Federal proposal would toughen debt restrictions on mortgages

[alp227]

Source: The Washington Post

Consumer borrowing is so rampant in America that most people who took out a mortgage last year to buy a home ended up spending more than a third of their income to pay that loan and other debts.

Now, a federal proposal would target these borrowers by making it tougher for them to get the cheapest mortgages. The initiative is part of a broader measure that aims to prevent another foreclosure crisis and could confront borrowers who do not meet certain conditions with higher interest rates and fees.

The debt restrictions are on top of other conditions, including a requirement that borrowers pony up a 20 percent down payment to qualify for the cheapest mortgages.

While the down payment condition has captured the public spotlight since the government unveiled its plan in March, experts who track the housing industry say the proposed debt limits could be just as onerous for borrowers.

Read more: http://www.washingtonpost.com/business/economy/federal-proposal-would-toughen-debt-restrictions-on-mortgages/2011/05/05/AGIEh9LH_singlePage.html

[kick-ass-bob]

1. Sorry - but if I wouldn't be able to afford the payment I got putting down 10% 2 years ago

I still wouldn't be able to afford it even if I put down 20.

[dkf]

2. The point is that you probably shouldn't have bought a house.

You have been double whammied. You bought at a high and you can't afford it.

[kick-ass-bob]

4. Actually, no. I said 'if I couldn't afford' one payment

I wouldn't be able to afford the other.

I bought at a low and I can afford it. But - at the time, I'm not sure I would have had 20% down available. On a 200,000 house, that is the difference between 20 and $40,000. I had the one, I still wouldn't have the other - but I can afford the monthly payment in either case.

If I lost my job which would be the only reason I couldn't pay, I wouldn't be able to afford either payment. That's what I mean.

[dkf]

5. Well that is true about losing your job.

The thing is the old style used to be to save 3-6 months worth of expenses as an emergency fund, but some idiots were advising people that they didn't have to have an emergency fund because you can use credit cards or you can rely on unemployment.

The second problem is that it takes longer to find a job.

In terms of the 20% down, it would also make your payments more manageable, you would save on PMI and you would have an equity cushion in your house if we did experience a downturn. Having equity is very important because you can always sell your place if you need to.

Before credit cards, people were a lot more sensible about managing their finances. I think they all lost their minds in the past decade and screwed me up by creating a bubble in real estate.

[Xolodno]

3. This will...

...keep housing prices low by reducing demand.