If you listen to the radio or watch tv, you have probably been subjected to the constant talk related to responsible spending. CUT SPENDING!!!!one!!1!! has been the name of the game recently without any regard for intake of revenue or the damage that would be done if certain types of spending are cut.

Today MSNBC senior producer John Schoen wrote to highlight the concerns that bankers and community advocates alike have concerning the new regulations being placed on mortgage lending. Critics of these rules and regulations say that certain races and lower-income buyers will be completely shut out of the mortgage market, preventing them from achieving the American dream. They have some valid concerns, however in my opinion this is a lot of whining for different reasons: for bankers it is because they won’t be able to make as much money, and for community organizers it results from a need for everything to be “fair.” Let’s take a walk through some pieces of the article. The full article can be found HERE.

Opponents argue that the new rules, proposed by a bevy of federal regulators, could have the unintended consequence of restricting the American dream of homeownership to the wealthy, leaving behind many creditworthy buyers and shrinking the pool of home buyers just as the housing market is struggling to regain its footing.

“If this rule goes through as it stands, the demographic of borrowers who get (favorable rates) will be white and wealthy,” said David Stevens, chief executive officer of the Mortgage Bankers Association and former commissioner of the Federal Housing Administration. “African-American, Latino and first-time home buyers will be charged higher prices.”

I would like to know why race has anything to do with this. A significant amount of our nation’s wealth is held by the African-American community (granted, a significant portion of our poverty stricken population is also African-American). To me this just feels like a way to get people fired up over something that is an insurmountable fiscal issue. To say “This is just to keep black people from buying homes!” is to ignore the deeper reasons for these changes.

Also, they aren’t being charged higher prices because they are African-American or Latino. They are being charged higher prices (read:interest) because they have lower levels of income or are unable to pay a down payment. Has anyone ever bought a car? Go in with a $5,000 down payment and you are going to get a much better interest rate (not to mention monthly payment) than if you run in there with nothing and ask for full financing (all creditworthiness being equal).

Stevens was commenting on 376 pages of proposed rules for “Qualified Residential Mortgages,” which would require a 20 percent down payment and limit a borrower’s debt payments to no more than about one-third of income.

Critics say the rules would force up the borrowing costs for lower-income and younger borrowers because lenders would charge higher rates for loans that do not qualify for QRM status. They say that could sideline millions of potential first-time buyers who haven’t saved the full 20 percent — and hurt the prospects of the 11 million current homeowners who owe more than their home is worth.

Now, there is a sob story here and a valid concern. The sob story is the constant restating of the fact that this isn’t fair for lower-income and less-credit-established younger borrowers. Let me borrow from the current craze and say if you can’t afford it, you shouldn’t be buying it. Fairness shouldn’t enter into the equation: if you make $35,000 a year and you haven’t planned to save up a down payment, you probably shouldn’t be trusted with a mortgage. Honestly, if you can’t save up 20% of the purchase price of the home you want and you don’t make enough so that the house payment is only 1/3 of your income, then you are overextending yourself and you shouldn’t get the benefits that come from being responsible about buying a home. Remember when you asked your math teacher when you would use that crap in real life? Let’s try it:

I make $3,000 a month. 1/3 of that is $1,000 so I should only buy a house that requires a $1000 or less monthly payment.

A house that is $150,000 (with a 30 year fixed loan at 7%) results in about $1000 a month. For this house I would have to save up $30,000 in order to have my mortgage be the more desirable Qualified Residential Mortgage which banks would then be able to sell on the secondary mortgage (like they were doing with ALL mortgages previously).

Just to recap:

Monthly Income: $3,000

Down Payment: $30,000

Monthly Payment: $1,000

Mortgage Amount: $150,000 (30 year fixed, 7%)

Doesn’t seem too far-fetched right? I mean, that down payment looks a little crazy, but we’ll address that in a minute.

Critics fear the new standards will create a two-tiered mortgage market in which a borrower with enough money to afford the higher down payment would pay less, compared with an  equally creditworthy borrower with a smaller savings account. A recent report by J.P. Morgan  estimates the gap could amount to as much as 3 percentage points, which could mean the difference between an affordable monthly mortgage payment and continuing to rent.

The new rules also would hit families harder in high-cost markets. Based on current average prices, for example, buyers in the Northeast would have to come up with $53,000 for a 20 percent down payment on a typical existing home, compared with $33,000 for a typical home in the Midwest.

I’ll say it again: If you can’t afford it, don’t buy it. But really, even those buyers in the Northeast could afford that seemingly crazy $53,000 down payment. Let’s address the main point here.

Fear of two tiered mortgage market: Is anyone really surprised by this? This two tiered system works on everything you lend money for. People understand how down payments work right? If you walk in with $30,000 to put down on a $150,000 home, then you are actually only financing $120,000 which is less money, which on your income is less risk, which puts you in a situation where you can be rewarded with a lower interest rate. If you don’t have that money, your loan is going to be more expensive. Is that hard for anyone to understand? No? Okay.

Another example is this: let’s say you want an LG 50″ 720p Plasma HDTV.  If you have the money you can go and buy that tv right now (analogy: use down payment to purchase home and get mortgage) at several retailers for about $700. If you don’t have the money and you want that tv RIGHT NOW!! because you deserve it and should have the same stuff as the person who can just walk right in and get one, then another option is to rent to own. If you choose this option, you could go to an establishment like Rent King where you can rent (or finance) that tv for 90 days same as cash, 4 months same as cash, a 12 month rent to own or 18 month rent to own programs (analogy: no down payment mortgage with a payment more than 1/3 of income). That same TV at Rent King on the 4 months same as cash payment plan is $24.88 weekly or $1,139.88. Because you couldn’t afford to go and buy the tv, but you had to have it TODAY you ended up paying $400-500 more when all was said and done. You could have had the tv you wanted and a second smaller tv for the bedroom.

Everyone is forgetting a third option! Let’s run with this tv analogy for a moment. I would like to have that 50″ plasma tv (for some crazy reason, my friend has one and I want to show that I am just as good as he or she is) but I do not have the money TODAY to buy it, but I am smart enough to realize that renting to own is a scam and even putting the tv on a credit card is costing me more than what the tv costs outright (interest). So as a savvy consumer I decide that I am going to take the time to save up for the tv. Let’s take that same amount you would have paid to Rent King over 4 months (same as cash!!!1!!one!!omg!).

1,139.88 divided by 4 = $284.97

But really all you need is about $750 (when you take the tax into account), so:

750 divided by 4 = $187.50

So as a savvy consumer and a realist, I stick with my shitty tv for four more months and each month I squirrel away about $180 bucks. Four months later I swagger into Sears with cash in hand (or a debit card) and purchase that fine tv with no extra fees, finance charges, or mark ups.Let’s be honest too that in four months the price of these tvs will probably go down given the fast advance of technlogy, and if you are even more patient you could probably hit a sale, save $20 or so and get a new DVD or video game to use with your new big-ass tv.


Now let’s return to the housing market. Let’s say I am a poor wife and my husband and I would like to buy a home. I am 28 and he is 30. Together we make $50,000 a year. We have nothing in savings. We have three options.

1. We can continue to rent.

2. We can go out and negotiate a mortgage that will cost us more money without a down payment to create a more appropriate monthly payment and pay more over time (and have a greater chance of defaulting).

3. We can create a savings plan taking into account our income and monthly costs, putting enough in savings over the next ten years in order to be able to put down a 20% down payment. (Which, on that $30,000 down payment we were talking about before would come out to be about $250 per month going into a basic savings account over ten years. For that $53,000 down payment in the Northeast we would have to plan for $440 a month, but that’s based on the average. You could probably find cheaper housing with a more reasonable down payment.) Then, when we are entering our 40’s we can purchase a house that is within our means and spend less on it than if we rush in and try to buy now.

We live in an age where everyone wants what they “deserve” NOW and the costs be damned. And then when we can’t afford the cost we whine and say we are being denied our rightful American dream. The only people being truly hurt by this legislation are current homeowners, whose home value could continue to dip if people don’t start buying to boost the market. That is the only valid complaint here. If people would like to buy a home and would like to have the more desirable Qualified Residential Mortgage, they simply have to exercise patience, restraint, and some mathematical skills to reach their dream. Not everyone can or will (or should) achieve that dream. That’s how dreams work. More often than not you have to work hard to realize them and appreciate them.

Now if MSNBC would like to discuss the current class war in our country that is holding low-income families back from entering higher income brackets, or the job crisis that is keeping families out of work or underpaid, I’ll hear that discussion. This one is simply pointing out a symptom that isn’t even that serious, and that can be overcome by simply being patient and thoughtful. Two traits that Americans currently don’t seem to have in spades.