Bernanke: Conforming loan limit could reach $1 mln

[spotbird]

Source: Ruters

WASHINGTON (Reuters) - If Congress decides to temporarily lift the $417,000 cap on mortgage loans eligible for purchase by Fannie Mae and Freddie Mac, then a reasonable level might be $1 million, Federal Reserve Chairman Ben Bernanke said on Thursday.

Read more: http://www.reuters.com/article/businessNews/idUSWAT00843520071108

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Sounds reasonable.

[David Zephyr]

1. It is reasonable, as you say, spotbird.

The current limit is one of the craziest arbitrary nooses to potential homeowners, even those with great credit.

[ORDagnabbit]

3. our current system of money is the craziest in the history of world...

take a watch

www.moneyasdebt.net

[spinbaby]

2. In California that's reasonable

Or in the New York city area. Here in the boonies of western PA, a million buys you a mansion and three barns on a hundred acres.

[BadgerKid]

4. Time for a little levity

[David Zephyr]

6. LOL!

That should keep me all day. Thanks.

[olddad56]

5. why not, a million as about the same purchasing power that $417 did a couple of years ago.

why not just let individuals sell private bonds to china.

[harun]

7. Reasonable?

That would further push up home values beyond what they are really worth.

We need to move out of the culture of debt and towards a culture of wealth. Meanin if you aint got it, you aint spendin it.

[fed-up]

9. BINGO! nt

[1932]

13. Yeah. I don't know why it makes sense for the government (ie taxpayers) to be the guarantor

of higher home valuations.

Home valuations should be realistic. They shouldn't be artificially inflated by shifting risk around.

[harun]

16. Unfortunately people go on what they can afford in terms

of a monthly payment, not on the value of the house. So what they pay has as much to do with the interest rate as the price of the home. The home price could double in a day but if the interest rate was good enough for their monthly payment to be in the range they want they wouldn't think twice about still buying the house.

[1932]

19. Those monthly payments transfer into a purchase price. And while interest rates were low

it translated into a huge price. And that was bad. I don't think that higher interest rates justify bumping up that price level for these guarantees.

[mountainvue]

17. That's exactly what they're going for here. Jesus

Christ on a cracker. The people hoarding gold bars don't sound so crazy anymore.

[truthisfreedom]

8. Prolonging the agony, delaying the inevitable.

Allowing people to refininace using government programs on such huge houses will only delay the devaluation of these neighborhoods as wild inflation eventually drives people once again to the brink of bankruptcy. It's a house of cards.

[PSPS]

10. Who are they kidding?

A 30-year $1 million mortgage at 6% runs $6,000 per month, not including property tax and insurance.

To "conform," this would mean the payment represents no more than a third of household income not otherwise encumbered by other debt (cars, credit cards, etc.)

So to "afford" a $1 million house, you'd need a household income of at least $18,000 a month or $216,000 a year.

I guess this is a windfall to the "have mores."

[noto]

11. If you get a $1 million loan, you're a moron.

It's really that simple. OK, let's say you want a home that costs $2 mil and you are going to put down $1 mil because you are that loaded. Over 30 years it will cost you and extra million in interest, making the home really cost 3 mil (not to mention taxes and insurance, plus your upkeep). If you didn't put down 50%, you are really paying out the ass.

I've realized a lot about home ownership (just sold my first house) and I beg you just think about these points. Please don't make a mistake. These are my realizations after what I went through. (more on that later)

The 'American Dream of Home Ownership' as defined today is a sham. When this term was coined, houses cost like $7k for a normal home and most people saved and paid cash (this is documented fact, mortgages as defined today did not exist before the 50s). That IS truly a dream, a guaranteed place to live that you paid cash for. But like everything else coming from big business and the government, even this idea has been twisted into a completely baseless slogan that people accept blindly.

For you young people considering a house:

Consider:
In any mortgage, interest is paid up front. Whoever allowed this should be shot dead. It is a completely unethical practice. What this means is that at first, your payment is nearly 100% interest. After 30 years, it is almost 100% principal. Look at an amortization table!! Over 7 years, our payment *averaged* 6% to principal, and 84% to interest. People don't usually stay to pay off the loan, the average time in a home is 7 years or so. People will say 'but you are building equity!' I say: bullshit. The people giving you the loan make all the money over an average time period, what you make is solely on appreciation. Think HARD about that, young folks.

Then consider this:
If the value of the home doesn't go up substantially before you sell it, after hefty realtor fees and title/closing fees etc., you may end up having to pay (IE take a check to closing) to sell your home. Just remember that your fees for selling a home will be about 11% of the sales price. On $300,000, you are looking at around $33,000. So to break even, you need to have an appreciation of roughly 11% of the *selling* price.

In my opinion, if you can be happy renting, even an expensive place, do it. The benefits usually outweigh the negatives, imo, except in certain circumstances.

My argument:

Renting:
You will never have your credit ruined due to foreclosure because you lost your job.
You will never have to buy a new furnace or replace the roof.
If you want to move next year, you give your landlord notice and off you go.
Your property taxes will never increase.
You will never have to sit at a table and watch a bunch of vultures take away the money you made for selling your home.

Home ownership:
Maybe smart if you get a 15 year fixed loan and make a substantial down payment (like 50%)
May be smart if you want to stay until the house is paid for completely
May be smart if you are positive your value will increase substantially
May be smart if you will pay it off by retirement and could provide an income stream in the case of a reverse mortgage

So why my pessimism? Did I get screwed? Not really. Here it is. please, its my story, and just food for thought.

My wife and I bought our first home together 7 years go. We had little money, and no one to help. We made a 5% down payment on a $150k house that was in great need of refurbishing.

We worked on the house for 7 years. New kitchen, $15k. New roof, $5k. Chimney rebuilt, $3k. New ceilings, plumbing, trees taken down, gutters, paint, you name it. We paid a lot for professional stuff, and did everything we could ourselves, paying just for materials which of course added up too. To how much? I dunno. A lot.

7 years later, we put the house up for sale. We sold for $230k in just 3 weeks. Wow! you think. We should be 'thrilled', especially in this market. But after everything we did, let's say we put in $50k. So there really we have $200k in. So that leaves $30k. Realtor fees negotiated to 6%: $15k. Title fees: $4k. What did we really end up with? Coming out about $10k ahead after everything. I should have rented and saved all we put in instead. We would have been $50k further ahead. But course we loved the house, and it was our labor of love. So was it worth it? Yes from the heart and no from the head.

I'm just saying this: If you are a young person or couple and you are dreaming of a house and you have the minimum to put down you are going to get screwed and that is a fact. Think hard before you jump into the great 'American Sham.' Buying a house is great fun and you are treated so nice. Sell one and feel the fear and dejection of being told everything wrong with your property and what you have to do to get someone to buy - and it can be expensive. Consider this market. Houses on for 6 months with no offers. People selling for losses because they have to.

Just think.

[Kingshakabobo]

12. You forgot to factor in your tax deduction on the interest.

Also, the 50k you put in in the form of a "forced savings" comes with you when you leave. Most people aren't that disciplined that they would stash that much cash while renting. Not to mention the "comfort factor" of being 65 years old and having your home paid off so you don't have to deal with some dick-head landlord that wants to make your life miserable because he can.

You make some good points but I still believe homeownership is a good investment - especially if you stay in your home for several years (more than 7)......and , yes, 15 year loans are a great idea.

[noto]

14. Hmmm, I think we will have to agree to disagree

You are correct that I didn't mention the mortgage write-off, but I think factoring in property taxes and insurance which you don't pay when you rent really kind of evens that deduction out to a great extent. A mortgage write off is not a reduction in taxes of that amount, just a reduction in adjusted income of that amount, so its not like $6k in mortgage interest write off gets you a $6k higher refund. Its probably $2k higher. Also, if you own your house outright there is no interest, so no write off at all. The deduction declines yearly.

Also, putting money into my house was not forced savings. It was a cost. The improvements cost real money which was in part paid back at the sale, but I did not profit on those costs. These improvements cost money I could have saved otherwise and made interest on if I were renting. If you view this as savings, it is probably the worst savings plan ever, to be lucky to come out even after 7 years with a negative return.

I think in your situation (retirement age, desiring security), it is better to own. I know I will. But I will own outright. You are not in the group I was aiming at, which I pretty clearly stated was young people looking to do whatever they can to get into a home.

[Kingshakabobo]

15. But you DO pay taxes and insurance when you rent.

....You just don't get to write off the taxes - Your landlord does. I was assuming, by your numbers, you DID walk away with the $50,000 you put in to the place.

Based on your 7 year loan with an original loan balance of $142,500 (95% of 150k) you were able to write off close to 59k in interest deductions - saving you roughly 15k in income taxes - based on 25% tax bracket. That's not to mention your property tax write-off.

[UpInArms]

18. welcome to DU, noto!

Thanks for the post :hi: