We've all heard that the reason for the market collapse was that lenders were offering high LTV loans that put risky buyers into homes, and they eventually foreclosed. In truth, that is not what happened at all. Higher LTV loans allow all credit-worthy individuals to participate in wealth creation. Real estate has created more wealth than anything else has in the history of this great country of ours. What killed the market was GREED, plain and simple. Individuals were able to purchase two, three, four, or more homes as investments. They did this after the Government changed the once in a lifetime exclusion on capital gains earned from the sale of real estate and made most money earned from the sale of a primary residence tax exempt provided that you lived in the home for two of the previous seven years. How did they monitor this? With a simple question at the time of closing, and everyone lied to avoid paying the taxes. Because everyone was an overnight real estate tycoon, it created an artificial demand for real estate which drove prices through the roof. What goes up, must come down. Real estate values have always fluctuated, but never to such an extent.
High LTV loans allow every qualified person to own a home, and build wealth for themselves, and their families. It is the American Dream. It is time to allow higher LTV loans for owner-occupied homes. Where is the proof? Look around any major Military installation in the country and you will find an area where the market is protected from the collapse. Not totally, but for the most part. That is due to the Veterans Administration Loans for service members. I propose a similar plan for every American. Allow for purchases at 95% LTV and increase the upfront MIP to offset the risk. Lower the Debt to Income Ration requirements to a manageable level and don't allow for exceptions. No more high LTV for investors. Max LTV for investors should be at 75% or 80% period.
All Americans should be allowed to participate in the real estate market. With such a program, millions of new buyers would be buying homes, and not paying rent. I believe that this program would cause the market to stabilize and improve within just a few months. Please share your commments.