VA buyer on FSBO - Posted by sls

import · April 19, 1999, 8:59am

Posted by Sean on April 22, 1999 at 14:17:47:

Jeremy,

The private system during the depression was very willing and very able to provide housing for anyone who wanted and needed it and at a very affordable price. Unfortunately during the Depression a good number of people were not employed. Our governmentally-micromanaged system, as wonderful as you may think it is, still has not conquored the obstacles that prevent houses from being purchased by unemployed persons.

I had started at this point to write why your misconceptions about the Depression were wrong, but after two pages of discourse and I was barely 10 percent of the way through I figured it wasn’t worth it. If you’re really interested, we can get into it.

I will, however, stop to poke holes in the idea that the advantage of the FHA system is that it allows people to build up equity and pass it on to their children, thus creating more wealth. This is incorrect because:

Estate taxes. I think at least 50% of a person’s estate is routinely confiscated by the feds. This creates a great opportunity for us, as real estate investors, to buy probate properties. The heirs don’t benefit much, however.
Even if there were no estate tax the landlords that were buying these things and renting them out would experience the equity buildup and leave it to their children. In essence, nothing would be lost.

Best regards,

Sean

import · April 19, 1999, 8:59am

VA buyer on FSBO - Posted by sls

Posted by sls on April 19, 1999 at 08:59:07:

I’ve had a 3BR/1 Bath house up for sale for 3 weeks. Had a couple look at it for the third time yesterday and gave me a $1,000 check. They currently live in an apartment and this will be their first house.
He told me they would be getting a Military loan, which I assume would be a VA.
Please advise me of the difference between a conventional loan vs a VA? As the seller, what do I need to know in this transaction.
Thanks so much.

import · April 19, 1999, 4:50pm

When to show up… - Posted by Jim IL

Posted by Jim IL on April 19, 1999 at 16:50:21:

and collect your check!
As the “seller”, all you need to know is that the financing went through, and you show up to get paid and sign closing docs.
Thats all.
VA ~vs~ FHA or other conventional loans, simply means a different downpayment required from the buyer.
So, enjoy, and congrats on selling the home. I hope you made out well,
Jim

import · April 19, 1999, 10:19am

Re: VA buyer on FSBO - Posted by Sean

Posted by Sean on April 19, 1999 at 10:19:43:

A V.A. loan is a lot like an FHA loan. The lender loans the money but the loan is insured by the federal government. The only difference is with FHA you need to put 3 to 5 percent down and on a VA loan it’s 0 down.

import · April 19, 1999, 5:28pm

Re: VA buyer on FSBO - Posted by Jim Kennedy

Posted by Jim Kennedy on April 19, 1999 at 17:28:56:

I don?t want to appear to be nitpicking, but FHA loans are ?insured? and VA loans are ?guaranteed?. There are a few other differences, but as Jim from IL pointed out, the end result for the seller is the same ? the house is sold.

Best of Success!!

Jim Kennedy,
Houston, TX

import · April 19, 1999, 7:19pm

Yeah, well… - Posted by Sean

Posted by Sean on April 19, 1999 at 19:19:25:

…the real difference is VA loans are a form of additional compensation to people who serve in the military while FHA loans are a form of government welfare to shiftless, undeserving whiners who write their Congressmen instead of bettering themselves. But I digress…

import · April 19, 1999, 9:41pm

Re: Yeah, well… - Posted by JPiper

Posted by JPiper on April 19, 1999 at 21:41:55:

FHA (Federal Housing Administration) was created in 1934. Why? It was the Federal government’s response to the depression which had created a lack of housing, large numbers of foreclosures, and severe problems within both the building and banking community.

The thrust of the FHA program was two-fold…1) to encourage improvement in housing standards and conditions (housing has to meet certain guidelines)and 2) to provide a housing financing system through insurance to the banking system, which the hope was would stabilize the mortgage market at the time. Keep in mind the date 1934…not long after a massive banking failure.

So when you say that FHA loans are “a form of government welfare to shiftless, undeserving whiners who write their Congressmen instead of bettering themselves”, I agree that you not only “digress” but you misstate the origins and purpose of the FHA program…unless of course your intent was to call the banking system and the building industry “shiftless and undeserving”.

Subsequent to the creation of FHA the housing industry along with the banking industry saw a huge boom, a part of which was due to a stabilized system of housing finance. It helped to create the industry in which you now participate.

You might consider writing your congressman and thanking him for FHA…I promise not to call you a whiner if you do.

JPiper

import · April 20, 1999, 11:22am

FHA - Posted by Sean

Posted by Sean on April 20, 1999 at 11:22:39:

We live in a country where our system of government is controlled by a thing called the Constitution. The Constitution creates a federal government of enumerated powers with the understanding that all powers not enumerated as acceptable for the federal government are denied by them (See Amendment X). I would be very interested to know what portion of the Constitution justifies them to regulate housing which is, by very definition, a local affair best handled by local government or individual businessmen.

Your absurd claim that the FHA program created the housing market we have today is about as believable as Bill Clinton’s claim that he is responsible for our good economic situation today. The real estate market we have today was created by private individuals responding to the demands for housing created by a sudden increase in population known as the “Baby Boom.”

Or are you claiming that the passage of the FHA act created intense sexual desire in millions of Americans during the post-WWII era and resulted in the baby boom itself?

Need I remind you that the depression and the panic that led to the collapse of the banks you mentioned was created by our government’s protectionist tarrifs? Need I remind you that despite all of FDR’s new governmental program the Depression continued and that, those very programs, completely failed to do what he claimed they would. Need I remind you that once FDR was removed from office by death the economy immediately improved?

What else would you have me thank our federal government for – the minimum wage that keeps the unemployment rate for African-American youth at 30 percent? For the FSLIC program designed to provide Savings and Loans with a “safety net” and which ended up costing American taxpayers billions of dollars when it failed?

Perhaps I am not grateful enough that I am only charged 40% of my gross pay in taxes to pay for all this “help” not to mention the $6,000 increase in my cost of living because the entities I do business with must pay extra cost to comply with federal regulations. Perhaps I do not sufficiently appreciate that my tax dollars are given to agencies like the IMF and the EXIM bank and “loaned” to foreign countries that will never pay the money back. Perhaps I do not properly appreciate the inflation rate we have because of the high debt our government runs (nearing $6 trillion, I believe) that is monetized by the Federal Reserve buying these securities with newly printed money that I am forced, at gunpoint, to accept as money.

Thank you, sir, for explaining to me that the government is the source of the wealth I have. I think I’ll go write my Congressman asking for a minimum wage of $200/hr (so we can all be as rich as the lawyers), for my taxes to be increased to 90% (to pay to insure home loans to people who just filed bankruptcy) and for hundreds of new regulatory agencies to ensure that every aspect of my life is completely safe.

After all that, I’m sure our economy will be as good as Japan’s economy is and we’ll all live in peace, harmony and economic prosperity for the rest of our lives.

import · April 20, 1999, 12:08pm

Re: FHA - Posted by JPiper

Posted by JPiper on April 20, 1999 at 12:08:39:

Sean:

It might help if you bothered to read the posts that you respond to. It might also help if you stuck with the subject.

Here were your original comments regarding FHA?.. “FHA loans are a form of government welfare to shiftless, undeserving whiners who write their Congressmen instead of bettering themselves. But I digress…” That’s what I responded to.

I responded by commenting on the purpose and origin of FHA. Here’s what I DIDN’T comment on: I made no comment regarding whether the passage of legislation enabling FHA was constitutional?.nor was it relevant to either of our posts. There don’t appear to have been any constitutional challenges pertaining the authority of the government to create FHA in the last 65 years?..but I’ll leave that up to you.

I made NO claim that the FHA program was responsible for our housing market today. What I said was “Subsequent to the creation of FHA the housing industry along with the banking industry saw huge boom, a part of which was due to a stabilized system of housing finance.” Notice the word “part”.

You then go off the deep end to discuss your belief as to what caused the depression, what caused the subsequent boom, other governmental programs and policies, etc. none of which was regarding my post or your original post. While your economic and political beliefs may perhaps be of some mild interest to someone, they certainly aren’t to me.

Here’s what really happened. Your original depiction of FHA quoted above was silly and inaccurate. You’re now trying to defend your silly statements with arguments that have nothing to do with FHA or my post. Have at it. My original statement stands?that FHA was created to help create minimum standards for housing and to help stabilize the mortgage market subsequent to the depression. It appears to have accomplished that. I might add that it’s creation has widely benefited both the banking and building industries, who were proponents of the original creation. So unless you’re calling the banking and building industries “shiftless and undeserving whiners” you’re way off base as usual.

JPiper

import · April 20, 1999, 11:38am

Re: FHA - Posted by Sam

Posted by Sam on April 20, 1999 at 11:38:48:

Yeah! Your right!

import · April 20, 1999, 1:38pm

Flame War - Posted by Sean

Posted by Sean on April 20, 1999 at 13:38:00:

I have no interest in turning this into a flame war on creonline, should you wish to engage in such a practice I’ll happily oblige you through private email. In private email we can discuss how I’m “off base as usual” and how I “go off the deep end.” I don’t consider either topic to be relevant to FHA or real estate and not appropriate for this forum.

My post said: “FHA loans are a form of government welfare to…” Your post says, "…unless you’re calling the banking … [industry] ‘shiftless and undeserving whiners’ … "

I was unaware that the banking industry commonly got FHA loans for themselves to buy real estate and, I assume, from themselves. In fact, based on the thread we’re following I had assumed we were discussing a potential buyer who was going to qualify for an FHA home loan under the FHA 203(b) program. As far as I know this person isn’t a member of the “banking and building [industry]” but since we don’t know that much about him, he might be. Regardless, I don’t think that he is contemplating purchasing the discussed home in his official capacity as a banking and building industry member, but for a personal residence.

Accordingly he is the recipient of federal largess. We are assuming that he is taking advantage of this because no private programs exist that provide this benefit or because he can obtain cheaper PMI rates from the federal government. The only way that government does things “cheaper” is by subsidizing it with tax dollars. To put it bluntly this person is stealing from me to finance buying a house.

I don’t like it. I’m not going to like it. Considering the number of methods on here to buy property for no money down I would assume that someone who has 3-5% to put down and planned to occupy the property should have little problem finding a creative individual, such as you or I, to assist him/her in purchasing a house for that price. Instead he has turned to legalized theft for financial gain and regardless what you’ve got to say about how wonderful this system is, I’m not going to hide the fact that I don’t think much of it or of people who benefit from it.

import · April 20, 1999, 3:03pm

A Few Facts For You… - Posted by JPiper

Posted by JPiper on April 20, 1999 at 15:03:27:

Sorry you viewed my post as a “flame”. My opinion was that your description of FHA loans was baseless and silly. My post was made to illustrate that. Note I said your description, not you personally?there is a distinction.

Just a few more comments. You’re evidently missing the point of my post. Originally the banking and building industries were quite supportive of the creation of FHA?..after all, they were prime beneficiaries at the time. Granted, the borrower benefits as well, but certainly NOT to the extent that the lenders or the builders do. Here’s some facts to consider.

When an FHA loan is made, the loan is insured by FHA. Because of this the lender is able to make a loan which requires a lower downpayment. First, the lender benefits because it is able to make a loan with little risk in a high LTV situation. This helps the lender to make a larger number of loans by far. Because of this, builders and homeowners are able to sell their homes more easily because money is more widely available to do so. Is there any wonder why the creation of FHA was approved by the banking and building industries? They were prime beneficiaries.

Does the borrower benefit? Of course?..but not without a price. FHA insurance is PAID for by the borrower. There are two levels of costs to the borrower. One is an upfront cost to the borrower in the amount of 2.25%. The other is a little more complicated, but basically amounts to .5% of the total loan amount charged annually and paid monthly with the mortgage payment. So the question I have for you is, as a taxpayer, how much do you think you’re paying for the borrowers ability to obtain an FHA loan through the FHA insurance plan?

So that you may contrast this with the conventional loan market, conventional loans where the LTV is above 80% require a monthly insurance premium, commonly referred to as PMI (private mortgage insurance) . There is NO upfront cost to this insurance. This PMI amount is even more complicated, and depends on the lender and what they have negotiated. But one example is again, no upfront cost for the insurance, but a monthly amount of .32% applied against the loan balance annually and charged monthly. This is for a loan at 85% LTV.

Another newer program available is the “Flex-97” program?.a conventional lookalike to FHA loans. Here the PMI is .5% of the loan amount annually and paid monthly?..hmmmm remarkably similar to FHA. The lender also charges 1 ½ points additional upfront for this loan?.again, less than the 2.25% upfront fee paid in the case of FHA.

So it appears that the insurance feature of FHA is actually MORE costly than the insurance available through private insurers of conventional loans. The point here is that the borrower is paying for insurance, and that the insurance rate equals or exceeds that of conventional loans.

So coming back to your statement “FHA loans are a form of government welfare to shiftless, undeserving whiners who write their Congressmen instead of bettering themselves. But I digress…”, that was not the original purpose of FHA as outlined in my prior posts, and as you can see, this “governmental welfare” is paid for by the borrower at rates comparable to private mortgage insurance rates, if not higher. The prime beneficiaries of FHA are the banks and building industries?my original point.

So enlighten me?.where exactly do you come up with the statement of “To put it bluntly this person is stealing from me to finance buying a house.”??? It’s clear that the borrower is paying for insurance at rates equal or higher than private mortgage insurance rates. The only “culprit” left is the PRIME beneficiary of FHA, the lender making the loan and builder selling his houses. Are these the parties you’re calling “shiftless and undeserving”??

Frankly my guess is that your knowledge regarding FHA is deficient. Perhaps you should check out the program, get some facts, and then comment when you’re more fully informed.

JPiper

import · April 20, 1999, 5:35pm

Comparing Apples & Oranges - Posted by Sean

Posted by Sean on April 20, 1999 at 17:35:05:

All government programs cost and the FHA is no exception. While I cannot say who originally lobbied for the passage of the FHA act, I can tell you this: The FHA program would not be running today unless it had been funded by Congress in 1998 via the Omnibus Spending Bill. Congress is, even now, at work on the 2000 budget and that will likely also include funding for various FHA programs.

In our government Congress cannot provide funding for anything that goes beyond 2 years (they are elected for two years). So you see the FHA programs were funded originally in 1934 and funded again at least 32 times since then.

The most likely reason that the FHA bill was lobbied in was big businesses like the regulation. Regulation is very expensive for a business and it has the effect of decreasing the competition in an industry as the smaller players cannot afford the regulatory burden. It also prevents new businesses from starting unless they are well funded to start.

Now, back to comparing apples and oranges. As you mentioned an FHA program requires a “One Time Mortgage Insurance Premium” (OTMIP) of 2.5% and .5% of the loan amount annually. In exchange for this you can put only 3% down (97% LTV). The conventional program requires 15% down and costs .35%. You cannot compare these two because they are totally different.

First of all, let’s assume (for the sake of argument) that your average foreclosure that occurs can be sold at 80 cents of the original purchase price (with any equity gain lost due to foreclosure costs). We will see that for every foreclosure the private company loses 5% of the purchase price, but FHA loses 17% of the purchase price. Based on that the FHA costs should be (at a minimum) 3.4 times the private costs or 1.19% a year.

This does not take into account all the other factors. I think we can agree that a person who has 10% equity will resist foreclosure much more vigorously than someone who started with 3% equity, but their property declined in value and they now have no equity.

More interesting is the Flex-97 example, but it fails to prove your point as well, because if the Flex97 program works then the need for FHA is completely eliminated and FHA should be abolished. Secondly, there is no proof from the Flex97 program that it’s going to work since it is new (created in 1997, am I right?) When they’ve been around 7-10 years I’ll consider them valid, but how many foreclosures are people likely to have in an up-cycle in the past year-and-a-half?

I can tell you this, however, the old FHA program style (which didn’t have OTMIP) was discontinued in favor of this new one. Last I heard the refunds people were supposed to be entitled to under the old program when they paid off their FHA loans weren’t coming either because the program was “not actuarily sound.” In other words, they were losing their shirt and couldn’t afford it.

Although past performance is no guarantee of future performance (as all mutual funds hasten to point out) if things go in the future as they have in the past we’ll see the new FHA program become “not actuarily sound” as well. That will mean that Mr. and Mrs. Taxpayer will have to bail it out too.

import · April 20, 1999, 6:11pm

Re: Comparing Apples - Posted by JPiper

Posted by JPiper on April 20, 1999 at 18:11:19:

As I mentioned before, the Flex 97 loan program is an FHA lookalike. I used it to illustrate that mortgage insurance rates from the private sector are actually higher, NOT lower. The newness of the program does not invalidate that comparision, unless you’re now quibbling with whether the insurers know what they’re doing when they set the rates. I would suppose they have lots of data, probably from FHA themselves.

One other rate for you…a 95% LTV loan has PMI of around .70%…no upfront cost again, paid monthly. To make the figure directly comparable to FHA in terms of the refund provision, the rate DROPS to .66%. This is a loan that’s had lengthy history…and you can see is less costly than FHA UNLESS the borrower owns the property LONGER than 14 years, not counting interest from the upfront cost of FHA insurance. As you may know, the average home is NOT owned for 14 years in this country…so again, FHA is more costly than the private sector.

The point here is that the borrower is not getting a handout. He’s paying equal or higher insurance premiums than through the private sector. If you have a complaint, it might be with the FHA bureaucracy itself, which is undoubtedly bloated and creates a high overhead. But this was not your original point. The original point that you made was that the borrower under FHA was “shiftless”…which from the facts is clearly not true. What probably is true is that the bureaucracy administering the program is inefficent…but again, not your original point.

One last comment. The Flex 97 differs from FHA in that the guidelines for property condition differ…the FHA standards are higher. The guidelines for qualification are somewhat more liberal. So even if Flex 97 looks similar, it isn’t in some important respects.

JPiper

import · April 21, 1999, 10:10am

Governmental Efficiency and other Oxymorons - Posted by Sean

Posted by Sean on April 21, 1999 at 10:10:14:

At last we are comparing apples and apples (or at least, as closely as we can come). However, I am still not impressed by your logic for the following reasons:

Why is FHA so wonderful if private companies do the same cheaper?
Just because private companies can do this profitably what makes you think the government is doing this profitably? Government is inefficient. Studies have shown that federal government is the most inefficient, costing 3 to 10 times what a local government costs to perform the same service. Local governments are often less efficient than private enterprise.

If you are really interested in knowing how much money the FHA loses per year, I’ll be glad to order the information from the U.S. Treasury through the Freedom of Information Act.

Your assumption seems to be that since it’s cheaper to do this privately the program must be doing alright financially and that the person isn’t being subsidized by the government. I completely reject this assumption. If it costs me money, regardless whether the person is benefitted or not, then it’s a subsidy.

import · April 21, 1999, 12:28pm

Re: Governmental Efficiency and other Oxymorons - Posted by JPiper

Posted by JPiper on April 21, 1999 at 12:28:45:

Here was your original statement: “FHA loans are a form of government welfare to shiftless, undeserving whiners who write their Congressmen instead of bettering themselves. But I digress…”

Later you said : “he (meaning the borrower) is the recipient of federal largess. We are assuming that he is taking advantage of this because no private programs exist that provide this benefit or because he can obtain cheaper PMI rates from the federal government.”

You went on to say “To put it bluntly this person is stealing from me to finance buying a house.”

My original post pointed out the origins and purpose of FHA. Later I showed how the borrower under FHA paid for mortgage insurance. Then I showed how the borrower under FHA paid MORE for mortgage insurance than a borrower under the convention mortgage system using private insurance. Frankly the facts all contradict your original statements and later assertions.

I mentioned that the FHA bureaucracy was bloated, and undoubtedly inefficient. This was not your original point?but I’m glad you agree with that. Whether the FHA system is profitable I don’t know?but I certainly would be interested to know if you want to take the time to determine this fact. But again, this wasn’t the thrust of this thread. The thrust of the thread involved whether a borrower under FHA was “a shiftless, undeserving whiner”, who was “obtaining cheaper PMI rates from the federal government”.

It seems to me that the financial industry has seen the wisdom of the FHA plan, and introduced a product to compete with it, one which, probably because of industry efficiencies, carries more affordable insurance than FHA. In other words, industry has seen the light, that they can make a profit by dealing with those borrowers that you call “shiftless and undeserving”.

My conclusion is that the borrower under FHA pays a more than adequate premium for mortgage insurance, a rate higher than it’s equivalent under conventional mortgages, that he is hardly “shiftless and undeserving” as a result of this payment and the requirements to qualify, that lenders do quite well with this program, that the FHA programs has dramatically expanded their profit base nationwide. Builders and sellers of real estate have all benefited through an increased ability to sell property with lower down payments to qualified buyers. The only POSSIBLE negative is that the FHA program MIGHT lose money because the federal bureaucracy is bloated and inefficient (I say POSSIBLE because I have seen no fact to support this). Meanwhile the increased taxes received from profits generated by banks due to this program, the increased profits generated by builders selling additional homes due to this program, the homeowners who are able to sell and move up due to this program, the myriad of ancillary businesses established to benefit in part from increased business generated directly from increased home buying who all pay taxes, companies like termite companies, title companies, inspection companies, etc etc.

It would be interesting to know what ALL these profits amount to and the taxes generated from them, and then compare it to whatever the cost is of the FHA program (if any). When you have some time, check that out, it might be interesting, and in all probability will prove your latest assertion wrong again.

JPiper

import · April 21, 1999, 4:58pm

FOIA - Posted by Sean

Posted by Sean on April 21, 1999 at 16:58:31:

I have printed your response and will send a FOIA request today. Soon enough we’ll know the gross income and expenditures of the FHA program.

Your post reads: “…[consider] the increased profits generated by builders selling additional homes due to this program…who all pay taxes, companies like… etc [sic] etc.” which I suppose is there to convince me that even if the FHA program isn’t financially solvent that it makes up for it by stimulating the economy thereby increasing the tax base and yielding an increase in government revenues.

This argument is specious at best. People need a place to live and as long as they need it someone will build them a place to live. If they cannot afford to buy it then people like you and me will buy it for them and rent it to them. The builders will still have jobs, the occupants will still have jobs and the mortgage brokers will still have jobs. The difference is that there will be another middleman (the landlord) in the picture collecting the rents and making some profit. In other words the FHA, if anything, has reduced the tax base.

import · April 22, 1999, 11:55am

Why You Can’t Eliminate FHA - Posted by Baltimore BirdDog

Posted by Baltimore BirdDog on April 22, 1999 at 11:55:11:

Sean,

If you eliminate the FHA, you go right back to where we started, a completely private system which because of the Depression was unable or unwilling to provide housing to thousands of Americans at an affordable price. So guess what happens at the next economic downturn? Another FHA or some version thereof. Will it be more efficient because its newer and shinier and its creators have taken the time to study the old FHA and work out all the kinks? Doubtful, but there will again be a demand for the following reason.

One of the things that you’ve both missed is the ability of the homeowner to generate equity in his home and leave something for his/her heirs. For many this resulted in a greater standard of living from generation to generation. If we go back to a completely private system, then you’re right, the builders, occupants, mortgage brokers, and other industry professionals will still have jobs. However, the equity build-up which allows each generation to increase its standard of living will not exist. In other words, the poor and middle class will forever remain poor and middle class but for the small percentage that learn both how to run a business AND invest the profits in income-producing assets. Does this sound like a land of opportunity to you? It doesn’t to me. That’s why the democratic government intervenes in the first place. If you don’t like it, another country is your only option.

Respectfully,

Jeremy