Mortgage Complaints

The 2008 mortgage crisis fascinated me at the time and then last year I bought a home. Therefore, I was pretty terrified during the whole process. Plus, I felt naked having to share my entire financial life to strangers. The NY Times had a recent article on “Complaints About Closings.” It is nice to see that the Feds (specifically the Consumer Financial Protection Bureau) are interested in the closing process, however, my key complaints about the home-buying process have very little to do with that (I asked a ton of questions from everyone involved and thought that the closing was actually the easiest  aspect of the process, but maybe I was lucky). There were two key parts of borrowing money to buy homes that disturbed me.

The first is how one’s income is calculated to determine what one can afford: It is based on pre-tax earnings. I really don’t understand how even with anticipated tax refunds, it is not mandatory for mortgage lenders to have a disclosure process for when a borrower’s monthly loan payments (+any co-op, HOA, or condo fees and excluding anticipated rent returns) will exceed 50% of the borrower’s monthly take-home pay. It is shocking in a post-2008 world that it is okay to make large loans without at least making sure the borrower understands what they are getting into. Factoring in how stagnant wages have become, and the business community’s willful blindness to how that effects the economy, it seems downright unconscionable.

The second is the limited tax exemption on the first $10,000 first time home-buyers pull out of retirement investments to pay for homes. Why not make it up to 2o% of an eligible down-payment (especially if the home-buyer is in the situation mentioned above)? This might create an incentive for larger down-payments, and make it more likely that the home buyer will be able to succeed at paying taxes the next year (which can be an issue if the home was purchased at the end of the year and few tax deductions have accrued). It will also make it easier for first timers in more expensive marketplaces, like San Francisco or NYC where the barriers to home-ownership are higher due to high property values.

I am neither an accountant or financial person, so perhaps there are legitimate reasons why not to do these specific things, but from what I saw during the process, it appears that there is still a potential for many home-buyers to get in over their heads way too easily, especially if they are not well-informed. Considering a potential for home-buyers to default on loans that they used their retirement money to pay for, it seems incumbent on the Feds to ensure this doesn’t happen, lest the home-owners become homeless and out of any retirement money, and then the rest of society becomes forced to deal with issues of more poor elderly and more homeless families.

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