80/20 gone...

[pstylesss]

I just learned from my realtor friend that 80/20 loans were no longer being issued as of 3 days ago or so. I was going to be able to buy a house in a year to a year and a half. Not anymore. *waves bye*

 

[elmro]

Thank the predatory practices of brokers selling in the sub prime market. Let's see, I will shove an 5+1 arm loan down the throat of someone with a 500 fico score and expect everything to be ok. When you do this on the scale of 10 million people - 80/20's go away.

 

[Gunslinger08]

Really? That sucks for me. It's tough to save up $50-60k for a down payment and closing costs.

 

[HomeBrewerDude]

whats wrong with a 80.20 loan?

 

[pstylesss]

Originally posted by: HomeBrewerDude
whats wrong with a 80.20 loan?

My understanding is the economy went down a bit, everyones forclosing. Therefore I get screwed.

Nothing is wrong with them if only people who can afford them were give one.

 

[spidey07]

Originally posted by: ZeroIQ

Originally posted by: HomeBrewerDude
whats wrong with a 80.20 loan?

My understanding is the economy went down a bit, everyones forclosing. Therefore I get screwed.

Nothing is wrong with them if only people who can afford them were give one.

Ummm, of course they are gone.

Wanna buy a house? Put down a payment, also known as a downpayment. Can anybody really blame a bank for recovering what they put out?

But I honestly think if you want to do this kind of loan there are plenty of people out there that want to sell it to you. You may not like the terms however.

 

[SampSon]

Sure they still exist, you just won't get manageable rates.
Or if the prices are low enough get FHA financing.

If that doesn't work then save up. Take the amount of money you would pay for a mortgage and bank it, you will have a decent downpayment soon. If you can't afford to do that then you can't afford a house in your area.

 

[pstylesss]

Originally posted by: SampSon
Sure they still exist, you just won't get manageable rates.
Or if the prices are low enough get FHA financing.

If that doesn't work then save up. Take the amount of money you would pay for a mortgage and bank it, you will have a decent downpayment soon. If you can't afford to do that then you can't afford a house in your area.

My plan was to save for a year and a half, now I need to save for about 3 to get enough for a down payment... then there is closing costs. This is putting ~1k a month away.

 

[Whoozyerdaddy]

Originally posted by: elmro
Thank the predatory practices of brokers selling in the sub prime market. Let's see, I will shove an 5+1 arm loan down the throat of someone with a 500 fico score and expect everything to be ok. When you do this on the scale of 10 million people - 80/20's go away.

It's a LOT more complicated than that..

First... That's not exactly how it was. Yes, there were some sleazy lenders out there that conned people into the wrong product. But the vast majority of the problem you see now came from the buyers begging for any way to get into "that" house. "Come on, there HAS to be a way to make it work!" And generally speaking, there always was. What's the mortgage guy supposed to do? If he doesn't write the loan the next guy will.

To understand this melt down you have to know what the sub prime lending market is.

You've all heard of Freddie Mac and Fannie Mae. What do they do? Basically they buy loans from banks. This gives the banks more money to loan. If Freddie or Fannie weren't there, the banks would loan all the money they have and that would be it. (Can't loan wht you don't have right?) Fannie Mae and Freddie Mac create liquidity in the market by buying up loans and freeing up lender resources so the lenders can loan more money.

NOW... Freddie Mac and Fannie Mae will not just buy any loan... in order for those entities to buy the loan, it has to meet certain criteria. Loans that meet these criteria are called Conforming loans. A conforming loan requires full documentation (W2's, bank statements, job verification with proof of time on job, minimum FICO, etc) and has strict income requirements and DTI ratios. Basically what everyone views as your standard mortgage.

Sub prime loans aren't bought up by Freddie Mac or Fannie Mae. They are called non-conforming. The guys loaning this money usually hold the loan themselves. Or they might find someone to sell it to on the secondary loan market.... Who knows. But generally speaking a lot of them were holding their own paper. Since they were loaning their own money and they were going to own the note, they could make the rules. (Its their money, thier risk right?) They were charging more for the loans and they charged a higher rate since they were taking on more risk. But because they were making the rules and assuming the risk themselves they could make any crazy loan product they wanted. And as long as their default rate didn't cross a certain line, they were fine. In fact, since the housing market was going up like a bottle rocket (thanks in large part to the sub prime funny money) in most of the country and people were buying and flipping or buying and selling after a short amount of time, nobody was defaulting and they were doing quite well.

But what goes up.... doesn't necessarily have to come down but can't keep going up at the rate it was forever. So when things leveled off, a lot of people (investors mostly at first) got caught. Boom. A wave of default. This started a chain of events where they had to tighten up the rules a bit... which shrunk the pool of buyers... which caused home values to slide a bit... which caught more people... which caused more defaults... which caused the rules to tighten more... which shrunk the pool of buyers... etc etc etc... and the process just accelerated until we got here.

NOW... to the OP's dillema. You have to understand that these 80/20 (or in some instances just plain 100%) loans were non-conforming (sub prime) loans. Where these lenders were happy to write you a loan that you had no financial stake in a year ago, today they want to see some money in the deal. Basically they mismanaged their own industry and have now reduced their product lines.


There's lots of blame to go around here. You can't put it all on the mortgage guy.

 

[RossMAN]

I'd like to hear Vic's input.

 

[SilthDraeth]

Is Vic in the Know in this industry?

 

[Fritzo]

It may be a blessing- all those 80/20 loans and other entry level loans are what caused the forclosure epidemic. I read in the paper yesterday that there was a 96% rise in forclosures in my part of the state. That's pretty scary.

 

[theknight571]

Originally posted by: RossMAN
I'd like to hear Vic's input.

What's dog fighting have to do with mortgages?

The market, at least here in SE MI just plain sucks.

Recently my house appraised at $20,000 less than it did 4-5 years ago.

We're almost upside down with our mortgage now... if we were to sell in the near future we'd probably end up having to eat some $$.

 

[iamwiz82]

Originally posted by: theknight571

Originally posted by: RossMAN
I'd like to hear Vic's input.

What's dog fighting have to do with mortgages?

The market, at least here in SE MI just plain sucks.

Recently my house appraised at $20,000 less than it did 4-5 years ago.

We're almost upside down with our mortgage now... if we were to sell in the near future we'd probably end up having to eat some $$.

I hear you there. Our only saving grace is our house is a smaller starter home with a lot of charm. People seem to think we will have an OK time trying to move it when we sell.

 

[LegendKiller]

Originally posted by: Whoozyerdaddy

Originally posted by: elmro
Thank the predatory practices of brokers selling in the sub prime market. Let's see, I will shove an 5+1 arm loan down the throat of someone with a 500 fico score and expect everything to be ok. When you do this on the scale of 10 million people - 80/20's go away.

It's a LOT more complicated than that..

First... That's not exactly how it was. Yes, there were some sleazy lenders out there that conned people into the wrong product. But the vast majority of the problem you see now came from the buyers begging for any way to get into "that" house. "Come on, there HAS to be a way to make it work!" And generally speaking, there always was. What's the mortgage guy supposed to do? If he doesn't write the loan the next guy will.

To understand this melt down you have to know what the sub prime lending market is.

You've all heard of Freddie Mac and Fannie Mae. What do they do? Basically they buy loans from banks. This gives the banks more money to loan. If Freddie or Fannie weren't there, the banks would loan all the money they have and that would be it. (Can't loan wht you don't have right?) Fannie Mae and Freddie Mac create liquidity in the market by buying up loans and freeing up lender resources so the lenders can loan more money.

NOW... Freddie Mac and Fannie Mae will not just buy any loan... in order for those entities to buy the loan, it has to meet certain criteria. Loans that meet these criteria are called Conforming loans. A conforming loan requires full documentation (W2's, bank statements, job verification with proof of time on job, minimum FICO, etc) and has strict income requirements and DTI ratios. Basically what everyone views as your standard mortgage.

Sub prime loans aren't bought up by Freddie Mac or Fannie Mae. They are called non-conforming. The guys loaning this money usually hold the loan themselves. Or they might find someone to sell it to on the secondary loan market.... Who knows. But generally speaking a lot of them were holding their own paper. Since they were loaning their own money and they were going to own the note, they could make the rules. (Its their money, thier risk right?) They were charging more for the loans and they charged a higher rate since they were taking on more risk. But because they were making the rules and assuming the risk themselves they could make any crazy loan product they wanted. And as long as their default rate didn't cross a certain line, they were fine. In fact, since the housing market was going up like a bottle rocket (thanks in large part to the sub prime funny money) in most of the country and people were buying and flipping or buying and selling after a short amount of time, nobody was defaulting and they were doing quite well.

But what goes up.... doesn't necessarily have to come down but can't keep going up at the rate it was forever. So when things leveled off, a lot of people (investors mostly at first) got caught. Boom. A wave of default. This started a chain of events where they had to tighten up the rules a bit... which shrunk the pool of buyers... which caused home values to slide a bit... which caught more people... which caused more defaults... which caused the rules to tighten more... which shrunk the pool of buyers... etc etc etc... and the process just accelerated until we got here.

NOW... to the OP's dillema. You have to understand that these 80/20 (or in some instances just plain 100%) loans were non-conforming (sub prime) loans. Where these lenders were happy to write you a loan that you had no financial stake in a year ago, today they want to see some money in the deal. Basically they mismanaged their own industry and have now reduced their product lines.


There's lots of blame to go around here. You can't put it all on the mortgage guy.

Non-conforming loans aren't subprime loans. There are many, many, many gradients of loans besides just the catch-all "subprime". An 80/20 doesn't really mean that it's subprime, just that it's non-conforming.

Fannie and Freddie have criteria by which they can purchase whole loans. That criteria has a certain FICO floor, some of which could be considered "subprime", I do not know the exact limit. Additional criteria may be where the house, calculating value relative to the loan (loan to value or LTV), the amount taken in LTV (sometimes you can get away with PMI on an 80-10-10), the debt to income ratio, and what mostly disqualifies loans from being conforming, size (417K+ is a jumbo non-conforming) among other items.

If you had a verified income mortgage with a good debt to income and an 800 FICO, but had an 80/20, you might not even be considered "subprime", you might be Alt-A. Alt-A is a non-conforming prime loan, far from Subprime.

Subprime loans CAN and DO get bought by Fannie and Freddie through RMBS tranches. They hold a huge amount of these tranches to create liquidity in the markets without violating their GSE charters since they are senior tranches.

People handed mortgages out like they were candy at a parade. In 2001 after the Fed dropped rates a refi bonanza kicked up. After that died the mortgage industry needed something to do, so they started handing out more mortgages. This resulted in the huge price inflation we saw in the last 6 years.

Not only that, but it drove GDP, the job market, and everything in between. The only trick to the situation was that prices had to keep going up to keep the credit bonanza going. Prices started coming down and the pyramid scheme stopped.

80/20 loans will be back, but not for a while and you're going to have to have good credit and income to get one.

 

[pontifex]

Originally posted by: SilthDraeth
Is Vic in the Know in this industry?

Apparently Vic is in the know about everything.

 

[AmigaMan]

I'm sorry, but maybe I'm just an idiot. What is an 80/20 loan and how will it's demise prevent people from financing a house?

 

[Demon-Xanth]

AmigaMan: it's when you take out two mortgages, one to cover 80% and the other to cover the remaining 20%. Personally, it's what I was planning on getting now that the housing market's come back within reach (it had gone up 80% in two years).

Atleast I got some funds that I can put down 10%, 15% if I let my parents help me. (they keep saying they want to, but I don't want to rely on them)

 

[vi edit]

Originally posted by: AmigaMan
I'm sorry, but maybe I'm just an idiot. What is an 80/20 loan and how will it's demise prevent people from financing a house?

The big push for this was so that you could get 100% financing but you got out of paying PMI. Typically the 80% was a conventional 30 year loan that you had a decent rate on. The second 20% was at quite a bit higher of a rate. But with them both combined it was still anywhere from $100-several hundred cheaper a month than a conventional 30 year that payed PMI.

The other upshot is that at the time, PMI wasn't deductible on taxes (could be thousands a year) while the higher interest on the second loan was.

It's my understanding that there has been new legislation that allows some claiming of PMI now. But I really don't know the details. Because of this, the 80/20 allure might not be so great anyway.

 

[Xavier434]

Be patient OP. In about a year, a lot is going to change in the world of real estate. My father has been working at a bank for longer than I can remember. He gives me updates on this kind of thing all the time.

 

[sao123]

whew... glad i bought my house in May... we used a variation of the 80/20 program with seller assist for closing costs...

Although me & my wife both have 78x's credit scores, and excellent DTI ratios... We wouldnt have been able to buy a house this year if it werent for that, we did it with <4K cash on hand.

 

[SpiderWiz]

My loan officer told me last night, that her company is still going to do 80/20 loans. But she commented on several banks not doing it any more.

 

[LegendKiller]

Originally posted by: Xavier434
Be patient OP. In about a year, a lot is going to change in the world of real estate. My father has been working at a bank for longer than I can remember. He gives me updates on this kind of thing all the time.

This is something I have said in the P&N news thead and in other places for the last 3 years. This whole credit bonanza was obviously leading to inflated prices. If wages, and appreciation, kept up, then fine, great.

However, prices, due to easy credit, outstripped wages so far that people went to creative financing and more non-conforming products. Again, thats great provided prices kept going up and people were enticed by equity to stay in.

However, eventually the credit gets tapped out and so do wages. That's when prices level and start to decline. As prices decline you'll see the borrowers roll back, the newest will be less enticed to stay in an expensive house. As ARMs reset, expense will go up, if there isn't enough skin in the game to keep people honest, they'll walk away.

Naturally, this leads to a downward spiral/feedback loop. As prices go down, interest goes up, equity goes down and/or negative, leading to people either foreclosing, selling, or just walking away. This leads to further price erosion, which results in further waves of selling, foreclosing, and walking away. This cycle will keep going until prices have reached an equalibrium with more normal means of financing and wages.

The credit market plays into this because they will obviously not lend to people without skin in the game, unless it's at much higher rates than recently available. More risk, more reward/interest. Additionally, all loans will have more price risk baked into them, since any declining asset can be risky.

Of course, this will in turn trigger layoffs in the job market and declining GDP as a result, triggering further waves of foreclosures.

People say that the GDP results lately were good. Sure, but that's most likely just due to Q2 being naturally higher than Q1, us having an extremely poor Q1, and some last vestiges of growth before the downturn.

Some will say that I am fearmongering. However, the logic is sound and nobody has yet to present a more complete or thorough analysis of the situation.

 

[z0mb13]

Originally posted by: SpiderWiz
My loan officer told me last night, that her company is still going to do 80/20 loans. But she commented on several banks not doing it any more.

what's the rate on the second? 12-15%?

 

[slag]

Originally posted by: spidey07

Originally posted by: ZeroIQ

Originally posted by: HomeBrewerDude
whats wrong with a 80.20 loan?

My understanding is the economy went down a bit, everyones forclosing. Therefore I get screwed.

Nothing is wrong with them if only people who can afford them were give one.

Ummm, of course they are gone.

Wanna buy a house? Put down a payment, also known as a downpayment. Can anybody really blame a bank for recovering what they put out?

But I honestly think if you want to do this kind of loan there are plenty of people out there that want to sell it to you. You may not like the terms however.

for people who havent saved money, 80.20s were godsends. I own one and have PMI to cover it so there is very minimal risk for the bank.