20% down mortages may return as the norm

[Jhhnn]

That is a horrible idea. It should just be set and done. Otherwise, people will continue waiting as downpayment requirements rise, reducing demand and lowering prices.

Oh, please. Setting a minimum 20% down payment on real estate would blow the bottom right out of the market and heavily favor cash rich investors, basically the same guys who gamed the ownership society on the way up.

I'll agree that prices are still too high in some parts of the country, but locking middle class families out won't serve anybody but the financial elite.

 

[ShawnD1]

That is a horrible idea. It should just be set and done. Otherwise, people will continue waiting as downpayment requirements rise, reducing demand and lowering prices.

Which is generally good for poor people. How much is rent when the market is disgustingly inflated? Ask my friend who's paying $1500/mo for a single bedroom apartment.
How much would rent be if the market completely crashed? A lot less. Forget $1000 or $1500 per month rent payments. Try $500, maybe less. Right now the high prices do nothing but hurt the lower and middle classes; the people getting balls rich are bankers signing $300,000 loans.

 

[WHAMPOM]

Federal regulators propose 20% down payment for best home mortgages



Insane, or the return to sanity?

What! Banks can't make money doing that. Next thing will be people paying cash for homes and the banks will go broke.

 

[WHAMPOM]

Oh, please. Setting a minimum 20% down payment on real estate would blow the bottom right out of the market and heavily favor cash rich investors, basically the same guys who gamed the ownership society on the way up.

I'll agree that prices are still too high in some parts of the country, but locking middle class families out won't serve anybody but the financial elite.

Smaller, lower cost homes. Think it could lead to that?

 

[Throckmorton]

Which is generally good for poor people. How much is rent when the market is disgustingly inflated? Ask my friend who's paying $1500/mo for a single bedroom apartment.
How much would rent be if the market completely crashed? A lot less. Forget $1000 or $1500 per month rent payments. Try $500, maybe less. Right now the high prices do nothing but hurt the lower and middle classes; the people getting balls rich are bankers signing $300,000 loans.

If houses are harder to buy, rent will be even higher... Which hurts the poor even more.

 

[Throckmorton]

Smaller, lower cost homes. Think it could lead to that?

I don't think houses are expensive because of size

 

[OCGuy]

I'm just going to poke my head in this thread and say it is really tough to watch some people who have no idea what they are talking about discuss real estate financing.

 

[ShawnD1]

If houses are harder to buy, rent will be even higher... Which hurts the poor even more.

Think back 1-2 years. Housing market totally crashed in a lot of places and credit froze. You couldn't get something as small as a $60k loan even if you had perfect credit and could easily pay that back in a year. Rent in those areas dropped like a rock even though buying a house was impossible.

Rent in my city dropped quite a bit too. There wasn't really a "crash" but a house that was worth $450k a few years ago is now worth maybe $350k. Credit is a lot tighter. Houses right now are a lot harder to buy than they were a few years ago, but rent is a lot cheaper.

 

[Throckmorton]

Think back 1-2 years. Housing market totally crashed in a lot of places and credit froze. You couldn't get something as small as a $60k loan even if you had perfect credit and could easily pay that back in a year. Rent in those areas dropped like a rock even though buying a house was impossible.

Rent in my city dropped quite a bit too. There wasn't really a "crash" but a house that was worth $450k a few years ago is now worth maybe $350k. Credit is a lot tighter. Houses right now are a lot harder to buy than they were a few years ago, but rent is a lot cheaper.

That may have been true in some places, but in others rent went up. If more people are renting of course the demand increases prices... but maybe the people renting instead of buying is balanced out for emigration in some areas.

 

[Throckmorton]

I'm just going to poke my head in this thread and say it is really tough to watch some people who have no idea what they are talking about discuss real estate financing.

So are you going to contribute anything? Why don't you share your vast knowledge?

 

[Jhhnn]

Smaller, lower cost homes. Think it could lead to that?

Maybe, but right now many markets are horribly overbuilt with relatively large homes which need to be occupied before more will be built.

The current situation is untenable because we're not returning to the false prosperity of the bogus Ownership Society anytime RSN. The creative financing flimflams that created the bubble are gone, as are slap happy investors, first time homebuyer credits, & stimulus spending. What remains is high and persistent unemployment, depressed earnings and enormous debt loads. Current market mechanisms like short sales and mortgage modifications aren't enough to correct prices, nor apparently are millions of homes in foreclosure. So it'll need to get worse before it gets better, and I don't want to see middle class people cut out of the good deals on the horizon by onerous downpayment requirements.

What the hell are low prices worth if honest middle class people can't get them, if only the investor class benefits?

 

[charrison]

And your house costs a lot more because of it. What is inflation? Your work paying for the spread of debt slavery and true owners doing nothing. Mix that with supply and demand Americans get a raw deal. Debt does no one any favors unless cash flow exceeds interest and payment, homes dont.

Really not sure you what you are getting at. There is value to zero down loan for those with good credit and earnings. You can pay rent and toss money away while you save, or you can take a zero down loan and toss money away at your mortgage for the first 10 years like you will have to do anyway. Different solution to the same problem.


However there is not much wrong with renting either.

 

[Zebo]

Really not sure you what you are getting at. There is value to zero down loan for those with good credit and earnings. You can pay rent and toss money away while you save, or you can take a zero down loan and toss money away at your mortgage for the first 10 years like you will have to do anyway. Different solution to the same problem.


However there is not much wrong with renting either.

Houses cost you a lot more with easy credit. Simple supply and demand.

Penalizes savers because they cost more and encourages speculation and fraud like we saw.

20% down eliminates much of that because skin is in the game and lends itself to a true ownership society rather than a renters society. Renters or so-called home owners treat neighborhoods poorly, true owners don't.

Ideally we would live like Asians and Europeans, at home till 20-25, save 20-50% then buy.


As far as zero down sure there is value so are interest only but increases volatility, speculation and defaults of the housing marlet. I believe housing market should be stable, homes taken care of etc and 20%+ down does that.

 

[Darwin333]

But that's not what happened, is it? No. The big risk takers were bailed out. I doubt it'll be any different the next time around, which is why govt must dictate a stronger and safer financial structure. The rewards for extremely risky behavior are simply too large for the execs of the consolidated financial industry not to take them if they can. The damage to the rest of us becomes apparent only after the fact, and they've got theirs already.

Making a criminal case against any of the execs of any of the big Wall St firms would be an extremely difficult if not impossible proposition, given the structure they've been allowed to operate within. Changing that structure is the only real answer, and that's no more likely than successful prosecutions. Repubs and corporate Dems occupy a blocking position wrt real reform, and won't be dislodged unless an unstoppable catastrophe occurs. They're working on keeping that as a real and looming possibility with their whole "deregulated free market" song and dance, because they figure on being on the winning end of it and to Hell with the little guy...

The president of one of those huge firms admitted to massive fraud in sword testimony before the Congress of the United States of America. Doesn't sound like a very hard case to me. There are at least dozens of others that Micky Mouse could prosecute.

You and I both know they are playing the waiting game. The only difference is you have skin in the game (your team) and I don't.

 

[Jhhnn]

Houses cost you a lot more with easy credit. Simple supply and demand.

Penalizes savers because they cost more and encourages speculation and fraud like we saw.

20% down eliminates much of that because skin is in the game and lends itself to a true ownership society rather than a renters society. Renters or so-called home owners treat neighborhoods poorly, true owners don't.

Ideally we would live like Asians and Europeans, at home till 20-25, save 20-50% then buy.


As far as zero down sure there is value so are interest only but increases volatility, speculation and defaults of the housing marlet. I believe housing market should be stable, homes taken care of etc and 20%+ down does that.

It wasn't low down fixed rate long term mortgages that destabilized the system, at all, but rather the "creative" short term ARM mortgage deals and the "creative" ways that risk perception was swept aside in a fit of convulsive greed by Wall St.

It was all enabled by the FRB and Bush regulators, natch, in order to further the fortunes of the already rich and fool the electorate into giving them a second term. The prime rate was almost instantly reduced to the lowest level since 1955-

http://www.moneycafe.com/library/ratecharts/ratecharts1.gif

And then marched right back up again so as to precipitate the crisis while the Bushistas were still in power. Anybody who thinks this was an accident is delusional.

Meanwhile, the SEC allowed Wall St firms to employ outrageous leverage to facilitate the looting, and taxes for the investor class were reduced to new lows. GWB sold the chumps on the Ownership Society, Terrarist Threat!, God, Guns, and Gays to get re-elected.

Today, of course, low rates are employed in an attempt to hold prices high, something that can't last, because housing still isn't selling. Prices in the formerly bubblicious areas will decline even further in order to clear existing inventory and allow for the "growth" required to let the top 1% take 20%+ of all taxable income.

Can't figure it out? That's because we collectively admire and emulate rent seeking psychopaths who are sucking the life out of the economy. Because we buy into the whole idea that people at the bottom are dragging us down, rather than the people at the top pushing us down. Because denial is still possible, particularly among the Republican base who couldn't think straight if their lives depended on it, just the way their leadership wants it.

 

[charrison]

Houses cost you a lot more with easy credit. Simple supply and demand.

I am not sure how much effect this would have. Even if you rent, you have to live somewhere.

Penalizes savers because they cost more and encourages speculation and fraud like we saw.

20% down eliminates much of that because skin is in the game and lends itself to a true ownership society rather than a renters society. Renters or so-called home owners treat neighborhoods poorly, true owners don't.

Ideally we would live like Asians and Europeans, at home till 20-25, save 20-50% then buy.


As far as zero down sure there is value so are interest only but increases volatility, speculation and defaults of the housing marlet. I believe housing market should be stable, homes taken care of etc and 20%+ down does that.

I dont disagree with you on the 20% down being a good thing. That simple rule would have no doubt stopped much of the speculation that was happening. I in no way advocate a 0 down for everyone. It should only be used for that deserve it, ie those with good credit/earnings and living well within their means.

 

[the DRIZZLE]

It wasn't low down fixed rate long term mortgages that destabilized the system, at all, but rather the "creative" short term ARM mortgage deals and the "creative" ways that risk perception was swept aside in a fit of convulsive greed by Wall St.

It was all enabled by the FRB and Bush regulators, natch, in order to further the fortunes of the already rich and fool the electorate into giving them a second term. The prime rate was almost instantly reduced to the lowest level since 1955-

http://www.moneycafe.com/library/ratecharts/ratecharts1.gif

And then marched right back up again so as to precipitate the crisis while the Bushistas were still in power. Anybody who thinks this was an accident is delusional.

Meanwhile, the SEC allowed Wall St firms to employ outrageous leverage to facilitate the looting, and taxes for the investor class were reduced to new lows. GWB sold the chumps on the Ownership Society, Terrarist Threat!, God, Guns, and Gays to get re-elected.

Today, of course, low rates are employed in an attempt to hold prices high, something that can't last, because housing still isn't selling. Prices in the formerly bubblicious areas will decline even further in order to clear existing inventory and allow for the "growth" required to let the top 1% take 20%+ of all taxable income.

Can't figure it out? That's because we collectively admire and emulate rent seeking psychopaths who are sucking the life out of the economy. Because we buy into the whole idea that people at the bottom are dragging us down, rather than the people at the top pushing us down. Because denial is still possible, particularly among the Republican base who couldn't think straight if their lives depended on it, just the way their leadership wants it.

It's undeniable that low money down mortgages add more volatility to the system on both the upside and the downside.

 

[Jhhnn]

It's undeniable that low money down mortgages add more volatility to the system on both the upside and the downside.

Not enough to matter. Low down mortgages existed long before the looting spree of the ownership society was a gleam in the eye of Wall St bankers.

 

[Imp]

I am not sure how much effect this would have. Even if you rent, you have to live somewhere.

Canada, with our "perfect" banking system and "bulletproof" mortgage system in action:

http://www.nationalpost.com/opinion/columnists/story.html?id=734ff73e-1f8c-4bfd-b3de-5e468913e8be

Ottawa has been creating a housing bubble in Canada with taxpayer money, which is why residential real estate prices rise in defiance of high unemployment and recession.

Ottawa's low interest rate policy and Crown agency Canada Mortgage and Housing Corporation's dramatic increase in mortgage backstopping, for people who put only 5% down, have pushed up activity and prices.

A 5% down is required because it's backed by the CMHC (guberment owned), but then you have to pay mortage insurance ($10k on $500k? I think; they have a formula). You need 20% down before a bank takes on the risk of backing your insurance.

Edit: Better article:

http://www2.macleans.ca/2011/03/23/a-mortgage-monster/

 

[charrison]

Canada, with our "perfect" banking system and "bulletproof" mortgage system in action:

http://www.nationalpost.com/opinion/columnists/story.html?id=734ff73e-1f8c-4bfd-b3de-5e468913e8be



A 5% down is required because it's backed by the CMHC (guberment owned), but then you have to pay mortage insurance ($10k on $500k? I think; they have a formula). You need 20% down before a bank takes on the risk of backing your insurance.

Edit: Better article:

http://www2.macleans.ca/2011/03/23/a-mortgage-monster/

Yes I was reading about that the other day...


http://mjperry.blogspot.com/2011/03/are-canadas-home-prices-headed-for.html

Even if fueled by cheap money, people still have to live somewhere. So the real question may be, how does cheap money affect what someone buys when looking for housing?

 

[Doppel]

Canada, with our "perfect" banking system and "bulletproof" mortgage system in action:

http://www.nationalpost.com/opinion/columnists/story.html?id=734ff73e-1f8c-4bfd-b3de-5e468913e8be



A 5% down is required because it's backed by the CMHC (guberment owned), but then you have to pay mortage insurance ($10k on $500k? I think; they have a formula). You need 20% down before a bank takes on the risk of backing your insurance.

Edit: Better article:

http://www2.macleans.ca/2011/03/23/a-mortgage-monster/

Ottawa? I thought we were waiting for Vancouver to implode. Some of the home values there compared to income (perhaps THE key measure of affordability) are severely out of whack.

It's undeniable that low money down mortgages add more volatility to the system on both the upside and the downside.

For sure.

...a 0 down for everyone. It should only be used for that deserve it, ie those with good credit/earnings and living well within their means.

For sure, too.

0 down is a bad idea for many, but not all. I imagine that most people who have had 0 down have not defaulted on their mortgages. It's simply one number. Others need to be considered, too: income, credit history, debt load. I'd rather give a 200k house to a new physician with $0 down than somebody making $40k year who got a $100k inheritance and now thinks he wants to live in a half million dollar house.

 

[the DRIZZLE]

Ottawa? I thought we were waiting for Vancouver to implode. Some of the home values there compared to income (perhaps THE key measure of affordability) are severely out of whack.For sure.For sure, too.

0 down is a bad idea for many, but not all. I imagine that most people who have had 0 down have not defaulted on their mortgages. It's simply one number. Others need to be considered, too: income, credit history, debt load. I'd rather give a 200k house to a new physician with $0 down than somebody making $40k year who got a $100k inheritance and now thinks he wants to live in a half million dollar house.

You guys are missing the point about why 0% down is bad. Its not that the person won't be able to pay. It's that it encourages speculation on the way up and strategic default on the way down. If a young doctor buys a 500k house with 0 down and real estate prices drop 25% he still may strategically default even if he can pay.

 

[nonlnear]

You guys are missing the point about why 0% down is bad. Its not that the person won't be able to pay. It's that it encourages speculation on the way up and strategic default on the way down. If a young doctor buys a 500k house with 0 down and real estate prices drop 25% he still may strategically default even if he can pay.

There's nothing really wrong with speculation as long as the risk is priced correctly. A much better fix would be to prohibit resale and securitization of mortgages that have >80% LTV. (And perhaps cap all government loan guarantees - assuming we continue them at all - to the last 80% of LTV rather than goign through a far too detailed rewrite of regulations.) Make the originators hold the risks themselves, and let the rates fall where they may. The risks of highly leveraged loans weren't priced correctly because the originators didn't have to hold the loans, and had a system of smoke and mirrors whereby the purchasers weren't aware of what they were buying. i.e. The real buyers of the debt weren't pricing the loans according to the real risk due to structural information problems (putting it mildly).

 

[the DRIZZLE]

There's nothing really wrong with speculation as long as the risk is priced correctly. A much better fix would be to prohibit resale and securitization of mortgages that have >80% LTV. (And perhaps cap all government loan guarantees - assuming we continue them at all - to the last 80% of LTV rather than goign through a far too detailed rewrite of regulations.) Make the originators hold the risks themselves, and let the rates fall where they may. The risks of highly leveraged loans weren't priced correctly because the originators didn't have to hold the loans, and had a system of smoke and mirrors whereby the purchasers weren't aware of what they were buying. i.e. The real buyers of the debt weren't pricing the loans according to the real risk due to structural information problems (putting it mildly).

That's a reasonable solution. Most banks wouldn't make those loans if they had to hold them, or they would charge a much higher rate for the added risk.

 

[Jhhnn]

You guys are missing the point about why 0% down is bad. Its not that the person won't be able to pay. It's that it encourages speculation on the way up and strategic default on the way down. If a young doctor buys a 500k house with 0 down and real estate prices drop 25% he still may strategically default even if he can pay.

All true, and almost completely irrelevant to the current situation and to the expansion of the bubble itself. At the front end, NINA stated income adjustable rate interest only ARM's used by speculators drove prices up, and outright lies and deception at the back end, the securitization end, kept investors buying asswipe MBS as if they really were AAA securities.

It's not like risk was really an issue, because collapse was a sure thing. The only real questions were how much the middlemen could rake off the top and how long they could keep it going.

The economy of the Bush years was driven almost exclusively by real estate, military spending and debt acquisition at every level except among the nation's wealthiest. When that started to fall down, it took a lot of borrowers with it who would have survived otherwise.

This whole bit about requiring 20% down ignores the fact that we're still in a real estate pricing bubble, just on the back side rather than the front. Strategic default? Shee-it, Sherlock- killing what little demand there is with onerous loan requirements will bring on a wave of it, driving prices even lower in a debt default deflationary spiral.

The architects of the Bush economy knew this going in. It's classic boom/bust capitalism and the bust phase is where gains made during the boom are consolidated using liquidity that's suddenly very scarce for anybody who's not already rich...