumers who might need extra assistance to purchase/build a home. And again….why??? Because the government needs us to be home owners.
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Home Owners’ Loan Corporation
• Roosevelt administration’s New Deal creations of the Home Owners’ Loan Corporation (1933) (dissolved with a small cumulative net profit in 1951),
o The corporation was established in 1933 by the Home Owner’s Loan Corporation Act under President Franklin Delano Roosevelt. \*Its purpose was to refinance home mortgages currently in default to prevent foreclosures\*
Notice the inspiration for THIS program….home owners already losing their homes during the Great Depression; this was designed to help them get out of default/foreclosure and keep their homes (again….govt wants HOMEOWNERS)
o The corporation was established in 1933 by the Home Owner’s Loan Corporation Act under President Franklin Delano Roosevelt. \*Its purpose was to refinance home mortgages currently in default to prevent foreclosures\*
Notice the inspiration for THIS program….home owners already losing their homes during the Great Depression; this was designed to help them get out of default/foreclosure and keep their homes (again….govt wants HOMEOWNERS)
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The National Housing Act of 1934,
• Enacted June 28, 1934, also called the Capehart Act, was part of the New Deal passed during the Great Depression in order to make housing and home mortgages more affordable.
• It created the Federal Housing Administration (FHA) and the Federal Savings and Loan Insurance Corporation.
• The Housing Act of 1937 builds on this legislation.
• It created the Federal Housing Administration (FHA) and the Federal Savings and Loan Insurance Corporation.
• The Housing Act of 1937 builds on this legislation.
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Federal Housing Administration,
• the Federal Housing Administration (FHA),
o The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. It sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building.
• the Federal Housing Administration (FHA),
o The goals of this organization are to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, and to stabilize the mortgage market.
o The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. It sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building.
• the Federal Housing Administration (FHA),
o The goals of this organization are to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, and to stabilize the mortgage market.
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Federal Deposit Insurance Corporation
• The Federal Deposit Insurance Corporation (FDIC) is a U.S. government corporation operating as an independent agency created by the U.S. Banking Act of 1933.
• \*purpose was to calm consumers, encourage buying/investing\*
• As of August 2014, it provides deposit insurance guaranteeing the safety of a depositor’s accounts in member banks up to $250,000 for each deposit ownership category in each insured bank.
• \*purpose was to calm consumers, encourage buying/investing\*
• As of August 2014, it provides deposit insurance guaranteeing the safety of a depositor’s accounts in member banks up to $250,000 for each deposit ownership category in each insured bank.
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Federal Savings and Loan Deposit Insurance
• The FSLIC was created as part of the National Housing Act of 1934 in order to insure deposits in savings and loans a year after the FDIC was created to insure deposits in commercial banks.
• In the 1980s, during the savings and loan crisis, the FSLIC became insolvent. It was bailed out with taxpayer money several times, with $15 billion in 1986 and $10.75 billion in 1987; however, by 1989 it was too insolvent to save. Its responsibilities were transferred to the FDIC.
• In the 1980s, during the savings and loan crisis, the FSLIC became insolvent. It was bailed out with taxpayer money several times, with $15 billion in 1986 and $10.75 billion in 1987; however, by 1989 it was too insolvent to save. Its responsibilities were transferred to the FDIC.
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Federal Housing Authority
• The United States Housing Authority, or USHA, was created during 1937 within the U.S. Department of the Interior by the Housing Act of 1937 as part of Roosevelt’s New Deal
• It was designed to lend money to the states or communities for low-cost housing construction.
Notice some of the HUD neighborhoods close by campus; such as the one on Baxter. These “gated” communities were created for those who cannot afford traditional housing or market based rent. Why do you think it is close to UGA? So tenants can attend college and/or work at UGA.
• It was designed to lend money to the states or communities for low-cost housing construction.
Notice some of the HUD neighborhoods close by campus; such as the one on Baxter. These “gated” communities were created for those who cannot afford traditional housing or market based rent. Why do you think it is close to UGA? So tenants can attend college and/or work at UGA.
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Federal National Mortgage Association (FNMA),
• The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, was founded in 1938. It is a government sponsored enterprise GSE),
• Became a publicly traded company in 1968.
• The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market
FANNIE was really good at first, she did what she was supposed to do; that being, buying up mortgages from small town banks so the small bank can now use those funds to loan out more money to other home buyers. If someone has a 30 year mortgage that means the bank has to wait 30 years to get that paid off….unless FANNIE steps in and pays the bank off and then the consumer pays their payment now to FANNIE. She can wait those 30 years……..the small bank cannot.
FANNIE got ugly when she became a publicly traded company…..this means investors can buy shares of her and she also now had to have a “product” to sell. Investors want a profit for their investment dollars. How do you create a profit/product off of paying off banks’ mortgages and letting people now make payments to you???? That product became Mortgage Backed Securities.
That product became Mortgage Backed Securities. A MBS is like a savings bond; in that, when you buy a savings bond at a bank you are LENDING money to that bank. The bank pays you interest on this bond. When the bond matures you cash it back in and get your money back PLUS you have gotten interest on this loan/bond to the bank for years. Yeah! Good way to make money!!
That product became Mortgage Backed Securities. A MBS is like a savings bond; in that, when you buy MBS you are LENDING money to FANNIE (and FREDDIE) and they pay you interest for lending them this money. The interest payments to you however, COME FROM MONIES COLLECTED FROM MORTGAGE PAYMENTS THEY ARE COLLECTING. Anyone see where during the housing market collapse this might be a problem???????????
• Became a publicly traded company in 1968.
• The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market
FANNIE was really good at first, she did what she was supposed to do; that being, buying up mortgages from small town banks so the small bank can now use those funds to loan out more money to other home buyers. If someone has a 30 year mortgage that means the bank has to wait 30 years to get that paid off….unless FANNIE steps in and pays the bank off and then the consumer pays their payment now to FANNIE. She can wait those 30 years……..the small bank cannot.
FANNIE got ugly when she became a publicly traded company…..this means investors can buy shares of her and she also now had to have a “product” to sell. Investors want a profit for their investment dollars. How do you create a profit/product off of paying off banks’ mortgages and letting people now make payments to you???? That product became Mortgage Backed Securities.
That product became Mortgage Backed Securities. A MBS is like a savings bond; in that, when you buy a savings bond at a bank you are LENDING money to that bank. The bank pays you interest on this bond. When the bond matures you cash it back in and get your money back PLUS you have gotten interest on this loan/bond to the bank for years. Yeah! Good way to make money!!
That product became Mortgage Backed Securities. A MBS is like a savings bond; in that, when you buy MBS you are LENDING money to FANNIE (and FREDDIE) and they pay you interest for lending them this money. The interest payments to you however, COME FROM MONIES COLLECTED FROM MORTGAGE PAYMENTS THEY ARE COLLECTING. Anyone see where during the housing market collapse this might be a problem???????????
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The Federal Home Loan Mortgage Corporation (FHLMC),
• The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government-sponsored enterprise (GSE),
• The FHLMC was created in 1970 to expand the secondary market for mortgages.
• Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage backed security to investors on the open market.
FANNIE was making people loads of money (remember she started in 1938, went public in 1968) THUS, the government said if one is good—then two is better so it created FREDDIE whose job is to do the same thing as FANNIE!!!
• The FHLMC was created in 1970 to expand the secondary market for mortgages.
• Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage backed security to investors on the open market.
FANNIE was making people loads of money (remember she started in 1938, went public in 1968) THUS, the government said if one is good—then two is better so it created FREDDIE whose job is to do the same thing as FANNIE!!!
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Special Govt. Home Ownership Policies
• The 30-year mortgage
• Mortgage interest paid is tax deductible
• Property tax is tax deductible
• Interest on 2nd mortgages (equity lines of credit) are tax deductible
• Favorable mortgage interest rates
• Mortgage interest paid is tax deductible
• Property tax is tax deductible
• Interest on 2nd mortgages (equity lines of credit) are tax deductible
• Favorable mortgage interest rates
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30-year fixed rate mortgage
• The 30-year fixed-rate mortgage is one of the most popular mortgages.
• Many people like the fixed interest rate and lower monthly payments.
• But since the term of the loan is long, you'll pay more interest over the life of the loan than you would on a shorter-term mortgage, and you'll build equity more slowly.
Mortgage with fewer years = less cost overall
The longer the mortgage the more you pay for the house over time
30 year mortgage = small monthly payment but at the end of the 30 years your house is likely NOT worth what you paid for it.
• Many people like the fixed interest rate and lower monthly payments.
• But since the term of the loan is long, you'll pay more interest over the life of the loan than you would on a shorter-term mortgage, and you'll build equity more slowly.
Mortgage with fewer years = less cost overall
The longer the mortgage the more you pay for the house over time
30 year mortgage = small monthly payment but at the end of the 30 years your house is likely NOT worth what you paid for it.
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Tax Deductible Interest
• A home mortgage interest deduction allows taxpayers who own their homes to reduce their taxable income by a percentage of the amount of interest paid on the loan which is secured by their principal residence (or, sometimes, a second home).
• This is a great incentive during tax season to own a home.
• As a renter you don’t get to write a portion of your rent payments off on your taxes.
• This is a great incentive during tax season to own a home.
• As a renter you don’t get to write a portion of your rent payments off on your taxes.
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Property Tax Deduction
• Individuals can deduct the cost of property taxes assessed on the properties they own. The amount that's deducted is the amount paid by the property owner, including any payments made through an escrow account at settlement or closing. Some people pay their property taxes through an escrow account included with their mortgage payments. In this case, the amount that can be deducted is the amount that the lender actually paid for property taxes from the escrow account.
Property taxes good; in that, they help pay for sidewalks, police officers, fire fighters, street lights, school systems…….. None the less, people always tend to complain that their property taxes are too high. The county does the tax assessment. Better neighborhood have better services named above because they pay more taxes. Think about your neighborhood? Your school district? Were they good or dilapidated?
Property taxes good; in that, they help pay for sidewalks, police officers, fire fighters, street lights, school systems…….. None the less, people always tend to complain that their property taxes are too high. The county does the tax assessment. Better neighborhood have better services named above because they pay more taxes. Think about your neighborhood? Your school district? Were they good or dilapidated?
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**Home Equity Line of Credit Tax Deduction**
**• A final benefit to using a home equity loan or HELOC to improve (or even purchase another home) your home is that the interest is tax deductible, just as it is on a primary mortgage, up to $1 million. • You can deduct only up to $100,000 if you use the money for another purpose. (However, you can't deduct more than the house's fair market value.)**
You can’t have a HELOC (Home Equity Line of Credit) until you have a first mortgage/home. Once you pay down part of your mortgage then you have equity in your home. For example: you start out with a $50,000 mortgage—pay half of it off over time—now you have $25,000 in EQUITY in your home. These are funds you can borrow against. This is your HELOC. Advantage of HELOC the finance charge is also partially tax deductible just like your finance charge on your first mortgage. Some people use these funds to buy cars
You can’t have a HELOC (Home Equity Line of Credit) until you have a first mortgage/home. Once you pay down part of your mortgage then you have equity in your home. For example: you start out with a $50,000 mortgage—pay half of it off over time—now you have $25,000 in EQUITY in your home. These are funds you can borrow against. This is your HELOC. Advantage of HELOC the finance charge is also partially tax deductible just like your finance charge on your first mortgage. Some people use these funds to buy cars
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Favorable Interest Rates
• Mortgage rates are very susceptible to economic activity, just like treasuries and other bonds.
• For this reason, jobs reports, Consumer Price Index, Gross Domestic Product, Home Sales, Consumer Confidence, and other data on the economic calendar can move mortgage rates significantly.
• As a rule of thumb, bad economic news brings with it lower mortgage rates, and good economic news forces rates higher
• For this reason, jobs reports, Consumer Price Index, Gross Domestic Product, Home Sales, Consumer Confidence, and other data on the economic calendar can move mortgage rates significantly.
• As a rule of thumb, bad economic news brings with it lower mortgage rates, and good economic news forces rates higher
Note 
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