20% down mortages may return as the norm

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spidey07

No Lifer
Aug 4, 2000
65,469
5
76
Shopping around for mortgages and the best rates are for 20% down. Just as it should be. If you're a risky loan the bank should charge you more. We need to be rewarding good financial sense and decisions and punish poor ones. Sadly there is still a 5/1 arm that's being pushed, still needs 20% though.
 

evident

Lifer
Apr 5, 2005
12,014
626
126
dunno... i coulda put 20% down on the house i'm living in now but i chose the FHA 3.5% down + mortgage insurance and the rest is sitting in the bank.
interest rate was the same at 4.2% for a 30 year loan.

My monthly payment isn't that much more and as someone else pointed out, it doesn't make that much of a difference in the long run and i have a huge safety net in case anything happens.


does that makes me a bad person for taking advantage of the options offered to me?
 

dullard

Elite Member
May 21, 2001
25,476
3,976
126
They can afford the house if you aren't making them waste money on rent while saving a 20% down payment....
That is a pretty sweeping statement. Rent is money wasted - gone forever. But so are mortgage interest, real estate taxes, and extra utility bills.

In some place like Atlanta, mortgages and rents are quite similar in price (about $75 more per month for the house). So, if you could afford rent, then you could afford the mortgage. But, then again, the median house in Atlanta was $109,200 in the latest quarterly data. Thus the median 20% downpayment would be $22k, and half go cheaper than that. Meaning that most families could do it.

But in some place like San Jose, your statement looks silly. You are basically saying someone could afford the median $3400 monthly housing cost but can't afford to save money while paying the median $1400 monthly rent. Honestly, how can someone not afford to save up for a downpayment in that case when they could afford the $3400 housing payment? Just put the $2000 differential in the bank each month and you'll have a 20% downpayment on a $600k home in under 5 years.

Your statements is really silly when you consider a $3400 rent = $40,800 in mortages on a $50k salary with 2 kids. No, they can't afford that house. And requiring the 20% downpayment might just save them from that disaster.
 
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Throckmorton

Lifer
Aug 23, 2007
16,829
3
0
That is a pretty sweeping statement. Rent is money wasted - gone forever. But so are mortgage interest, real estate taxes, and extra utility bills.

In some place like Atlanta, mortgages and rents are quite similar in price (about $75 more per month for the house). So, if you could afford rent, then you could afford the mortgage. But, then again, the median house in Atlanta was $109,200 in the latest quarterly data. Thus the median 20% downpayment would be $22k, and half go cheaper than that. Meaning that most families could do it.

But in some place like San Jose, your statement looks silly. You are basically saying someone could afford the median $3400 monthly housing cost but can't afford to save money while paying the median $1400 monthly rent. Honestly, how can someone not afford to save up for a downpayment in that case when they could afford the $3400 housing payment? Just put the $2000 differential in the bank each month and you'll have a 20% downpayment on a $600k home in under 5 years.

Your statements is really silly when you consider a $3400 rent = $40,800 in mortages on a $50k salary with 2 kids. No, they can't afford that house. And requiring the 20% downpayment might just save them from that disaster.

I don't get what you're saying... If someone can't afford the $3400 payment, 5% instead of 20% down doesn't somehow trick them into buying the house.
 

Throckmorton

Lifer
Aug 23, 2007
16,829
3
0
dunno... i coulda put 20% down on the house i'm living in now but i chose the FHA 3.5% down + mortgage insurance and the rest is sitting in the bank.
interest rate was the same at 4.2% for a 30 year loan.

My monthly payment isn't that much more and as someone else pointed out, it doesn't make that much of a difference in the long run and i have a huge safety net in case anything happens.


does that makes me a bad person for taking advantage of the options offered to me?

Exactly, a huge down payment just makes no sense. If you do have that much money saved, it makes more sense to keep it liquid... vs wasting it on a big down payment that makes little difference in total interest paid.
 

dullard

Elite Member
May 21, 2001
25,476
3,976
126
I don't get what you're saying... If someone can't afford the $3400 payment, 5% instead of 20% down doesn't somehow trick them into buying the house.
Where were you for the last 10 years? There were plenty of people buying homes that they couldn't afford. Mostly due to the entry barrier being nearly non-existant. Maybe they weren't "tricked" into buying, but millions of people certainly were allowed to buy when there was no way they could pay the bills.

5% down isn't enough to fix it. Even in California, that means about a $30k savings. Yes, people can save $30k in California on a modest salary (or inherit $30k, or cash out an IRA for $30k). But, they can't truely afford the house on a modest salary. 5% is an insuffient barrier to protect people from themselves.

5% is also insufficient to protect the responsible people from their irresponsible neighbors. With only 5% down, there isn't much skin in the game. Housing can drop 5% in a couple of months. Then people bail since they hardly have anything in, then they get forclosed, then that brings down the value of your property since your irresponsible neighbor skipped out of town.

20% is tried and true for decades and all over the world. It works. Like I said above, 10% might be enough if we want to try that. But 5% is just too small. We need some sort of incentive for people to pay off their mortgages or sell if they can't (instead of foreclosing). 5% doesn't cut it.
 

Throckmorton

Lifer
Aug 23, 2007
16,829
3
0
Where were you for the last 10 years? There were plenty of people buying homes that they couldn't afford. Mostly due to the entry barrier being nearly non-existant. Maybe they weren't "tricked" into buying, but millions of people certainly were allowed to buy when there was no way they could pay the bills.

5% down isn't enough to fix it. Even in California, that means about a $30k savings. Yes, people can save $30k in California on a modest salary (or inherit $30k, or cash out an IRA for $30k). But, they can't truely afford the house on a modest salary. 5% is an insuffient barrier to protect people from themselves.

5% is also insufficient to protect the responsible people from their irresponsible neighbors. With only 5% down, there isn't much skin in the game. Housing can drop 5% in a couple of months. Then people bail since they hardly have anything in, then they get forclosed, then that brings down the value of your property since your irresponsible neighbor skipped out of town.

20% is tried and true for decades and all over the world. It works. Like I said above, 10% might be enough if we want to try that. But 5% is just too small. We need some sort of incentive for people to pay off their mortgages or sell if they can't (instead of foreclosing). 5% doesn't cut it.

To me the length of mortgages is a bigger problem. The rule is 3x income right? Well if you can do a 30 year mortgage you can go way over that. And you're spending 30 years paying and paying and paying. A lot of interest too. When I was looking at condos in Houston I was looking at 5 and 10 year mortgages.
 

SunnyD

Belgian Waffler
Jan 2, 2001
32,674
146
106
www.neftastic.com
But you're irresponsible and a bad person and unamerican too. You should be renting and saving money to prove to our corporate overlords that you are fit to bear the responsibility of owning a piece of your country.

Fuck the corporate overlords. I rented for nearly 12 years, I've earned this. (/entitlement mentality)

Imagine, 12 years... I could be half way through a 250k mortgage by now... oh wait, I am half way through a 250k mortgage... SOMEONE ELSE'S. Not anymore.
 

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
5% is an insuffient barrier to protect people from themselves.

Wait, what...people need to be protected from themselves?

This is akin to Texas banning HELOCs originally because the people there deemed themselves too stupid to realize their homes were collateral on that set of Harleys that couldn't be paid off.
 

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
Shopping around for mortgages and the best rates are for 20% down. Just as it should be. If you're a risky loan the bank should charge you more. We need to be rewarding good financial sense and decisions and punish poor ones. Sadly there is still a 5/1 arm that's being pushed, still needs 20% though.

There is nothing wrong with ARM loans. The stigma came from those that had teaser rates and were interest only.

Many people will end up moving in 5-7 years. For them they make a smart pick if the rates are significant.

The 20% is definitely needed more on them since if one can't/doesn't move, at least they can refinance then to a conventional or another ARM loan.

People got burned picking ARM's that started at a interest only 1-2% rate and jumped to a penalized rate on conversion. These loans were designed for real investors that could take the hit if they didn't move the property. It's when the armchair investors got involved that things went south.

I have no sympathy for those that have 2-3 house under their belts right now and are trying to claim they were 'set up'. They knew they were lying on their paperwork and not buying homes for personal use as they usually claimed.
 

dullard

Elite Member
May 21, 2001
25,476
3,976
126
Wait, what...people need to be protected from themselves?
Yes, it is part of a balance. You don't want to shift all the power to the home buyer vs the lender. You also don't want to shift all the power to the lender vs the home buyer.

Take this extreme hypothetical example. Suppose a law is passed that states that lenders can't say no to a person with good credit - not for any reason at all. Power has shifted entirely to the buyer. What happens? People rush out and buy $100M homes with $50k incomes. One month later they are in foreclosure since they can't afford the $400k interest payment. That is a bad situation, things are out of balance. You can't give all the power to the people. They need to be protected from this clearly bad situation. The need to be protected from themselves, their own greed. Heck, even I'd do it to live in luxury for a few months without paying anything.

Same goes for the lenders. Put the reasonable limits on each and you get a fairly happy and fairly functional medium that is close to best for both.

It is just another way of saying that the lenders need protection too. Protection from the wildest dreams of the borrowers. You can't let the borrowers get all they want, otherwise it is bad for everyone.
 
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alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
Yes, it is part of a balance. You don't want to shift all the power to the home buyer vs the lender. You also don't want to shift all the power to the lender vs the home buyer.

Take this extreme hypothetical example. Suppose a law is passed that states that lenders can't say no to a person with good credit - not for any reason at all. Power has shifted entirely to the buyer. What happens? People rush out and buy $100M homes with $50k incomes. One month later they are in foreclosure since they can't afford the $400k interest payment. That is a bad situation, things are out of balance. You can't give all the power to the people. They need to be protected from this clearly bad situation. The need to be protected from themselves, their own greed. Heck, even I'd do it to live in luxury for a few months without paying anything.

Same goes for the lenders. Put the reasonable limits on each and you get a fairly happy and fairly functional medium that is close to best for both.

That's not showing the need for protection.

A proper loan is done with credit, asset and income verification. The problem in the boom is banks allowed the stated-income/stated-asset loans. While these have a place for someone like say Bill Gates or Warren Buffet, they didn't have any place being used for a waiter at a TGI Fridays claiming $120k per year income and $200k in the bank.

People with good credit tend to keep that. Good credit is not just pure score, but number and length of tradelines as well as looking at current payments being paid now.

With income verification they show they have the mean to support that payment. Assets ensure that if things go south they can support themselves and property for a few months.

To me assets are more important than down payment.

20% is majorly excessive in some markets. 10% is a much more reasonable amount and enough at current home price levels to consider walking away.

People argue that they can't save and rent...I say they are looking at it the wrong way especially when if you look at their financial foot print they are tending to rent beyond their means to begin with and then went ahead with new cars and large bill payments to luxury items each month.

In the past people would pick a safe but smaller than ideal rental, forgo the family vacation, skip gift buying for a year or two and stretch their clothing / cars a bit until they put away some savings and a nice down payment.

There is too much entitlement view.

However, I don't need the government to protect me from myself. No one should. If one makes the mistake then they should live with it and that was the way it typically always has been.

The boom changed some of this as well-minded people (even those with 20-30% down) have been burned. I have read about people that have put 50% down and are still majorly upside down...it's something that should never have happened and those that truly did the more responsible thing are the ones most burned.
 

ericlp

Diamond Member
Dec 24, 2000
6,134
223
106
I'm fine with this.

I'd never pay less than 20% down anyways, since under 20% and you have to get raped by PMI.

Never mind getting rapped by PMI, what about compound interest and insurance (full coverage) I might add plus all the rest of the fees you get to pay. Sheesh, I'll never take out a loan ever again! PERIOD! I'll move to a shittier neighborhood before I pay over 1000 a year in taxes and get a loan.

Screw the neighborhood just move to a new state. It's not just the banker, broker or insurance companies getting a piece of the action... They are all in bed with each other betting you won't make it so that the foreclosure company can sweep in after you lose your job and really rake it in!

Listen do you really need a 3K sq foot home with all the goodies? Why not just build your own 500Sqft home and live in it and laugh at the freaks that SLAVE away everyday to pay down their 30 year note?

People really amaze me on what hoops they will jump through and basically give up their life style and freedom just to move into a shitty neighborhood and house... Not for me but good luck! I'm not buying the shit they are selling. I won't be tired down ever again to shitty job I hate just because if I fuck up they will take the only asset I have.

Your ... Your living in a dream world neo.
 

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
lol..those talking about PMI and the clearly don't know today's mortgage products.

FHA, VA and USDA loans are out there as well as others.

Building a 500sqft home is not an option in many places due to zoning, $1000 on insurance a year is hardly a lot of money.

You make no sense other than you are probably living with your parents.
 

DrPizza

Administrator Elite Member Goat Whisperer
Mar 5, 2001
49,601
166
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www.slatebrookfarm.com
The boom changed some of this as well-minded people (even those with 20-30% down) have been burned. I have read about people that have put 50% down and are still majorly upside down...it's something that should never have happened and those that truly did the more responsible thing are the ones most burned.

I'm not sure if "burned" is really quite right though. They only got burned if they were using the house as an investment. A home isn't really an investment so much as it's simply an asset. I know I'm splitting hairs here. The primary reason for owning a home should be... to have your own home. And, if they purchased a home that they like for a price that they felt comfortable with, what does it matter that the market went down - unless they were planning on moving in just a few years (or are forced to move.)

Point 2: Alkemyst is right about the ARM loans - people are claiming that they're horrible. That's not necessarily true. As he pointed out, they had teaser rates, pay interest only, for a couple years; then you pay the real interest rate, plus start paying down the principal. Anyone who planned on staying in the house and went that route was a fool. Personally, I have an ARM. Just this afternoon I received a statement in the mail telling me my new interest rate. *Gasp* it went down to just over 3%. Nothing wrong with that at all.
 

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
I'm not sure if "burned" is really quite right though. They only got burned if they were using the house as an investment. A home isn't really an investment so much as it's simply an asset. I know I'm splitting hairs here. The primary reason for owning a home should be... to have your own home. And, if they purchased a home that they like for a price that they felt comfortable with, what does it matter that the market went down - unless they were planning on moving in just a few years (or are forced to move.)

First this is a common analogy: asset vs investment. It's not splitting hairs it's ignorance. It's expected that your home appreciates. It's never supposed to be 40-50%+ like the boom period, but a steady increase in value even if it just breaks even with inflation/etc should be realized.

If one just wants a home there is renting.

What matters when a home loses value is major when you have cash into it. First some of these people I know had $100,000+ into the home. When your value becomes less than what you have into it, now you have lost money. Usually the people that don't realize this aspect have homes that they own more or less or were given to them or simply have never had any of their own money into the home.

Being able to move is a major security, esp in this economy. When your house becomes devalued now you are looking at either turning down opportunities, having to pay someone to take your home, or rent it while you pay the lion's share and have to keep up with maintenance.

It's an ignorant argument to say a home was never to be an investment and that loss of value is only important if you sell. It destroys the 'security' principle that made home-ownership what it is.


Point 2: Alkemyst is right about the ARM loans - people are claiming that they're horrible. That's not necessarily true. As he pointed out, they had teaser rates, pay interest only, for a couple years; then you pay the real interest rate, plus start paying down the principal. Anyone who planned on staying in the house and went that route was a fool. Personally, I have an ARM. Just this afternoon I received a statement in the mail telling me my new interest rate. *Gasp* it went down to just over 3%. Nothing wrong with that at all.


Sort of odd your seasoned ARM went down more than current rates...is this a new loan? Is it for a low principal amount <$75-100k?

ARM's also have caps and margins. The most they can go up (or down) to and the most they can go up (or down) in one period. When under a teaser rate, these caps and margins don't apply. You are simply given on X date your terms will change to X rate.
 

DrPizza

Administrator Elite Member Goat Whisperer
Mar 5, 2001
49,601
166
111
www.slatebrookfarm.com
Sort of odd your seasoned ARM went down more than current rates...is this a new loan? Is it for a low principal amount <$75-100k?

ARM's also have caps and margins. The most they can go up (or down) to and the most they can go up (or down) in one period. When under a teaser rate, these caps and margins don't apply. You are simply given on X date your terms will change to X rate.

6 year old mortgage, and yeah, it's a pretty low principal. I didn't realize that would have much to do with it.
 

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
6 year old mortgage, and yeah, it's a pretty low principal. I didn't realize that would have much to do with it.

There is a reason a JUMBO loan comes at a much higher loan rate.

Rate is based on risk. It's usually always the person bragging about an insanely low mortgage rate that carrying a credit card level of principal.
 

DrPizza

Administrator Elite Member Goat Whisperer
Mar 5, 2001
49,601
166
111
www.slatebrookfarm.com
There is a reason a JUMBO loan comes at a much higher loan rate.

Rate is based on risk. It's usually always the person bragging about an insanely low mortgage rate that carrying a credit card level of principal.

Nice to know my bank considers me a very low risk. :) Not quite as nice as having a mortgage payment that's half of most people's car payments though.
 

Tegeril

Platinum Member
Apr 2, 2003
2,906
5
81
There is nothing wrong with ARM loans. The stigma came from those that had teaser rates and were interest only.

Many people will end up moving in 5-7 years. For them they make a smart pick if the rates are significant.

The 20&#37; is definitely needed more on them since if one can't/doesn't move, at least they can refinance then to a conventional or another ARM loan.

People got burned picking ARM's that started at a interest only 1-2% rate and jumped to a penalized rate on conversion. These loans were designed for real investors that could take the hit if they didn't move the property. It's when the armchair investors got involved that things went south.

I have no sympathy for those that have 2-3 house under their belts right now and are trying to claim they were 'set up'. They knew they were lying on their paperwork and not buying homes for personal use as they usually claimed.

Everything stated above is sound advice/valid.

I went in (condo) with 27% down on a 5/1 @4.875. I just refinanced it for $0 into a new 5/1 (1.5 years later) at 3.875. I expect to move before the end of the 5 years. My property value has increased and my monthly expenditures barely exceed what I was paying in rent for much less.

Not every piece of property is a good investment. Some are great.
 
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Thump553

Lifer
Jun 2, 2000
12,750
2,525
126
I got a memo today from a title insurance company which explains this situation a whole lot more to me.

The government is NOT seeking to impose any sort of regulation requiring a 20&#37; down payment. What they are proposing is that loan originators will not be able to resell mortgages in full unless there is 20% down and the loan meets some rather rational underwriting standards regarding borrower's debt load, credit history, etc. If the loan doesn't meet those standards then the loan originators must retain exposure on at least five percent of the loan.

One thing most people don't realize is that the vast majority of mortgages are resold by the so-called lender, and that it is almost universal that the loans are sold without recourse, ie, the original lender has no liability to the new loan holder if the loan goes sour.

There is a whole raft of regulations-state and fed-that loan orginators are supposed to comply with. The underlying concept is that they are supposed to act like a prudent lender, not to take on more risk to their own capital than a prudent lender would. The best way to insure this is to make sure that the have some skin in the game-that will go a lot further than another hundred pages of regs.
 

Thump553

Lifer
Jun 2, 2000
12,750
2,525
126
I got a memo today from a title insurance company which explains this situation a whole lot more to me.

The government is NOT seeking to impose any sort of regulation requiring a 20% down payment. What they are proposing is that loan originators will not be able to resell mortgages in full unless there is 20% down and the loan meets some rather rational underwriting standards regarding borrower's debt load, credit history, etc. If the loan doesn't meet those standards then the loan originators must retain exposure on at least five percent of the loan.

One thing most people don't realize is that the vast majority of mortgages are resold by the so-called lender, and that it is almost universal that the loans are sold without recourse, ie, the original lender has no liability to the new loan holder if the loan goes sour.

There is a whole raft of regulations-state and fed-that loan orginators are supposed to comply with. The underlying concept is that they are supposed to act like a prudent lender, not to take on more risk to their own capital than a prudent lender would. The best way to insure this is to make sure that the have some skin in the game-that will go a lot further than another hundred pages of regs.
 

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
I got a memo today from a title insurance company which explains this situation a whole lot more to me.

The government is NOT seeking to impose any sort of regulation requiring a 20% down payment. What they are proposing is that loan originators will not be able to resell mortgages in full unless there is 20% down and the loan meets some rather rational underwriting standards regarding borrower's debt load, credit history, etc. If the loan doesn't meet those standards then the loan originators must retain exposure on at least five percent of the loan.

One thing most people don't realize is that the vast majority of mortgages are resold by the so-called lender, and that it is almost universal that the loans are sold without recourse, ie, the original lender has no liability to the new loan holder if the loan goes sour.

There is a whole raft of regulations-state and fed-that loan orginators are supposed to comply with. The underlying concept is that they are supposed to act like a prudent lender, not to take on more risk to their own capital than a prudent lender would. The best way to insure this is to make sure that the have some skin in the game-that will go a lot further than another hundred pages of regs.

That is not entirely true and also messed up in a way.

If the original lender committed fraud and / or didn't do proper due diligence it's always been possible to 'sell back' the loan.

If there is nothing wrong with the loan then IMHO the original lender should not be responsible at all. They are not getting the interest and they were paid for the asset.

This is the government trying to impose a 20% requirement (I have not seen this anywhere though so it's probably rumor mill gossip).

The two largest investors that do buy these loans are government based so have a major influence (Fannie Mae and Freddie Mac).

It's amazing the reactions though when people find out their loans were sold at times, despite this being explained at closing.

"I AM GOING TO SUE YOU FOR SELLING ME WITHOUT MY PERMISSION!"

lolz
 

Thump553

Lifer
Jun 2, 2000
12,750
2,525
126
allekmyst: To an extent you are confusing apples and oranges. This area of the law is based upon the UCC-Uniform Commercial Code. A mortgage note is an "Instrument" much like a check is a Instrument. Lets assume Joe Blow gets a mortgage from Megabank A-Joe Blow signs a mortgage note promising to pay $xx to Megabank A. Megabank A decides to sell the loan to Holder B-Megabank A must endorse the mortgage note over to Holder B so that Holder B becomes the owner of the note. What Megabank A is essentially doing is cosigning the the Note when it endorses it over-unless it endorses the note "without recourse." I have NEVER seen a mortgage note that was not commercially transferred "without recourse."

A common example of this is third party checks. Your brother endorses a check over to you, you endorse it and deposit it in your bank account. The check bounces. Your bank grabs the money back from you as you are liable to them as an endorser on the check.

Fraud by Megabank A in originating the loan is handled by exceptions under the UCC where if fraud is proven the exception would supercede the "without recourse" language, making Megabank A liable for the loan to Holder B. But fraud is dificult, expensive and time-consuming to prove (it has a much higher burden of proof). Look at the hundreds of thousands of fraudulent mortgages written in decade prior to the recession crash-how many of those were charged back? I doubt more than one tenth of a percent.

As far as "I AM GOING TO SUE YOU FOR SELLING ME WITHOUT MY PERMISSION" that's irrelevant and unsupportable in the law, but if you really want to prevent your mortgage from being transferred just cross off the "or order" language in the mortgage note (where is says "pay to Megabank A or order"). This makes the note nonnegotiable. Of course, it also makes the Note totally unacceptable as a practical matter to Megabank A, so you won't get the loan.

Misconduct done by the transferee of the loan (Holder B), such as unreasonably jacking up escrow requirements, is a totally different subject. At most it had a very minor role in the Recession (if any) and there was already adequate regulations in place preventing this sort of abuse.
 

werepossum

Elite Member
Jul 10, 2006
29,873
463
126
I got a memo today from a title insurance company which explains this situation a whole lot more to me.

The government is NOT seeking to impose any sort of regulation requiring a 20% down payment. What they are proposing is that loan originators will not be able to resell mortgages in full unless there is 20% down and the loan meets some rather rational underwriting standards regarding borrower's debt load, credit history, etc. If the loan doesn't meet those standards then the loan originators must retain exposure on at least five percent of the loan.

One thing most people don't realize is that the vast majority of mortgages are resold by the so-called lender, and that it is almost universal that the loans are sold without recourse, ie, the original lender has no liability to the new loan holder if the loan goes sour.

There is a whole raft of regulations-state and fed-that loan orginators are supposed to comply with. The underlying concept is that they are supposed to act like a prudent lender, not to take on more risk to their own capital than a prudent lender would. The best way to insure this is to make sure that the have some skin in the game-that will go a lot further than another hundred pages of regs.
Sounds very good to me. 20% down, or 10% down with PMI, but in any case a return to those rational underwriting standards that in the last decade became described as "outdated metrics".