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No-money-down home loans … Say it ain't so

Posted By Dan Mangru On 08/06/2010 @ 10:40 pm In Commentary,Money | Comments Disabled

President Obama, say it ain’t so. Please, oh pretty please, tell me that this isn’t true. Tell Gibbsy to come out in his daily press briefing and say that this is just one giant joke that you guys have had out there for a couple of months just waiting for the media to find out about it.

I mean in that case, we could all sit down, have a “Beer Summit” and look back at this as a “teachable moment.” I’ve got a good sense of humor and I can certainly take a joke from Bam and the boys.

But, sadly, this is no joke.

Apparently, while we weren’t looking, Bam and the boys thought it would be a good idea to start giving away homes again, and when I say giving them away I mean giving them away, as in no money out of your pocket.

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Fannie Mae has established a new program called “Affordable Advantage.” It already has been implemented in Massachusetts, Wisconsin and Idaho with several more to come.

After doing some digging, I found out some choice bits of information about the program from the Wisconsin Housing and Economic Development Authority.

  • 100-percent financing for borrowers with excellent credit. A low-cost, 30-year fixed interest rate

  • As little as $1,000 cash out-of-pocket, reducing the amount of money borrowers need to close
  • Reduced mortgage fees, including no private mortgage insurance requirement
  • Job-loss payment protection, which covers up to six months of mortgage payments in the event of an involuntary job loss
  • The development authority’s Fannie Mae Advantage can be paired with the home-buyer’s tax credit
  • The development authority’s income and purchase-price limits are substantially higher than previous years – as much as 10-13 percent – allowing more families and more homes to qualify for this loan.

Shocking. All of it.

Now, I know what you might be thinking. Well Dan, you said that there were no money-down requirements for these homes, and while it says 100-percent financing on top (which is the total cost of the home), it does say that $1,000 cash out-of-pocket is required.

But here’s the beauty of government programs, they all work together. So once you’ve got your 100-percent financing from Fannie Mae and need only $1,000, then you go to Freddie Mac.

When you visit their website, they’ve got tons of programs that will provide you with grants and other funding to pay whatever you owe on your down payment or closing costs.

What’s even better is that once you’ve bought your home with no money down, and no money out of pocket, financed and guaranteed by the government, you actually get an $8,000 tax credit.

The government actually advertises that. They essentially advertise that you can get paid to buy a home.

Have we learned nothing?

Thanks to the initiative of Bill Clinton and Franklin Raines, millions of Americans were given homes for free with no money down in the name of the American Dream, and making homes affordable.

One real-estate crash and some $4 trillion worth of real-estate bailouts later, one would think that the policy of giving away homes for no money down would be gone.

The government will try and justify this program by saying that it only allows people with 680 credit scores to enter the program.

While that may be true now, it may not be true later. Eventually some congressman is going to want to give the American Dream of owning a home for everyone and say that a 680 credit score is too unobtainable and that it needs to be lowered to 620. Over time that 620 will become 580 and will just keep on going lower until the bubble reflates and pops.

You see, the reasoning behind giving away homes isn’t because politicians want to help Americans achieve the American Dream.

Politicians want to buy votes, and if they give you a home, you will most likely vote for them.

They don’t care about the aftermath and people don’t care about the aftermath. The politician is happy because he stays in office, gets to keep his nice salary and has power to profit from his authority.

People are happy because they get a place to live and they didn’t have to come out of pocket to buy a home.

Sounds like a great deal doesn’t it?

It’s not. People don’t always realize that free homes are really code words for massive 30-year debt. In an economy where jobs are tough to come by and families are fighting to put food on the table, should we really be loading people up with 30-year debts who cannot afford them during recessionary times like these?

Politicians will soon learn that, at some point, the public will catch on that these types of easy-money policies aren’t good for the economy. That’s why guys like Sen. Chris Dodd, D-Conn., no longer will have a job come January 2011.

A rising sentiment amongst Democrats and Republicans is that there is too much waste in Washington, D.C. When Americans find out that Fannie Mae and Freddie Mac, bailed out by taxpayers to the tune of some $180 billion, are now turning around and doing no-money-down loans, there will be outrage.

To add insult to injury, our total exposure, due to government guarantees, is somewhere around $1 trillion for Fannie and Freddie. What that means is that Fannie and Freddie can make as many bad bets and bad loans as they want and we’ll still be there to cover them no matter what.

After all, the printing presses have been turned on by Fed Chairman Ben Bernanke and we need good places to put all of our newly printed dollars.

At the end of the day, Americans need to learn a lesson. Get out of debt.

That’s why Ronald Reagan implemented a law called pay-as-you-go, which adheres to the old adage that if you pay as you go you’ll never owe.

Saddling up Americans with 30 years or more (there are now 40-year mortgages) of debt is an irresponsible proposition during these times.

But as politicians rack up national debt to the tune of some $14 trillion, they want you to feel the debt pinch too, because, as they say, misery loves company, and there are few things more miserable than debt.

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