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Need to Buy or
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End the Days of Home Slavery
Reinstituting the 28-36 Mortgage Rule would
help Repair a Broken Housing Market
By Mark J. Donovan
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When my wife and I were looking to
buy our first home back in the mid 80’s, there was a very simple lending rule
that we became quickly aware of. It was known then as the 28-36 mortgage rule.
Simply put, this rule specified that no more than 28% of a household’s gross
income could be used on housing costs (including mortgage payments, property
taxes and insurances), and that the total indebtedness of the household could
not exceed 36% to qualify for a housing mortgage.
Unfortunately somewhere along the way the 28-36 mortgage rule became viewed as
old-school and “mean-spirited”. |
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In an attempt to emulate
the character George Bailey from “It’s a Wonderful Life” our
government decided that everyone should be able to own a home
regardless if they could afford one or not. Though this might be
viewed as a progressive and magnanimous goal by some, it could also be
interpreted as one of the most naïve or devious decisions of all time
by our government. By eliminating the 28-36 mortgage rule many well
intentioned homeowners have become prisoners and slaves to their
homes. |
Photo by Mark Donovan |
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And for an increasingly large number of homeowners the elimination of the
28-36 mortgage rule has led to bankruptcy and destroyed families.
Over the past few years we have watched home bankruptcies soar, and
trillions of tax dollars spent by our government bailing out banks and other
financial institutions tied to the residential real estate industry.
The rapid rise and collapse of the housing market could have been avoided if
the mortgage lending disciplines of the past, such as the 28-36 mortgage
rule had not been tossed out. |
Eliminating the 28-36 mortgage
rule not only allowed people to buy homes that shouldn’t have, it also
allowed homeowners to buy more than they could afford.
What is even more mind blowing, is that the process goes on today
unabated. Turn on any home real estate TV show today and you will see
first time 20 something home buyers specifying kitchen granite countertops
and bathroom Jacuzzi tubs for their housing requirements. Even more
outrageous is the fact that frequently they have no money to put down on
the homes. Where are the days when first time homebuyers bought the
“starter home” or unfinished home?
| Even in the government’s VA loan program, they
are still offering $300K jumbo loans with no money down for first time
homeowners that are qualified veterans.
It is obvious the banking industry and government won’t clean up
the housing market on their own. Printing money to effectively reward
the loan mortgage industry executives will only perpetuate the housing
problem. Apparently the government still thinks it’s just too “Mr.
Potter” like to reinstitute rules such as the 28-36 mortgage rule and
actually require deposits when buying homes. |
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As current and future homeowners, however, we can each do something about it. We
can be more responsible for ourselves in setting our own financial housing cost
limits and by following the mortgage rules of the past. By doing so, we can
accomplish multiple things. We can end the days of home slavery, where we can
have some discretionary income left over in our paychecks to enjoy the other
things in life besides “owning” a home. We can reduce the family stresses that
come with high financial indebtedness. And finally, we can demonstrate personal
and civic responsibility to our government by living within our means again.
Maybe by setting an example, we can begin to change the way our government
thinks and operates.
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