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Thousands of people agree that the down payment for buying a home should be increased. Today, if you are in the market to purchase a home you may not even need a down payment if you are able to qualify for a USDA Rural Housing Mortgage or VA Loan. Most other qualified borrowers have the option to put down only 3.5% with a FHA mortgage. The Obama Administration, like the thousands that voted on the Wall Street Journal’s Poll, agrees that the borrower need to have some skin in the game.
If all goes as planned, the Obama Administration will work with Fannie Mae and Freddie Mac to gradually raise the down payment minimum to 10% on conventional loans. This restructuring of mortgages in the United States will help hedge against losses from foreclosures and delinquencies.
The ultimate goal for the administration is to privatize the mortgage market as it was intended to be prior to the governments intervention in Fannie Mae and Freddie Mac. As it stands today nearly every mortgage in the United States is insured through the Federal Government. VA loans (offered only to US military veterans) as well as FHA mortgages are insured by Ginnie Mae, a government entity. Fannie Mae and Freddie Mac are the two private companies that buy and sell mortgages as mortgage backed securities to investors. When the economy took a downturn the government was forced to step in and bail out these two entities to stop a financial collapse of of our economy.
There are obvious implications in requiring larger down payments to buy a home. The cost of home ownership is near the lowest in history yet foreclosed homes still sit vacant and banks are unable to resell their repossessed properties. Cities such as Detroit have thousands of homes vacant which bring in no tax revenue further adding to the implications. Without tax revenue the cities are unable to operate and provide social services. Conversely if the foreclosure rate continues then the government will have no exit strategy in the bail out of Fannie Mae and Freddie Mac which is costing the US government billions of dollars.
Of the thousands that have voted on WSJ.com, the majority of people believe the down payments required to buy a home should be between 16% and 20%. There is no easy answer to these issues however according to this poll, the Obama Administration is moving in the right direction by raising the down payment requirements.
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