Monday, January 26, 2009

Did You Hear The Credit Markets Have Been Unfrozen?

As a matter of fact, every single Republican that has tried to convince me that the TARP bailout was a good thing, leads with this argument. I have pointed out to them that propping up failing banks with taxpayer money is wrought with a great deal of risk to the health of the economy down the road. What if the banks that TARP bailed out fail anyway? Worse still, what if the Obama Administration keeps bailing out bank after bank, over and over again? What then? And what about deficits? Have we completely lost our collective mind on deficit spending?

But I digress. The proof is, as they say, in the pudding. In 2005 a borrower that could not prove where their income came from, had a high debt to income ratio and with a FICO score under 680 (considered "B" credit) could get a 30 year adjustable rate mortgage with NOTHING DOWN.

FLASH to today. I, with my salaried position showing consistent and healthy raises each year, my 25% back end ration and 770 FICO score cannot get a home loan for less than 3.5% down, and that is for an FHA loan that will carry a higher rate than a conventional loan.

You may quibble with this, but I think that 100% purchase financing has gone away not because it was a bad idea, but because the credit markets are still really shaky. If the $1 trillion TARP bill accomplished the stated task of "unfeezing the credit market", then why did the Federal Government need to give GMAC and other lenders additional money to extend to borrowers for auto loans?

Nope, TARP is a failure and the stimulus bill working its way through Congress will be even worse. Meanwhile, renters like me that did not dive into the overinflated housing market (and still have our shirts to show for it) are screwed out of home ownership in the short term unless we can pivot from paying credit cards off monthly to buying on credit and then socking the money away to save for the down payment.

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