Mandatory 10-20% down required for housing loans is a good idea

I just read somewhere that the powers that be are considering making a decent 10 to 20% down payment on a home to be mandatory.

It actually makes a lot of sense when you think about it. There were a lot of people that got in over their head a while ago and bought homes they could not afford to make the payments on for either little or no money down. When push came to shove, they simply walked away from the loan and left the rest of us to pay it for their irresponsibility.

The banks would get stuck with a home they had to resell at distress rates and they lost money in addition to the aggravation of having to reposess a home and resell it. The person who couldn't afford it, but bought it anyway simply skated away.

Now the do-gooders in this nation of ours are griping that it would make it a whole lot harder for minorities and the poor to get into a house.

That is starting to get old as far as I can see.

Let's look at housing first. Owning a house is not a right given to us under the Constitution. It is simply another thing you buy with your earnings. It is like a car or a table or a can of beans in that respect. You either take a wad of cash out and pay for it or you go to the bank and float a loan. Most people do the latter, as they have not yet amassed the required savings to be able to buy a home outright.

The home mortgage is somewhat of an American tradition. I have attended a number of mortgage burning parties over the years as friends and neighbors have made their final payment and have become outright owners of their family homes.

The other part I'll cover is that the do-gooders are carrying on that minorities and the poor will not be able to own a home. I'm growning pretty tired of hearing that one, too.

Right now I have a neighbor that is putting three-count 'em-3 children through college all at the same time. He didn't just write a check out of the old savings account to do this because he is a working man and has not been able to amass enough money to do this. There are college loans and various scholarships that have been taken advantage of to do this. He reported to me that it would be a whole lot easier if he were a minority. I have heard this said before. I'll probably hear it again somewhere else along the line.

Right now it is a whole lot easier for the poor and the minorities to get a decent education and get ahead. All they have to do is sign up and get with the program. Yes, the loans do have to be paid back, but there are one hell of a lot of non-minority young people right now doing just that. Paying the student loans back.

The opportunity to get out of the cycle of poverty is there to anyone with the brains and drive to take advantage of it. All you have to do is get off of your dead ass and onto your dying feet and go for it. The foundation for a good life is there. All a person does is has to take advantage of it.

Now as far as the banks go, one simply has to look at what they do. They are in the business of making money, which is what just about all businesses are in the business of. The banks make their money by loaning it to people for things they don't have the cash to purchase outright. The most well known examples of this are cars and homes.

They loan money and the borrower pays it back with interest. We all know how that works.

The problem with no money down loans is two-fold. First the borrower really has nothing in it and can simply walk away from the home with nothing to lose. This makes it a bit too easy for someone to be irresponsible and just jump into something they can't afford. When you have nothing invested, you have nothing to lose.

On the other hand, when you are going to cough up, say, twenty-five or thirty grand for a down payment on a house, you generally look a little more carefully as to whether you are going to be able to make the payments on the place. When you have something to lose you tend to act a little more responsible.

Of course, no matter what there will be the few that manage to lose on this deal and they will naturally blame the nasty old bank and say that they have been taken advantage of because they have lost both their down payment and whatever they have paid on the loan. They will claim the bank has gotten rich from people like them.

Let's look at the mean old bank for a second.

The bank really does not want to reposess a home. It is nothing more to them than a big hassle and even with a hefty down payment the liklihood of them making any real money on a reposession deal is pretty slim. The legal fees of reposession, the fees associated with selling the place to someone else and the cost of repairs generally eats up most if not all of the money paid into the home.

When you add in the repairs necessary to make a place marketable all bets are off, as the majority of people that default on a loan generally do not take care of the home in the first place. The horror stories regarding the condition of reposessed homes are pretty well known.

The banks don't reposess a home and then get to sell it the next day as a step right up, move right in with your charming wife and lovely 3.2 children into this beautiful Martha Stewart approved gorgeous brand new home. The place is more than likely a pig sty and needs repairs and/or serious renovation to be marketable. This costs money.

In short, in most cases when a bank repossesses a home it costs them a lot of money and aggravation. The bank really does not want the home, they simply want your money. In fact, they will generally work with you if you hit tough times so they don't have to repossess your home. They simply do not want it.

I know of one such person that found himself injured and out of work for a while that had the brains to go straight to the bank and explain circumstances. The bank altered his payments so he could keep his house and pay what he could afford until he went back to work. Granted, the money was added on and it took him a few of extra months to pay the loan off, but he kept his house. Banks generally have a skilled loan officer there to help with such things that come up.

To put it simply, the banks do not want you to fail because it is simply not in their best interests. The ideal borrower is simply someone that takes out a twenty year loan and quietly makes the 240 monthly payments and takes the deed to the house when the last payment is made.

While requiring a 20% down payment is not going to guarantee that the borrower will pay for a home, it sure increases the odds and at least allows the bank to recover something if the borrower defaults.

I don't have a problem with that


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