Orlando Mortgage Blog

Beware Bobble Head Advice

October 11th, 2013 11:17 AM by BILL WILBANKS

I monitor various information streams that relate in some way to my business each day. Not to pick on any one business show in any way, but comments that were made on yesterday's CNBC Power Lunch Show by several panel guests really stood out for me. A guest by the name of Michael Menatien, a mortgage professional, responded to questions about difficulties a buyer might experience today trying to buy a home because of the current political situation. He made a response to a question related to a buyer's ability on a home purchase to come up with a down payment in these hard times. He responded (paraphrasing now) that one tool that was available if you have a 401k with sufficient monies, you can take out a 401k loan for the purpose of a down payment when buying a home. Two panel guests immediately jumped on that comment initially stating that wasn't possible (which is incorrect) and again paraphrasing, if it was, it shouldn't be done using the 401k as a means to assist in buying a home. One was a securities dealer the other a NBC editor. The securities dealer tried to deny that the 401k loan was possible. Some expert commentary there (incorrect). Mr. Menatian tried to respond (correctly) that it is a tool that is used by consumers and has been for many years. That the payments made on that loan paid all principal and interest back to the borrower's 401k, which it does. He never got a chance to step back in the conversation. Then the NBC Editor, Jean Chatzky, are you ready for this?...actually made a statement to the effect that if a buyer didn't have 20% down they shouldn't buy a home until they do. What elitist, pious, bobble headed dribble. And, this lady is a Financial Editor on payroll with NBC. Some expert comment, right? This is one item she is certainly wrong about. In other words in her "opinion", a buyer, first time or otherwise who wants to purchase a very entry level priced home at say $150,000 in most markets should wait until they can save up 20% down or in this case $30,000 before bellying up to the home buying table. Has she never heard of the historically highly successful standard conventional financing that has allowed 95% to 97% financing (soon to go away at 97%) or FHA that allows 96.5% financing and both have for many decades? That's the way most homes have been purchased for years by first time buyers any many others. Move up buyers who are able to purchase another home usually try to put 20% or more down sourced from equity (gain on sale) from the prior home so they can avoid PMI. But rarely first time buyers. Where has she been? It's that elitist mentality raising it's head once again. Apparently she doesn't think the people who can easily afford a home payment, but just can't put away 20% in this economy are worthy of buying a home. With school loan debt, changing employment levels to part time vs. full time, two income households, and on and on...we should keep these good folks from buying into the American dream. Does anyone wonders why we have a growing "haves and have not" economy today? And, that using a 401k loan that you pay back to yourself, to assist in that venture is wrong? REALLY? Hey, a $40,000 401k at whatever return (pick a number) is a better long term decision than being able to buy an asset at $150,000 value today, that even over the next 10 to 20 years is likely to go up at least 3 to 5%on the fair market value long term (compared to the 70 or 80 year history at least). Does anyone believe that, REALLY? A $40,000 asset base compared to a $150,000 asset base to grow from? Leave the last 5 years in the numbers and I believe I still win the argument hands down. Do your own math. True even when you leave the home owner interest deduction question out of it. What absolute DRIBBLE! It's this type of supposed expert comment that drives such a large part of the crazy Washington politics and policy causing so many of the economy's problems today...a horse barn cart full of self inflicted wounds to the economy. I wanted to attach the link to these specific comments on the CNBC video page, but they cut around it from yesterday's show, intentionally or otherwise.

Bill Wilbanks

 

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Posted by BILL WILBANKS on October 11th, 2013 11:17 AM

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