{"id":1315623,"date":"2019-10-14T21:48:00","date_gmt":"2019-10-15T03:48:00","guid":{"rendered":"https:\/\/www.postindependent.com\/dalrymple-column-the-gap-between-household-income-and-housing-cost-continues-to-grow\/"},"modified":"2019-10-14T21:48:00","modified_gmt":"2019-10-15T03:48:00","slug":"dalrymple-column-the-gap-between-household-income-and-housing-cost-continues-to-grow","status":"publish","type":"post","link":"https:\/\/alwaysmountaintime.com\/kske\/local-news\/dalrymple-column-the-gap-between-household-income-and-housing-cost-continues-to-grow\/","title":{"rendered":"Dalrymple column: The gap between household income and housing cost continues to grow"},"content":{"rendered":"
\n
Pat Dalrymple<\/strong>
IMAGELOADER<\/em><\/figcaption><\/div>\n<\/figure>\n

Housing has been a fulcrum of the national economy since 1945, and the nation\u2019s lending infrastructure has been designed to accommodate that fact.<\/p>\n

The Federal Housing Administration was established in 1934, during the Great Depression, primarily to help provide long-term, affordable home mortgages for American families. Ten years later, in 1944, the Servicemen\u2019s Readjustment Act, the so called GI Bill, was passed, with a key feature making mortgages available to veterans at 100% of a home\u2019s purchase price. (Initially, neither FHA or the VA permitted refinance loans).<\/p>\n

These two programs were instrumental in making the U.S. a nation of homeowners, for the first time in history for any country, and housing was a turbine driving the economy.<\/p>\n

The system worked extremely well for over half a century, but then came the Great Meltdown of 2008, with a tsunami of delinquent residential mortgages as the trigger.<\/p>\n

What happened?<\/p>\n

The obvious cause, of course, was greed. There was a worldwide appetite ravening for high yield U.S. mortgage backed securities, and producers were in a frenzy to keep up with demand, willingly abetted by everybody, including mortgage brokers, bankers, appraisers, Realtors, and, of course, borrowers.<\/p>\n

Now, some informed observers of housing and real estate finance are saying that a new debacle could be around the corner as lenders stretch to make residential mortgages to borrowers who may not be able to afford them.<\/p>\n

How can this happen? Is our collective economic memory no longer than 10 years?<\/p>\n

Well, the profit motive didn\u2019t go into mothballs with the passage of the Dodd-Frank Act. Mortgage backed securities are still a hot item. But there was a largely overlooked structural flaw in the housing finance system in 2008, and that elephant is still in the room, and growing.<\/p>\n

Today, large mortgage production companies are touting programs that can get a borrower qualified using \u201ccreative underwriting\u201d elements, such as, to name a few:<\/p>\n

Asset depletion: If you have a whole bunch of cash, and not much income, use the cash to qualify.<\/p>\n

Or, better yet, asset only: Forget about income. You\u2019ve got a really, really big bag of assets, and that\u2019s pretty impressive, so forget about income \u2014 doesn\u2019t count.<\/p>\n

Bank statement qualification: The borrower is qualified based on bank deposits, not necessarily withdrawals, over a period of time, generally six months.<\/p>\n

This all sounds very familiar to anyone who was around mortgage lending right after the turn of the century.<\/p>\n

What\u2019s going on? Fade to black, cue up eerie music; we\u2019re going back the 1960s.<\/p>\n

In mortgage underwriting, a \u201cback ratio\u201d refers to the percentage of gross verified income that a borrower has after paying debt. In determining whether a borrower\u2019s income is sufficient to qualify for a given mortgage, this number is the key element.<\/p>\n

Currently, a number of underwriting matrices allow a 50% back ratio, meaning that a borrower can make $8,000 per month, have $4,000 come out in debt payment, including the proposed mortgage, and still qualify for the home loan.<\/p>\n

In 1964, FHA and VA underwriting guidelines said that the front ratio \u2014 that is, proposed housing expense to income without any other debt \u2014 should be no more than 20%, and that the all-important back ratio couldn\u2019t exceed 25%. And here\u2019s the kicker: Both FHA and VA did not permit a wife\u2019s income to be included in the determination. Viciously discriminatory, yes, but it sure kept delinquencies down.<\/p>\n

So just one wage earner had to qualify for a loan, and many did. Remember, this was the heyday of the national housing boom.<\/p>\n

My wife and I bought our first house back then. It was 750 square feet, two bedrooms, one bath. Three years later, we stepped up to 900 square feet, three bedrooms, one bath and a basement. In another three years, we managed to get an additional 100 square feet, but still three bedrooms, a bath and a basement. Just one income qualified in all instances, using both FHA and VA financing.<\/p>\n

Today, even a so-called \u201cstarter home\u201d exceeds those measurements and amenities. It routinely takes two incomes to meet the exceedingly more friendly qualification criteria.<\/p>\n

That elephant sitting in the corner is a rapidly rising disparity between household income and housing cost. Home construction and mortgage finance are struggling to keep up the pace dictated by vested interests in housing: labor, trades, banking, components, raw materials and, of course, political policy.<\/p>\n

But the wheels are coming off. The cost of labor and materials is heading for the stratosphere, and probably won\u2019t lose much altitude, no matter what administration is in Washington. Money\u2019s cheap, but it must be paid back, and when the cost of something triples, there\u2019s a lot more to be paid back. Buildable land is scarce and costly.<\/p>\n

Is an unpleasant readjustment on the horizon? Probably; household incomes are at a peak, and any drop will inevitably increase mortgage delinquencies. Will it approach the chaos 10 years ago? Probably not; since then there\u2019s been appreciation in home prices, but not artificial inflation resulting from a pervasive perception of exponentially increasing value.<\/p>\n

Will the widening gulf between cost and income ever be reversed?<\/p>\n

Well, how many young American families today would be satisfied with 750 square feet and one bath?<\/p>\n

Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He\u2019ll be happy to answer your questions or hear your comments. His e-mail is pdalrymple59@gmail.com<\/a>.<\/p>\n

via:: Post Independent<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Pat DalrympleIMAGELOADER Housing has been a fulcrum of the national economy since 1945, and the nation\u2019s lending infrastructure has been designed to accommodate that fact. The Federal Housing Administration was established in 1934, during the Great Depression, primarily to help provide long-term, affordable home mortgages for American families. Ten years later, in 1944, the Servicemen\u2019s […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[160],"tags":[],"class_list":["post-1315623","post","type-post","status-publish","format-standard","category-local-news"],"acf":[],"publishpress_future_action":{"enabled":false,"date":"2026-09-06 18:47:39","action":"change-status","newStatus":"draft","terms":[],"taxonomy":"category","extraData":[]},"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"KSKE Ski Country","distributor_original_site_url":"https:\/\/alwaysmountaintime.com\/kske","push-errors":false,"_links":{"self":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/posts\/1315623","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/comments?post=1315623"}],"version-history":[{"count":0,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/posts\/1315623\/revisions"}],"wp:attachment":[{"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/media?parent=1315623"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/categories?post=1315623"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/alwaysmountaintime.com\/kske\/wp-json\/wp\/v2\/tags?post=1315623"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}