“After two foreclosures and two bankruptcies, Hermes Maldonado is as surprised as anyone that he’s getting a third shot at homeownership. The 61-year-old machine operator at a plastics factory bought a $170,000 house in Moreno Valley this summer that boasts laminate-wood floors and squeaky clean appliances. He got the four-bedroom, two-story house despite a pockmarked credit history.”
Who would loan to this gentleman? Anyone, anyone?
His reentry into homeownership three years later came courtesy of the Federal Housing Administration. The agency has become a major source of cash for so-called rebound buyers ”” a burgeoning crop of homeowners with past defaults who otherwise would be shut out of the market.
“After everything that happened, thank God I was able to buy another house,” Maldonado said in Spanish. “Now, it’s good because the interest rates are low and there are lots of homes.”
This is a classic case of living ‘way beyond one’s means. While I understand that people in such cases have to have a home to live in, they need to know that the money they earn only goes just so far. My wife and I bought our home in 2003, after a down payment of $100,000 resulting from the sale of our townhouse, and left for Los Banos, CA, where we now live.
We used this rule…..and it’s an old one, but it still works: 1/4 of your income for housing, 1/4 for bills and food, 1/4 for savings, and the rest for entertainment. If Mr Maldonado had used common sense, he’d have done the same thing, but unfortunately, the lure of expensive cars, etc, led him into the trap that he’s now in. And the FHA shouldn’t get off scot free, either.
Whats amazing to me about this story is that I noticed it midday yesterday and just marvelled at the FHA conduct, and a little after 4pm came the story that the FHA may need more money! Talk about an easy to make connection.
The Community Reinvestment Act (which is what collapsed the economy in the first place) requires you to lend to this gentleman, if he meets the requirements. And it’s obvious he knows how to play the game.
It seems to me…..and I’m sure to others…..that if the FHA lets buyers with a history of foreclosures and bankruptcy jump back into the market after such a short space of time, this is just compounding the problem. What guarantee would there be that they wouldn’t just continue what they’ve been doing?
They really need some very serious and in-depth financial counselling, instead of being allowed to apply for another mortgage loan.