HT to daytrip for sending this in:
http://www.nytimes.com/2014/09/14/magazine/are-subprime-mortgages-coming-back.html?ref=magazine&_r=1
An excerpt:
This lending freeze is not just preventing people like the Sleimans, who have struggled to document their income, from chasing their dreams. It’s bad for the overall economy too.
Laurie S. Goodman, an expert in housing finance at the Urban Institute, a think tank in Washington, D.C., recently calculated that lenders would have made an additional 1.2 million loans in 2012 had they merely loosened standards to the prevailing level in 2001, well before the industry completely lost its sense of caution.
As a result, fewer young people are now buying first homes, fewer older people are moving up and less money is changing hands. Instead of driving the economic recovery, the housing business is dragging behind. “An overly tight credit box means fewer individuals will become homeowners at exactly the point in the housing cycle when it is advantageous to do so,” Goodman and her co-authors wrote in their study, published in The Journal of Structured Finance. “Ultimately, it hinders the economy through fewer new-home sales and less spending on furnishings, landscaping, renovations and other consumer spending.”
“We’ve locked down mortgage lending to the point where it’s like we’re trying to avoid all defaults,” said William D. Dallas, the chairman of Skyline Home Loans, who has three decades of experience in the industry. “We’re back to using rules that were written for Ozzie and Harriet. And we’ve got to find a way to help normal people start buying homes again.”
Navy Fed is doing their part, and these aren’t VA loans. Rate is around 5.50%:
Zero DP a terrible idea.
Zero down is just crazy, especially with no recourse… should be 80/20 up to 80/10/10 if you really qualify. Going through the pain of saving for a down payment is a good exercise to get an understanding of what it will feel like owning a house and pouring all your spare money, and some not-so-spare money, back into the house. If you are not up to scrimping and saving for a down payment, you may not be up to owning a house. Crux of the problem with the current generation of non-home buyers, I think (along with low wages, bad job market and student loans….)
Nowadays, it is debt to income that is the killer for most, especially self employed. The way the banks discount every source of income and expand every potential expense assures no qualification. I think they should slide the debt to income ratio based on how much a borrower puts down. If you want to put 40% down and have a super high DTI and be house poor; knock yourself out. At least you’ve got skin in the game.
“As it will be in the future,
It was at the birth of Man
There are only four things certain
Since Social Progress began.
That the Dog returns to his Vomit
And the Sow returns to her Mire,
And the burnt Fool’s bandaged finger
Goes wabbling back to the Fire;”
-Kipling
“It’s the same the world over, aint it a feckin’ shame
It’s the rich what get the pleasure
And the poor what get the blame”
-Some Drunk Irishman
As long as credit checks and income verification happen this time, I think it will not cause the same issues as before.
“As long as credit checks and income verification happen this time, I think it will not cause the same issues as before.”
I respectfully disagree. With no money down, the homeowner is more similar to a renter, so when the going gets tough, he can walk away and rationalize it as, “it’s around the same money I was paying out when I was a renter. I can leave the house now, to buy another day.”
A decent down payment gives the homeowner around 80,000 or more counter-arguments to the above reasoning, where none existed before.
This is a very old economic theory. The curious can find it by googling “moral hazard.”