10/07/2004

U.S. Homeownership: What Makes It Work

Peruvian President Alejandro Toledo wants to encourage homeownership in his country. He has his work cut out for him.

Millions of Peruvian households have been living in their homes for generations, but, as renters, they've accumulated no wealth. Here, on the other hand, homeownership has just topped a record 69 percent. That success hasn't come by accident. Our public and private sectors have worked together to make the buying and selling of real property not only a priority but also a safe and efficient process. To start with, we have a commitment to private property rights, and we believe in the professional brokering of property.

Other characteristics of our housing sector that others might learn from:

Mortgage financing. Backed by supportive government policies, our lenders have developed a wide variety of mortgage loan products. But just as important, residential mortgage loans are nonrecourse, which means lenders can foreclose property but they can't go after personal assets.

What's more, most loans here come without prepayment penalties. That encourages refinancing when rates drop.

The backbone to our mortgage finance sector, though, is our highly efficient secondary market. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks provide liquidity by guaranteeing and purchasing conventional mortgage.

Risk intermediaries. Private mortgage insurers and other companies—title insurers, appraisers, credit bureaus, and hazard insurers, to name a few—mitigate lending risk. Without them, lenders would make loans only at exorbitant fees.

In the public sector, the FHA and VA provide insurance or guarantees to encourage home mortgage financing to low- and moderate-income households and veterans, respectively.

Taxes. As a society, we show our commitment to homeownership through accommodative provisions in our tax code, such as mortgage interest and property tax deductions, large allowances before estate taxes, and capital gains relief.

from REALTOR MAGAZINE, Oct. 2004.

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