Why is the US Middle Class Losing Loan Advantage?

Rise of the global middle class

According to an article in Bill Moyers, the US middle class has become the poorest among the developed countries. This is a sharp contrast to the 1950s’ situation where the country’s middle class were among the wealthiest in the world.

A number of factors contributed to this, the greatest among them being the fact that almost nine million veterans had taken advantage of the GI bill to secure housing, education, low-cost loans and start a business after World War II. At the time, Unions were strong, and public programs were used to bolster people’s financial security. But that is not the case at the moment. According to the NewYork Times report, most American’s wages have continued to stagnate for over three decades.

US middle class, the poorest among the developed countries

According to Stratfor Report 2011, the median household of Americans was $49, 103 in 2011. But this figure is just below what was earned in 1989 when the figure is adjusted for inflation. When social security, federal and state taxes are included, take-home amount was $40,000. This means that there is no significant change in the Middle class income between 1980s and today.

While the 1950s income allowed one to live comfortably with one partner not working, that wouldn’t be easy today. Consequently, the U.S middle class can no longer keep on enjoying cheap mortgages. Bankrate recently reported that most ordinary homebuyers are now paying the same or higher rates than Jumbo mortgagers.

More than a decade ago, conventional mortgage rates averaged 5.68%, while the jumbo rates averaged 5.97%. The middle class enjoyed the advantage because of the government intervention where loans were guaranteed by government-chartered firms, but starting 2012, the government started charging lenders higher fees for guaranteeing conventional mortgages in order to prevent borrowers from borrowing more than they can afford.

Another thing that has made the middle class to lose loan advantages is dues to the fact that the lenders have started reducing Jumbo mortgage rates to attract high-net worth clients.  This represents a safer spot for lenders because affluent borrowers have stronger employment and have lower chances of defaulting.

Carl Richards

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