While some economists are dubbing the new ban on risky home mortgage loans to be "commons sense," I think that's arrogant. In some cases, new home buyers and others should have the option to take out non-traditional mortgages. I know in my own case, I would consider taking an interest-only loan on a new home that I'd only be living in for a few years.
According to a recent article by ABCNews, the new rules are supposed to prevent another housing bubble. Federal regulators, in my opinion, should not be allowed to limit a prospective homeowner's options. They should only be allowed to educate and require that lenders provide people with all the facts, information and numbers in order to make an informed choice that works best for their person situation.
Evidently, the Consumer Financial Protection Bureau wants to make sure lenders don't trap borrowers. I can't believe my tax money is being spent on more bureaucracy predicated on the idea that the average American is too stupid to figure out things if given all the information. The problem during the housing bubble was that lenders were not giving borrowers all of the facts. And, in some cases, borrowers were blinded by their desires to own homes that were more than they could truly afford.
Curtailing interest-only loans
I know a lot of people who actually loved having an interest-only loan. They loved the fact that they could afford to live in a spacious, expensive home for a few years. After living in the home of their dreams, they sold and moved to another part of the country. The problem was that some homes plummeted in values and people with interest-only loans were stuck. However, instead of getting rid of interest-only loans, lenders should simply guarantee people the chance to refinance. In some cases, the interest-only loan option offers people a better lifestyle.
Shutting out low-income people
The new rules will end up shutting out a lot of low-income people and others because it requires that the loan payments be no more than 43 percent of a person's income. I think the rule also hurts self-employed people or people who don't conform to society's traditional paths. Maybe some people want to spend more than 43 percent of their income on their mortgage because they know they will receive a pay increase or windfall in a few years. It's not up to the government to decide how they budget.
I also heard that the government might not allow people to take out a loan that has a length greater than 30 years. With interest rates as low as they are, it may make sense for the very young people to have a loan that is longer than 30 years if it helps them achieve their goals. I know that all these restrictions will limit my children from purchasing a home when they are in their early 20s. It's a shame because many first-time homeowners will miss out on the chance to lock in at historically low interest rates.
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