Home owners and loan owners are different. Both experience changes to their net worth from fluctuations in the resale prices of houses, but beyond that, people who own property don’t benefit from the various bailouts designed to keep loan owners paying their mortgages. Most people who own a loan erroneously think of themselves as home owners. They are not. They are money renters who hold title only as long as they continue to pay the rent on the money they borrowed. Let’s review from Money rentership: housing and the new American dream:
Over the years, the slow erosion of property rights has made the distinctions between owning and renting less dramatic, particularly in renter-friendly cities in California. Owners have few rights renters don’t, and with exception of equity participation, owners obtain few benefits to outweigh the burdens of ownership, and over the last few years, equity participation has not been a bonus.
The mortgage encumbrance gets to the core of the unnoticed change in people’s concept of property ownership; people who have little or no equity stake in a property have no ownership despite what legal documents may say. What they have is money rentership and the illusion of home ownership. Emotionally, they still feel like homeowners; they still behave and believe like homeowners, but they’re not home owners. They own a loan; they’re loan owners.
At some level, people know this, and we observe high default rates once borrowers fall underwater. Despite the Government’s best efforts, people are walking away because once they no longer own, they see money rentership for what it is, and unless the cost is less than a comparable rental — which it rarely is — then people walk.
Money rentership — the antithesis of owning — is the California conception of home ownership.
The distinction between home owners and loan owners is important because both renters and home owners have one thing in common; neither receives benefits for their tax dollars bailing out loan owners. In other words, renters and home owners are ripped off by banksters and loan owners.
08 February 2012 | By Agnes T. Crane
Though America’s mortgage system subsidizes homebuyers, its dysfunction has cost all taxpayers dearly. Few constituencies with much clout are pushing for change. But the nation’s 39 million rental households – often an afterthought in the housing debate – ought to be up in arms.
Renters are not an afterthought, they are no thought at all. Renters are the subhuman class called upon to pay the bills of the upper classes of loan owners when loan owners cannot pay their own bills. Renters benefit in no way from the bailouts. In fact, renters who would like to be home owners someday are hurt by efforts to keep prices high and unaffordable. Renters money diverted through bailouts to loan owners actually costs them more in the future price of a home. Further, since the bailouts keep loan owners in properties they could never afford, renters who would like to buy are crowded out of the properties they want because these properties are still occupied by loan owners. Renters get screwed every way possible.
They might find unlikely allies, too.
Renters may be the only big group in the United States that isn’t invested in the status quo. Homeowners, realtors, homebuilders and banks all benefit from the government’s hand in housing, exercised through Fannie Mae and Freddie Mac, which buy and guarantee mortgages, through other federal vehicles, and through tax rules that subsidize mortgage interest.
This makes home financing cheaper and, usually, more liquid, which in turn makes homes of any given price more affordable and potentially easier to sell on. Banks and investors, meanwhile, are wedded to the security a government guarantee brings to their respective loans and bond investments. And politicians, who have long extolled the virtues of homeownership, are loath to do anything that would make it more difficult for voters to achieve their idea of the American Dream. The trouble is, that’s what would happen if reforms are introduced that reduce or scrap the role of the government’s money and policy objectives in the market.
Dismantling the plethora of government subsidies would not prevent anyone from owning a home. It would lower prices, but once prices found their new equilibrium, home ownership would go on as before. Many countries around the world have similar home ownership rates as the United States without the subsidies and programs in place to encourage it. Our subsidization of home ownership has merely inflated the prices and made prices unstable.
But rent-payers ought to like that idea. They miss out on the huge tax deductions mortgage interest payers get. And their savings bring in more return when the Federal Reserve hikes interest rates, in contrast to households with equity in homes that in theory go up in value when the Fed pushes lending rates lower and lower. Meanwhile, renters have been hurt by fallout from the housing bust. As taxpayers, they are set to suffer the costs of the government’s attempts to shore up housing – more than $150 billion and counting in losses at Fannie and Freddie alone. And as struggling homeowners hit the rental market, rents are going up too.
The bulk sales of REO to investors will soften the rent increases. Each foreclosure creates another renter, but it should also create another rental unit. That hasn’t been happening because banks are trying to sell to owner occupants. This has created an imbalance forcing rents up and resale prices own. That imbalance will be corrected by bulk sales to be held as rentals.
At the same time, the ranks of renters are filling up with younger Americans who have witnessed the nightmare of homeownership rather than the dream espoused by older generations. The 44-and-under crowd has been hard hit, with their homeownership rate falling by more than seven percentage points since 2005 to 62.3 percent, according to the U.S. Census Bureau. This matters since they will tell their tales for years to come, potentially undermining the belief that homeownership is part and parcel of American prosperity.
Meanwhile, borrowers who owe more than their home is worth are weakening a key supposed advantage of homeownership: that mortgage deeds bring good deeds to a neighborhood. That probably still applies when someone has a chunky equity stake in their home. But more than a quarter of homeowners now do not. This group is much less likely to fork over, say, $20,000 to fix a leaky roof if it’ll only help the bank’s bottom line rather than their own. Underwater homeowners look a lot like renters with giant mortgage millstones hanging around their necks.
Despite all this, and the likelihood that mortgage reform would save the government money, the policy debate is still aimed at restoring the idea of homeownership to its inflated pre-crisis glory. That has delayed efforts to even consider dismantling the likes of Fannie and Freddie, and diluted the potential for moves like slashing mortgage tax breaks.
Politicians exacerbate problems by trying to keep home ownership rates at artificially high levels. Politicians should focus on an orderly transition from ownership to rentership. If politicians were really progressive, they could invest in training people on proper financial management to sustain home ownership. Instead politicians squander money on subsidies facilitating home ownership for those who lack the capacity to sustain it.
A rhetorical uprising of renters could refocus and reinvigorate this discussion. They lack the artificial aura of maturity and material success that seems to attach to owning a home in the United States.
Most of the qualities formerly associated with home ownership were completely lacking during the housing bubble. The generation of Ponzis lenders created clearly lack the financial management skills necessary to sustain home ownership. Poisoned by Ponzis, home ownership lost its revered place in our society.
But that perception of renting could change. Just look at Germany. It’s an economic powerhouse, even now in troubled Europe, and less than half of its households own a home, against 66 percent in the United States.
The renter lobby may even find friends in strange places. Wealthier or older homeowners who have paid off their mortgages can’t be happy about the likelihood of forking over higher taxes to pay for the last decade’s excesses.
Nobody is excited about the prospect of paying off the Ponzi’s tab. Retirees pay the bills now. Most retirees expected to earn interest on their savings in their retirement to supplement their income. Instead this money is being diverted to banks to help them repair their balance sheets. Even if politicians don’t directly raise taxes, we will get inflation which is a stealth tax on wealth that requires no politician to cast an unpopular vote.
Of the 75 million homeowning American households, roughly a third don’t have a mortgage, if the findings from a 2009 American Housing Survey still hold.
True homeowners — the people on title who don’t have a mortgage — pay the bills of Ponzis though higher taxes and various bailouts. Most homeowners tolerate this because they hope the government’s efforts will help make house prices go up and make them richer. So far, it hasn’t worked out that way.
In addition, market-friendly conservatives, at least in better economic times, have long advocated the demise of Fannie and Freddie in favor of freer markets for homes and the loans needed to buy them. It might seem a slightly odd coalition. But if renters, retirees and red-staters got together, they could become a force to be reckoned with in the housing debate.
Conservatives can’t be counted on to side with renters. Traitors like OC Republican John Campbell who successfully lobbies for more government handouts is a prime example. Renters, retirees and true home owners all should be frustrated and upset with their government’s efforts to subsidize and bail out loan owners. I know I am.
$1,100,000 …….. Asking Price
$1,500,000 ………. Purchase Price
9/21/2006 ………. Purchase Date
($400,000) ………. Gross Gain (Loss)
($120,000) ………… Commissions and Costs at 8%
($520,000) ………. Net Gain (Loss)
-26.7% ………. Gross Percent Change
-34.7% ………. Net Percent Change
-5.6% ………… Annual Appreciation
Cost of Home Ownership
$1,100,000 …….. Asking Price
$220,000 ………… 20% Down Conventional
4.39% …………. Mortgage Interest Rate
30 ……………… Number of Years
$880,000 …….. Mortgage
$217,929 ………. Income Requirement
$4,401 ………… Monthly Mortgage Payment
$953 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$275 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$5,630 ………. Monthly Cash Outlays
($1,168) ………. Tax Savings
($1,182) ………. Equity Hidden in Payment
$353 ………….. Lost Income to Down Payment
$295 ………….. Maintenance and Replacement Reserves
$3,928 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$12,500 ………… Furnishing and Move In at 1% + $1,500
$12,500 ………… Closing Costs at 1% + $1,500
$8,800 ………… Interest Points
$220,000 ………… Down Payment
$253,800 ………. Total Cash Costs
$60,200 ………. Emergency Cash Reserves
$314,000 ………. Total Savings Needed
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
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