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Getting A Super-Cheap Mortgage

Although market conditions vary around the country, Tara Siegel Bernard has a strong piece in the New York Times that potential home buyers and mortgage refinances would do well to consult. The home mortgage market has been very confused ever since the bubble burst late in the last decade as rates have fallen to historic lows, but changes in underwriting policy and the hard-hit securitization market have made it tricky for most folks to figure out what a new mortgage or a refinancing might involve.

The Bernard piece gets into the nitty gritty and talks about what kind of credit scores are likely to lead to what kind of rates, and how changing standards at Fannie Mae and the FHA may affect your chances, choices and rates. A good weekend read if you are even toying with the idea of buying a place or refinancing.

Buried within the piece, though, is a clue about some policy changes the government could make that might actually strengthen the economy short term, and accelerate the move toward long term prosperity.The problem is that the self-employed have been much harder hit by changes in credit standards since the bubble days. Writes Bernard:

It’s much easier to sail through the entire process, for instance, if you receive a paycheck. But people who are self-employed, or who receive a large portion of their income through commissions and bonuses, are likely to have a more difficult time. “If you are self-employed and your net income decreased from 2010 to 2011, even if it’s 2 or 3 percent, it’s an automatic rejection,” said Fred Glick, owner of U S Loans Mortgage, a brokerage based in Philadelphia.

There were huge excesses in the housing market back in the bubble days; everybody knew about “liar loans” and other ways in which unscrupulous bankers and real estate brokers collaborated to earn fat fees by putting people in houses they couldn’t afford. Standards needed to be tightened, and they have been. While the pendulum has swung too far in some ways (many people dealing with mortgage lenders report weirdly obsessive demands to document insignificant transactions), on the whole the return of sane lending standards makes sense.

But the problems of self-employed people deserve some special attention. The US government wants all its citizens to live neat little lives in neat little boxes, but if our economy is going to prosper in the 21st century, we are going to have to get past that. We aren’t all going to be self-employed freelancers in the 21st century, working for multiple clients on multiple contracts, but this is going to become increasingly an increasingly common way of making the living as the internet revolution works its way through the economy.

This is something to celebrate and facilitate, not to mourn and obstruct. Payroll taxes, health insurance, methods of assessing creditworthiness all need to be adjusted to work better for the self employed and those who contract with them. Much of the innovation that can drive our economy and give us the competitive edge we will need in this century is going to come from self employed workers; it’s long past time that politicians and policy people focused on this issue.

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  • Jim.

    “The US government wants all its citizens to live neat little lives in neat little boxes”

    This is true of efficiency-oriented bureaucrats of any type, because it allows them to implement generalized rules over a massive number of cases very quickly.

    There is no way to fight this tendency, though there are a couple of ways to fight its ill effects. One is to decentralize the decision making, so that the rules don’t have to cover as many cases and so can be more flexible. The other way to fight it is to reduce the number of general rules overall, just leaving people more freedom to stand or fail on their own.

  • Lexington Green

    The Blue Model is about extinguishing self employment and startups and innovation.

    If, as I expect, Mr. Obama is reelected, he will double down on trying to destroy the small business sector. For his approach to work he has to have a nation of employees working directly for the government or for businesses which must treat the government as their main client. The innovation we need and should be seeing is far from inevitable. More likely it will not be allowed to happen in the USA.

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