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The Real Estate Dilemma

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There is no greater hindrance to an economic quagmire that the US is currently in than the un affordability of home ownership. When the housing bubble burst in 2008 and subsequent government backed bailouts to the financial and mortgage institutions that only enabled those banks that got the United States into the worst financial crisis since the Great Depression to remain in business did little if anything to stimulate more home ownership for the average John Smith American. Ever since then these same banks and mortgage companies have purposely kept owning a home almost next to impossible for far too many Americans. Many factors have come into light in regards to why it is still so difficult to owing a home which by the way is so vital for our economy to grow and prosper.

No where in our society today is the actual institution of home ownership more important to secure the stability of not only local communities but for the overall economic stability and security of a nation. The realization of owning a home is so paramount to remedy this nations economic crisis that if the United States doesn't rectify this sever crisis in practically every city this nation will be very hard pressed to ever climb out of this economic abyss we have put ourselves in. With the number of current foreclosures continually escalating the United States will never regain the economic prominence that we had during the housing boom of the 1950's and 1960's unless more people are able to buy and become part of that paternal brotherhood of home ownership. It is when more people are able to actually purchase and stay within a home the greater the overall economic impact there will be in every local community through-out the country.

What has occurred during the last two decades is that more people are being denied the opportunity to own their own home or are forced out because of foreclosure. There are a lot of factors that have been contributing to the increase of individuals who can't qualify for any type of mortgage or are being denied the opportunity to stay in their own home. One of the more obvious reason is the lack of middle class jobs. Ever since 1994 the evaporation of middle class employment opportunities have continued to vanish at a rate of over one million per year. This continuing erosion of middle class employment only compounds the problem in why so many people are not buying, able to by, or able to keep their homes. When job loss, stagnant wages or worse yet, reduced wages with the various types of mortgages that people get themselves into like an adjustable rate the problem of facing foreclosure is much greater now than ever before. This is what is happening today. The mortgage meltdown is crippling every community across the country.

When one glances at the real-estate section of any news paper the front page almost always showcases the more affluent more expensive homes. One can be seen dreaming of a life that is far removed from the reality of where the majority actually live today. To dream the impossible dream. For many that is all they can do. The trance in broken however when we turn the page. There you will confront the reality of home ownership in the form of monthly mortgage rates. We know them as 15 and 30 year fixed loan rate charts. It is too bad that they don't include the Adjustable or ARM as they are called by any bank aficionado. Because, if they did many people would be able to actually see that they would never be able to actually afford the home of their dreams for any length of time. It is these 15 and 30 year fixed rate charts that decipher the monthly mortgage payments one will encounter when trying to buy a home. They also show the interest rates that figure into the overall monthly payments people will pay. Typically, a 15 year fixed loan with an interest at 3% on a property that is around $70,000 would be $483.41. The same property if we chose a 30 year fixed loan would be $295.12.

The real problem today with trying to increase home ownership is two fold. The first is locating property that is affordable yet requires minimal effort and money in order to make it habitable. The other concern are interest rates. Typically, and in almost every instance the people who qualify for the lower interest payment are those individuals who can afford higher interest payments to begin with. But, the majority of Americans are not so fortunate to qualify for lower interest rates. The banks and mortgage companies even though many were given bailouts by the federal government after the financial bubble that burst have put the brakes on loans unless credit scores are super high. In many cases one has to have a 720 or above score just to qualify for any type of loan regardless of the lower interest rate. When banks keep the criteria for obtaining a home loan too high for the majority of citizens therein lies a major flaw with our banking institutions. They have purposely been siting on the vast amounts of cash reserves ever since the federal government bailed them out and only sporadically been granting loans only to those whose credit scores exceed the mandated ones imposed by these same banks. What they are doing is investing most of that money and making huge profits instead of stimulating the economy.

Now, we concern ourselves with the most acute problem of home ownership, and that is affordability. A sad reality today is that in cities like Tampa, Florida too many homes selling for $70,000 or less are in so bad a shape that to repair and make them livable would require additional funds that many times puts the house far above ones ability to own. That is the first part of the problem. To take a closer look into the real difficulties in the United States dealing with affordability of home ownership we have to look at Mr. and Mrs. Smith average working Americans. Henry and Mary Smith whose combined incomes portray a typical family of four and what so many like them are up against in trying to buy a home. Henry a Physical Therapist and Mary a low level secretary. both have managed to escape the unemployment chopping block but, Mary had her hours cut down from 40 to 30 hours per week. Henry whose health care benefits still dig deep into his disposable income is the only full time worker in the family. they have two children ages 3 and 4 both in day care.

Now that we have a view of a couple who are trying to buy that first home like most people have had credit problems in the past. Both Henry and Mary have credit scores in the low 600 range, not good and not bad. Henry makes $560 per week Mary makes $360 per week. Combined a yearly income of $44,160. One might consider that they are low middle class working Americans. To paint an accurate picture on just how difficult buying that first home is in the United States today we have to consider some harsh realities facing the Smiths and others like them.

In buying a house it would be advisable to consider using just one salary as the basis on which to qualify and use as the families budget. Using the other salary as a safety net just in case they too fall victim to the unemployment and underemployment climate we have in America today. Using Henry salary as the base in which to qualify for a home at $26,880 puts the Smiths on a very limited budget. To top it off the choices of homes in a price range of affordability is also very limited.

It is time to number crunch to show just how difficult it really is considering the income levels so many million Americas are in today. With a credit score of say 620 puts the Smiths automatically at interest rates higher than what is really necessary. An interest rate of no lower that 5% is offered, that is if one can find a lender. With two young children the Smiths need at least two bedrooms and two baths, Preferably with a back yard. That is their wish list. Like so many of us today the Smiths have very little savings. Instead of the standard 5% down they can only come up with $1500 of the $2000 they have as their safety net. That is just incase something happened like their car breaking down or another unforeseen emergency. What the Smiths are up against now is trying to find a lender who will settle for that $1500 down payment and a 620 credit score. Not impossible but very difficult.

As luck would have it they found a lender willing to work with them. But, We're not done yet. Lets say the Smiths live in Tampa Florida where housing prices are somewhat less expensive than say Newton, Mass. The Smiths found a home listing for $75,000 and it took some digging to find that even. With a loan of $73,500 with a 7% interest on a 30 year fixed loan the monthly payment is around $475. That is just for the mortgage. We have to consider the cost of everything else that is actually an essential part of everyday life. Using Henrys salary of $2240 per month the budget breakdown is this: Day care $500, Mortgage,$475, Insurance car and home, $200, Electricity, $70, Food, $300 [Henry makes to much to qualify for Food Stamps], Phone, cable, and Internet essential now $130,Clothes, $30 and other expenses $100. This leaves a safety net of just $435 per month. Doable but not great. You can bet that extra $435 will be eaten away every month leaving the Smiths just barely able to break even if that. If in the event that Henry has his hours cut or worse face unemployment there is no way Marry will be able to carry the load of the budget requirements to stay in this house by herself. This is what has happened to too many people today.

In all probability finding that house for $75,000 in a condition that is livable with out spending anything to make it so is pretty difficult today. In too many instances the homes will require additional outlay of funding in order to move in. And with the Smiths limited budget to begin with buying a home is pretty much limited. The affordability of homes is just not there for couples whose incomes are typical of millions of Americans today. In Tampa the majority of two bedroom two bath homes in an area that is conducive to bringing up children so many are priced at over $150,000 and that is just the low end.

Now, what is happening in Tampa like in so many other cities with so many foreclosures have left open the door for those high roller investors to come swooping down and grabbing up all these homes and renting them out. The market for homes to rent instead of buying has grown considerably just because it is now almost impossible for millions of working Americas to be able to get the loans and be able to afforded to pay the mortgages. And with rental properties on the increase it is a landlords market where they can indiscriminately raise rents at any time. This also poses a big concern in that when so many are on limited budgets to begin with any time their is a price increase whether it is food, gas or rent puts people in a very tight situation. In too may instances many are forced out into the cold.

Recent economic studies all indicate that owning a home produces long term economic growth for each local community. Individually the concept and actual home ownership instills emotional benefits of security, stability, and a genuine sense of pride. In communities where more families are owning homes the social benefits far out weigh the effects when banks or financial institutions foreclose. One of the most important social as well as economic impact of home ownership is how it affects children of families when they reside in their own home. Home ownership has proven that children perform substantially better academically in school. It has also been proved that home owners are more involved in their children's lives especially when it concerns their education. Another fact is that home owners move less often than those who rent. This brings the stability that children need to further increase the child's success in their school. Another study has shown that even though owning a home enhances educational standards for children the neighborhood stability that is a direct correlation with more home ownership further increases each child's ability to succeed in school.

The communities with more occupied homes are more cohesive. Each family enjoys better communication. The overall economy is stronger and more stable when more individuals and families reside in their homes. An another economic impact is that homeowners spend more money to improve their home and are more engaged in enhancing their neighborhood. All of which spurs economic positive momentum. This in turn signifies that homeowners take more positive steps in producing better and stronger communities. When given a choice the average homeowner is 28% more likely to repair their home,15% more likely to vote,12% more likely to maintain a garden outside their home,10% more likely to be involved with local community groups like the PTA and most homeowners will live 4 times longer in a particular community. This all translates again, to positive economic growth and stability in communities where more individuals are able to buy and stay in their homes.

As beneficial as home ownership is to every local community homeowners are more active, connected and involved with their own families. Whether it is volunteering at local schools, coaching various sport teams, or becoming scout leaders are some of the types of activities that only more homeowners are active in. These types of community involvements further produce positive social and economic impacts upon all communities.

When people are able to become a home owner these individuals achieve a greater degree of life satisfaction, self esteem, and a certain perceived control over their lives. In addition to being more content with their own personal situation than renters, home owners enjoy better physical and psychological health. Where the children are concerned 20% are less likely to become teenage mothers. The escalating teenage pregnancies that are plaguing most urban areas all across the United States would fall by over 20% if the parents were able to buy, maintain, and stay on as home owners. In addition home owners have a violable financial stake in the value of their homes. We can conclude that owners have more of an incentive to deter crime by forming and implementing voluntary crime prevention programs. This reduces crime and adds more value to each home.

The bottom line is that being a home owner has a very large important impact in each neighborhood, town, city, state and through-out the country. This is because home ownership creates jobs: remodeling, landscaping, lawn maintenance, and all the other industries that are connected with owning a home. It is found that each owner generates as much as $60,000 of economic activity every year in local communities.

Still there remains a very large portion of the public that can't qualify for a home loan, isn't able to make their mortgage payments any more, and is trapped into high interest rates because they can't qualify for any type of loan modification in order to be able to continue to make their mortgage payments at a reduced rate. In each case the ones that suffer are the children, local communities, surrounding townships, their state and this country. Now the question remains how to actually achieve the desired economic impact for local communities all across the United States. One that produces lasting economic growth and stability.

Up until now there has been no silver bullet for the continuing economic crisis most of which was brought on by the mishandling of mortgages by the banking industry. Back in the 1950's and even through the 1970's banks used a simple rule to qualify people for a mortgage. During this period middle class employment opportunities were still abundantly available. The corresponding salaries earned would be more sufficient for more people to be able to qualify for a mortgage. Anyone who wanted to buy a home was issued a mortgage based on the criteria that the purchase price could not exceed over 25% of an applicants gross earnings at a fixed interest rate for the life of the loan. A 30 year fixed rate mortgage was the standard home loan. Back then there were no sup-prime or adjusted rate mortgages nor were there the selling of mortgages to mortgage brokers. There was just that tried and true rule that worked for generations. It was only when banks recently tried to improve the mortgage lending procedures they realized they could reap more monetary compensation for themselves by changing the rules of lending. This is when the United States ended up with the worst economic disaster since the Great Depression.

The banking and financial industries are still continuing to thwart a swift economic recovery. The President's stimulus and bailouts of over billions of tax payers money still haven't had the economic impact that was to be expected. Home ownership has eluded too many Americans. In fact the economy nation wide without improving the availability of owning a home will only continue to decline. And, that puts this nations national security in grave danger.

One important factor in considering how to increase the likely hood of more individuals able to buy a home is with reforming of credit scores. The criteria for loans today are based primarily on an individuals credit score. Trans Union, Experian, and Equifax are the reporting agencies that determine a persons or business credit worthiness. In other words the numerical score given is the basis for the amount any lending institution will give and the corresponding interest rate they are charged for the use of any loan. The higher the credit score the lower the interest rate will be and the greater amount of the initial loan they can have. The problem today is credit scores are so unreasonable for the majority of the population now. The vast majority of people are still faced with their credit scores diminishing through no fault of their own. Lay-offs, becoming ill, or even reduced incomes are all factors when faced with keeping up with the ever increasing cost of living. Credit scores have been reduced by over 150 points for just one late payment or missed payment on only one bill. So when an individual who needs to do a home re modification today, have a line of credit to fix up their home, or even buy a new car the banks are turning these people down because of their credit score. This does nothing to spur economic recovery. Credit scores should not be used as the prime determination when it comes time to apply for any loan and especially for a mortgage. When seeking a loan of any sort whether it is for a car, a large home improvement project or a regular mortgage credit worthiness should be based on merit, in case of a home improvement project ones current equity in their home, then there is references, character and again for that home improvement project length of home ownership. All of these should factor into the type of loan granted to spur forward economic activity.

It would behoove banks when they are in position to foreclose on any ones property they have to consider two very important facts: One is that an occupied home even when the owners are in financial difficulty is much more of a factor in the overall communities economic future. When individuals are forced out of their homes due to banks foreclosing an empty home does nothing but detract from the local economy. This creates an economic domino effect in economic retardation all across the board. Two: Banks have to not be so focused on foreclosure as a means to recoup monetary loss but should work with the home owner in finding violable solutions like defer payments on a mortgage. this is in light of the fact that so many middle class employment opportunities are not available at this time. Another option is to work with the home owner in reducing their mortgage payment even though their credit scores are not in line with the banks policy for issuance of a loan or re modification of their mortgage. All of this translates that individuals or families that reside in homes offer a much better picture of economic stability in every local community.

The banking and finance community has to realize that the best way to have an immediate impact on economic recovery is to lessen the criteria on peoples credit scores so that more people will be able to receive any loan whether it is for the purchase of necessary items, stave off foreclosure, and in general stimulate positive economic growth.

In corresponding to the banking and financial incentives by reducing or lessening of credit scores the Federal Government must implement procedures and solution to trigger more middle class job growth. This starts with reforming of our trade agreements like NAFTA. The United States must embark on a policy of Equal Trade not Free Trade that we currently have. This current trade policy has only resulted in the elimination of so many middle class wage employment opportunities all across the United States for over 20 years. With so many incomes now so reduced because of the types of jobs that are only partially being created will never amount to the kind of economic growth that this country needs. Reforming our trade agreement is crucial in enabling business to secure the economic momentum needed to create the middle class wages that are of paramount importance for more people to become homeowners. When more people are able to own, stay in or expand their homes the greater the positive economic impact there will be in every community across the United States.



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