Monday, February 26, 2007

Housing Crunch Hurts the Poor

I don't know much about economics, but this post from Maxed Out Mama makes a lot of sense. It's disturbing. She talks about an average American trying to build a life when the housing market is so devaluing on the backs of bank malfeasance:

He's not in trouble on paying the loan - it's just that it's not worth it to him, because the more he pays down the more the house drops in value, and he can't save otherwise because he's using all his spare cash to pay the mortgage. The neighborhood is unlikely to get better and provide a safe environment for his family. The entire housing bubble was created by the idea that paying a high percentage of your income for a home would create a financial cushion for your future.

This is how the little guys get hurt. His income is probably around $50,000, and even though he's reaching the point where his principal paydown rate is rising, on that income he really can't save AND pay an amortized mortgage of around $207,000 originally. There is a reason for the old ratios - violating them causes insecurity and financial instability. His PITI to Gross Monthly Income ratio is about at 35-36%, when it should be no higher than 30%. So he's locked into working 50-60 hours a week, not getting ahead in any way, and feeling extremely financially insecure - and he is. He's been in the house for 4-1/2 years, and by now by all usual economic rules his payments in comparison to his earned income should have have dropped enough to provide him some margin even if the house value didn't increase - but that hasn't happened either.

Go read it all. She ends with this:
When people such as these cannot prosper, in the end the nation cannot prosper. Jeremiah:
Like cages full of birds,
their houses are full of deceit;
they have become rich and powerful

28 and have grown fat and sleek.
Their evil deeds have no limit;
they do not plead the case of the fatherless to win it,
they do not defend the rights of the poor.

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