80/20 gone...

[Demon-Xanth]

Originally posted by: 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%?

Usually it's a fairly low rate for the primary one, but the second is just about 1% higher or so. Nothing major, though they're often adjustable rates that go up after 3-5 years. I can pull up the numbers on what I was quoted two years ago when I decided to take an apartment rather than an overpriced "condo".

 

[kranky]

Originally posted by: LegendKiller
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.

I'm no real estate wizard or economist but I was always baffled how so many people felt there was nothing wrong when:

1. In some areas like San Diego, only 10% of buyers could qualify for a conventional mortgage due to inflated home prices, and an ever-increasing percentage of mortgage were "liar loans" (no proof of income required).

2. Rents were significantly cheaper than the monthly mortgage payment.

Common sense tells you that it is not possible for such a trend to continue indefinitely. I do feel bad for the people left holding the bag now but it was their choice to play. If you gamble on being able to flip a home in two years before your interest-only ARM resets, knowing you can't possibly afford the higher payment, then you have to accept that it might not work out.

 

[JeffreyLebowski]

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.

Just because someone can't save up $30K to put down on a house doesn't mean they can't afford it. Believe it or not, people do something called RENTING and it cost money to do so. So a family that brings in $100K a year with 2 kids, isn't going to be saving $30K in just a few years. By your logic only the wealthy should get to live in a house where as the not wealthy should live in slums and ghettos?

 

[z0mb13]

Originally posted by: Demon-Xanth

Originally posted by: 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%?

Usually it's a fairly low rate for the primary one, but the second is just about 1% higher or so. Nothing major, though they're often adjustable rates that go up after 3-5 years. I can pull up the numbers on what I was quoted two years ago when I decided to take an apartment rather than an overpriced "condo".

I used to work at a subprime mortgage lender that went bust after I left

The diff between the first and second was not 1%. first lien was an average of 8-9% (at late last year) and 2nd lien loans about 12% ish. So I am guessing now it is even higher (even if they fund at all).

In this environment, only suicidal lenders do 2nds. Late last year 2nds were only valued 80% of par, so basically lenders lost 20% right off the bat when they fund seconds. I would imagine now it is worse.

 

[waggy]

I have little sympathy for anyone involved. bad part is i have a feeling that tax payers are going to be paying for it.


lenders were idiots loaning money to people that can't afford it. I have read where people get $300k loan (around here that is a LOT) when they have a family income of $45k. They get adjustable rate 80/20 loans and now can't afford the laon because the rate went up.

both are idiots. the persong getting a loan they can't afford and the lender giving it to them.

the loans were out of control. people were buying these huge expensive houses when they should be buying nice little cheap houses. they can't have a smaller less nice house then the guy next door!



a good friend of mine is in trouble with this. they baught a $350k house (4.5k sq feet for a family of 3) for a 1st house. now rates are higher and they can't get a better loan. I told them they should have got a house like mine. 2k sq feet and half the cost of his.

 

[Demon-Xanth]

Originally posted by: kranky

Originally posted by: LegendKiller
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.

I'm no real estate wizard or economist but I was always baffled how so many people felt there was nothing wrong when:

1. In some areas like San Diego, only 10% of buyers could qualify for a conventional mortgage due to inflated home prices, and an ever-increasing percentage of mortgage were "liar loans" (no proof of income required).

2. Rents were significantly cheaper than the monthly mortgage payment.

Common sense tells you that it is not possible for such a trend to continue indefinitely. I do feel bad for the people left holding the bag now but it was their choice to play. If you gamble on being able to flip a home in two years before your interest-only ARM resets, knowing you can't possibly afford the higher payment, then you have to accept that it might not work out.

To add some figures to this:
A family spending $900/mo on rent (typical 2 bed apartment) with the ability to afford a mortgage with a $1500/mo payment. This is about equivilent to a $230k house (typical okayish entry level house) with a 20% down payment ($46,000)
If they saved up the $600/mo, they would save up $7200/year. It would take a bit over six years to save up the 20% down payment at that rate. During which time, they will be having zero equity.

 

[nakedfrog]

I just refinanced my 80/20 into a 30 year fixed last month. Now, even with PMI, I'm paying less than I would have with the ARM (and a leg )

 

[Demon-Xanth]

Originally posted by: z0mb13
I used to work at a subprime mortgage lender that went bust after I left

The diff between the first and second was not 1%. first lien was an average of 8-9% (at late last year) and 2nd lien loans about 12% ish. So I am guessing now it is even higher (even if they fund at all).

In this environment, only suicidal lenders do 2nds. Late last year 2nds were only valued 80% of par, so basically lenders lost 20% right off the bat when they fund seconds. I would imagine now it is worse.

Those figures are a LOT higher than the ones I got approved for. My numbers were closer to 7 and 8.

 

[z0mb13]

Originally posted by: Demon-Xanth

Originally posted by: z0mb13
I used to work at a subprime mortgage lender that went bust after I left

The diff between the first and second was not 1%. first lien was an average of 8-9% (at late last year) and 2nd lien loans about 12% ish. So I am guessing now it is even higher (even if they fund at all).

In this environment, only suicidal lenders do 2nds. Late last year 2nds were only valued 80% of par, so basically lenders lost 20% right off the bat when they fund seconds. I would imagine now it is worse.

Those figures are a LOT higher than the ones I got approved for. My numbers were closer to 7 and 8.

i am guessing you fall into the "alt-A" bucket. you must have 700+ credit.

 

[Demon-Xanth]

Originally posted by: z0mb13
i am guessing you fall into the "alt-A" bucket. you must have 700+ credit.

About 800 even. (795, 804, 815 at last check)

 

[Gooberlx2]

Originally posted by: 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.

That's all? I heard on the local public radio this morning that it's about a 500% increase around here compared to the same time last year.

 

[LegendKiller]

Originally posted by: Gooberlx2

Originally posted by: 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.

That's all? I heard on the local public radio this morning that it's about a 500% increase around here compared to the same time last year.

Keep in mind that the foreclosure rates were artificially low for the latter couple months of 2005 and most of 2006 due to the bankruptcy legislation.

I have no sympathy for these people either. Only extremely foolish people couldn't see what was happening.

 

[JEDI]

Originally posted by: ZeroIQ
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*

what? why were 80/20's canceled?

it was a sweet loan as well.

no $ down, 80% 1st loan, 20% 2nd loan (at a little higher interest).

and you didnt even have to pay the 20%. (and my loan had no late penalties. )

Just pay the minimum on the 80% and the bank is happy. they're not going to foreclose if you miss the 20% part.

But are 80/20's gone by law, or because you dont have the credit rating?

 

[Demon-Xanth]

Originally posted by: JEDI
what? why were 80/20's canceled?

it was a sweet loan as well.

no $ down, 80% 1st loan, 20% 2nd loan (at a little higher interest).

and you didnt even have to pay the 20%. (and my loan had no late penalties. )

Just pay the minimum on the 80% and the bank is happy. they're not going to foreclose if you miss the 20% part.

But are 80/20's gone by law, or because you dont have the credit rating?

They're going away because banks don't want to take the risk.

 

[LegendKiller]

Originally posted by: JEDI

Originally posted by: ZeroIQ
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*

what? why were 80/20's canceled?

it was a sweet loan as well.

no $ down, 80% 1st loan, 20% 2nd loan (at a little higher interest).

and you didnt even have to pay the 20%. (and my loan had no late penalties. )

Just pay the minimum on the 80% and the bank is happy. they're not going to foreclose if you miss the 20% part.

But are 80/20's gone by law, or because you dont have the credit rating?

There is little appetite for them on the secondary market. A lot of creditors are pulling back from more questionable loans to see how the housing market will shake out. Look at it from their perspective. Why would they loan 100% on a falling asset knowing that that person will have a greater chance of defaulting?

if nobody wants to buy on the secondary market, nobody will originate.

 

[Accipiter22]

edit: Wait I think i grossly misunderstood what an 80/20 loan is

 

[Mxylplyx]

Originally posted by: JEDI

Originally posted by: ZeroIQ
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*

what? why were 80/20's canceled?

it was a sweet loan as well.

no $ down, 80% 1st loan, 20% 2nd loan (at a little higher interest).

and you didnt even have to pay the 20%. (and my loan had no late penalties. )

Just pay the minimum on the 80% and the bank is happy. they're not going to foreclose if you miss the 20% part.

But are 80/20's gone by law, or because you dont have the credit rating?

Your telling me you dont pay at all on your 20% mortage? If so, your credit score is probably getting wrecked. Second, they probably will foreclose at some point, and you'll be stuck in an apartment for the rest of your life unless you can pony up cash for the house.

 

[alkemyst]

Originally posted by: ZeroIQ
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*

Just about any 'no borrower funds' loan is being stopped. It's really for the consumers own good. If they cannot come up with a modest downpayment (3-5% even) and maintain a good credit rating...they really have no place in financing a large purchase at all, yet alone a house which if not kept up and paid for not only hurts the loan servicer, but also the neighborhood.

Also things in the past were way too loose for the average joe

Adj. Rate loans are not the culprit either as some have stated...it's telling the customer they can't qualify for a 6% no money down 30 year fixed loan with a 480 credit score, but you can put them in an 11% ARM (as a teaser rate) that will adjust more than likely higher next year.

As long as one has a decent credit score , I think the guidelines are now around 660 - 680 where you have to be in order to get less than 20% down. For some credit scores the downpayments are now increased beyond 20%.

These are for owner occupied dwellings. Investment and second homes are now limited to higher credit scores.

 

[UpGrD]

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.

Well your understanding is wrong. The economy has slowed some in order to maintain a sustainable pace. That is the reason the FED raised rate's (still historically very low) in order to control inflation. You are also wrong on the "everyones forclosing" claim. 1 in 120 (+-) are going into foreclosure. That is less than 1%. Lets not buy into the hysteria ...

 

[Vic]

Originally posted by: pontifex

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

Apparently Vic is in the know about everything.

I'm a mortgage banker with 13 years experience in the industry.

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.

Because brokers lend their own money and set lending guidelines, right? :laugh:

:roll:

Yes, 80/20's have gone away. Not the 80 part, of course, but the piggyback 2nd. Forget brokers, who are just middlemen. Almost all lenders act as conduits. Making loans and then selling them off on the secondary market. And the secondary markets aren't buy high LTV 2nd's in most states right now.

However, 100% 1st programs still exist in many forms, and mortgage insurance is tax deductible at this time, and still worth checking out.

And about prices... yes, they are inflated in most markets. Yes, this is a problem. Duh. Blind men saw this coming. Duh. The greater issue is how they got there, namely, through inexpensive and readily-available financing. And the only way prices will go down is if funds becomes more expensive and less available.
Let's say for example you get a $300k mortgage at 5%, the monthly payment is $1610.46/mo. Lending guidelines tighten, large downs are required, rates go up, prices fall, and now the house is only $200k but rates are 9% -- your payment is now $1609/mo. and less homebuyers are like to qualify.

Exactly what have you "won"?

 

[ra990]

Try Bank of America's No Fee Mortgage Plus Program. Its pretty good. One loan, no PMI, and virtually no closing costs. And no, they don't hike up the rate to make up for the closing costs, they're just as good as PenFed's rates.

My next home purchase, hopefully in 2/2008, will be with that program.

 

[Demon-Xanth]

Originally posted by: Vic
Let's say for example you get a $300k mortgage at 5%, the monthly payment is $1610.46/mo. Lending guidelines tighten, large downs are required, rates go up, prices fall, and now the house is only $200k but rates are 9% -- your payment is now $1609/mo. and less homebuyers are like to qualify.

Exactly what have you "won"?

I've always said I'd rather buy with a low price and high interest rate than a high price and low interest rate. Because you can always refinance or pay more on the prinicple to lower the interest paid, but you can't change the price that you paid.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Gooberlx2

Originally posted by: 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.

That's all? I heard on the local public radio this morning that it's about a 500% increase around here compared to the same time last year.

Keep in mind that the foreclosure rates were artificially low for the latter couple months of 2005 and most of 2006 due to the bankruptcy legislation.

I have no sympathy for these people either. Only extremely foolish people couldn't see what was happening.

And now the rates are artificially inflated, and the fearmongerers are helping the secondary market in their pump and dump scheme of the housing market.

It's sad to see that NPR is in on this. They, of all groups, should IMO understand the larger ramifications of restricting access to homeownership AND what a decline in property values will do to local governments who depend on the tax revenue.

 

[Feldenak]

Can't say that it will really affect me. I was always under the assumption you should put at least 10% down on a home purchase. No 80/20 loans won't change my plans to look into purchasing a house in late 2008/early 2009.

 

[SpiderWiz]

Originally posted by: 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%?

Good question. Not sure to be honest, I never knew what an 80/20 loan was before reading this thread.