it doesn’t add up

The numbers have to work.

Of course they do. If I’m going to buy a house, I have to know I can make the payment, afford the taxes, factor in utilities, and plan to insure it. Plus it would be nice to be able still to have money for gas and groceries. Which all adds up to “don’t buy more than you can afford.” A lesson my parents drilled in my whole life.

So, I picked a house that is not at the top of my approved budget. Substantially below. In fact, the house I’d like to buy costs a fraction of the amount I’d expected to spend. Win!

Except not.

Lending rules have changed, because we’re trying to fix the problem of high fees and irresponsible borrowing. Here’s the fix: as of January 7, there is a rule that for new mortgages, fees cannot add up to more than 3 percent of the total loan amount.

If the goal is to reduce or eliminate predatory lending – you know, the way we charge loan-shark rates to desperate people who can’t qualify for credit any other way, who then borrow from some pawn or pay-day lending operation at higher rates and often end up in a downward spiral of debt and interest-only payments that leave them unable to breathe debt-free air ever again – then it may be a good rule. Maybe.

But it isn’t working out well in these first couple of months since it took effect. Here is apparently what is happening: banks, instead of lowering their fees to make the percentages conform to federal law, have raised the minimum amount they will lend.

So, I found a lovely house at a fair price.  A really low price, actually, because the city is still recovering from the devastation of industrial abandonment, one result of which is many, many vacant houses. In fact, the house I picked is under $30,000, which, according to Zillow, should amount to about $100 month. Perfectly affordable. For me, and perhaps for a lot of people who have low monthly income. And isn’t having people living in homes sort of the point? So, I made an offer and called the bank to ask for the “pre-approval letter” the seller needed. Sorry, said the lender; we can’t lend an amount that small. I need to spend about $50K for the numbers to work. Bank fees, transfer fees, title fees, loan origination fees. All those fees are capped now at 3 percent of the total loan. So, instead of reducing the amount of the fees, in order to help people buy homes they can afford in neighborhoods that desperately need the stability of home ownership, banks have increased the minimum loan amount, in order to keep the profits they make relatively stable. It means people who can’t pay with cash are now steered toward higher cost homes (or end up renting, which doesn’t build wealth in a family), and communities where home values are suppressed can’t attract buyers who would be great neighbors if only…

This sucks. Certainly bank profits are a major culprit, but one lender also pointed to legal and other fees, as co-culprits. Apparently, as it stands at this moment, I will either have to a) find a way to pay cash for this house; or b) put it on a credit card. Of course there is option c: buy a more expensive house. Which recreates the problem of people buying more house than they believe can afford. Which takes away from money they can save for emergencies or retirement, spend on goods or services or home maintenance, or use for education, health, child care, or a host of other things that make a life healthy and good.

Home ownership is good for people, good for communities. Flint has a lot of vacant houses and is threatened, in fact, by blight and arson. We NEED people owning and living in houses. But if banks are unwilling to be good to the very people who bailed them out when they, the banks, damn near killed us all, then maybe we can do something else.

Time for conversation. If indeed the title transfer fees are part of the problem, is there a mechanism in place for lowering or waiving those fees for purchases by owner-occupants in targeted communities? (If so, do folks who could benefit know to ask?) Are there are some lawyers in our churches who could be persuaded to add real estate closings to their list of pro bono services? Could churches see in this an opportunity to put their endowments and trust funds to work? Can we imagine granting money to cover those closing costs? or lending the entire purchase price to people who will buy houses and live in them, who will build equity and invest themselves in their neighborhoods? Wouldn’t that be a better alternative than watching houses burn, or continue to be gobbled up by “investors,” which all too often translates into slumlords or absentee landlords, neither of whom feels a personal stake in the community? What laws would have to be amended to make these things possible?

At the very least, we can clear up misperceptions. When you hear the new law discussed, be aware and make others aware that the primary operative rule is the “law of unintended consequences.” Once more, reformers tried to fix something and opportunists found another way. It seems to be always true. But I believe we can do something about it. What’s possible in your community? With whom can you have a conversation?

It isn’t just mortgages where numbers have to work. It applies to ballot boxes also.

About Deb Conrad
I’m Deb Conrad, pastor, teacher, photographer, writer, antique-lover, cat-mom, wine-drinker and old-house-seeker. I have a bike by Burley and knees by Stryker. I play guitar marginally, bowl when I can. I live in Flint, Michigan, with previous lives in SC, NJ, PA, MD, Washington DC, TX, CA and KY. I founded and still help run UrbanSpirit, a poverty education center in Louisville (link below), where I meet interesting people and try to do what I can to change the world. I'm pastor of Woodside Church in Flint, a groovy place if ever there was one.

One Response to it doesn’t add up

  1. Tina Wilder says:

    This organization helped me purchase my home. They offer classes and credit counseling to help first time home buyers understand the requirements and process behind home ownership.

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