• Federal Employees with No Paycheck – A Solution
  • Is there a Housing Issue?

Friday’s jobs report was impressive. New jobs created of 315,000 – that’s a super big number. So is all rosy in the Homeland? If you’re a federal employee who is being asked to “hang in there” and go without a paycheck – that’s a stress nobody needs. Hopefully, this issue will resolve in the next few days and the “talk” of “as long as it takes” and “no money for the wall” will become history as to this shutdown (only to become the banter of the next threatened shut down!). Wouldn’t it be nice if a bank, such as Wells Fargo – stepped up and offered interest free loans to federal workers as needed – secured by their future pay? The “interest give away” would be a nice way of Wells Fargo saying, “We’re sorry for all the bad deeds you learned we committed in the year gone by and we want your good faith for the future.” If you happen to be a Wells Fargo executive or the marketing guru that handles its national account – feel free to take this idea – I’d be more than pleased to see somebody care about the plight of the government workers who – through no fault of theirs – are being placed in financial harms way.

Friday’s Wall Street Journal included an article More First-Time Home Buyers Are Turning to the Bank of Mom and Dad. The article tells the story of Helen and Frank Medina who obtained a $4,000 gift from their parents to cover their shortfall on making the 3.5% down payment required on the FHA loan. I’m all in favor of Mom and Dad lending assistance, but the numbers in the story raise alerts as to the health of our housing industry. FHA loans make up 10% of all US home loan originations:

In recent years, the credit quality of FHA borrowers has declined. The average borrower had monthly debt that was equal to 43% of income in 2018, marking the sixth straight annual rise in that measure of creditworthiness, according to the FHA report. The credit score of the average borrower declined to 670, the lowest level since 2008. Credit-reporting firm Experian PLC considers scores under 670 subprime.

These facts underscore the problem. According to Freddie Mac, “homeownership rate among those younger than 35 has fallen 8 percentage points since 2004 to 35% in 2017.” The conclusion being:

“It suggests a great deal about the housing market, which is the ongoing affordability obstacles for first time borrowers,” said Karen Petrou, managing partner at Federal Financial Analytics Inc., a policy-analysis firm based in Washington.

As my friend David Einstandig often says, “Let’s summarize!” – We have home ownership among young people down 8% since 2004, and today’s young people who are able to buy a home, need to gain assistance from Mom and Dad to cover a 3.5% down payment, the payment will approximate 43% of their 2018 income and their credit scores are subprime in the 670 and below range. This is not a pretty picture. If you recall, when we were exiting the great recession caused by subprime lending – the word of the day was down payments of 20%, maximum debt percentage no greater than 35% and credit scores over 700. Don’t get me wrong – I’m 110% in favor of home ownership for all Americans – young and old – and believe owning a home and paying it off as security for the future is the right move. The numbers – however – indicate a major problem in achieving the goal. No doubt – student loan debt is the drag factor on the youth – coupled with slower than preferred wage growth. The solution to this issue is down stream because it is not on the radar of the politicians of either party. More telling, however, is that when the next down turn comes – we are going to see a lot of home – virtually all of the FHA financed ones – underwater again!The take away is you need to have a plan or get a plan – when the problem arises. We learned from the Great Recession – there are good solutions in this scenario – but they come to those who pursue them. Those who wait to be treated fairly by the banks and helped by the government – end up on the short end of the stick. Your job is to come out on top. You might say, how do I do this? My suggestion is to seek our advice – it’s FREE and well thought out. In fact, next Wednesday is our first FREE SEMINAR of the year on debt elimination – using solutions outside of bankruptcy, resolving tax issues and when bankruptcy is the right move. There is a lot to learn about selecting the right option! Sign up below!

Have a great week. Enjoy the early signs of Spring in Michigan!