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Well, it is irresponsible that we as a nation have created a system where we not only allow it, but taxpayers subsidize it or implicitly guarantee it.
I still disagree. The mortgage crisis was not brought about because of no down payment mortgages. This type of mortgage is not new, and many people bought with no down payment with FHA or CDA or other loans for decades without there being a mortgage crisis.
The crisis was caused by no documentation loans, interest only loans, ARM's, and other creative financing that allowed buyers to qualify for mortgages way beyond their ability to repay them. You don't buy a house based on what you think it may be worth a few years down the road, and what you hope to be earning at that time. You buy based on what you can afford NOW.
I still disagree. The mortgage crisis was not brought about because of no down payment mortgages. This type of mortgage is not new, and many people bought with no down payment with FHA or CDA or other loans for decades without there being a mortgage crisis.
The crisis was caused by no documentation loans, interest only loans, ARM's, and other creative financing that allowed buyers to qualify for mortgages way beyond their ability to repay them. You don't buy a house based on what you think it may be worth a few years down the road, and what you hope to be earning at that time. You buy based on what you can afford NOW.
I agree. The main issue was the banks approving people who had no means to repay in case anything goes wrong (IE home price decreases and or mortgage increases due to increase in mortgage rates).
IO, Option ARMs are actually a great way for young professionals with higher earning potential to afford a home, or even those who rely on huge bonuses at the end of the year. Those were meant to appeal to fresh MBA's, young doctors and young lawyers who have a potential to make a lot of money but don't have a lot of cash assets at an early stage in their careers.
But we are a nation of blame (blame anyone but us) mentality. The people blame the banks, the banks blame the investors. The investors turn around and blame the banks and the mortgage brokers for approving these customers.
The main point for me writing "anything less than 10%" means you are underwater is that you need to be able to cover your losses.
A young laywer who now making 200K a year after 5 years on the job but is 100K "underwater" on their mortgage. Most likely they will be able to cover their losses.
Some one making 90K (say two wage earner school teachers) year who are 100K underwater most likely aren't able to recover and make those housing payments.
All I am trying to say is if you buy a home, be prepared to cover your losses if you home depreciates or even if it doesn't depreciate, you most likely will incur closing costs, real estate commissions that will eat into around 10% of the purchase price.
There's a reason PMI is set in place for downpayments less than 20%. Banks reason they may have to slash home prices 20% (including property maintenance costs) in order to resale a home in foreclosure.
Why isn't PMI set for those making more than 3.5% downpayments? or even 10%? For obvious reasons; homeowners are much less likely to default the higher their downpayments. Any idiot can figure that out.
I still disagree. The mortgage crisis was not brought about because of no down payment mortgages.
I never said that they "caused the mortgage crisis." I didn't even say anything about a mortgage crisis, since I consider it a debt crisis, not just a mortgage crisis.
Regardless, I do think that loaning out such huge sums of money to new home buyers (relative to their incomes) is a piece of the puzzle that led to this debt crisis. The same thing happened with student loans. You give people "free money" to buy X, keep interest rates low, and watch the price of X skyrocket.
I'm not understanding. Do tax payers subsidize the larger loan amounts? Or interest rates?
I was referring to American taxpayers being on the hook for Fannie Mae, Freddie Mac, and the FHA's obligations.
But I feel a similar way about the mortgage interest deduction, the $8,000 tax credit, quantitative easing, and the recent bailouts of big players in secondary mortgage markets (AIG, Goldman Sachs, Citi, Bank of America, JP Morgan Chase, etc.), and the asset inflation (energy & houses) we got from low interest rates. It is all a scheme.
I was referring to American taxpayers being on the hook for Fannie Mae, Freddie Mac, and the FHA's obligations.
That makes sense.
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But I feel a similar way about the mortgage interest deduction, the $8,000 tax credit, quantitative easing, and the recent bailouts of big players in secondary mortgage markets (AIG, Goldman Sachs, Citi, Bank of America, JP Morgan Chase, etc.), and the asset inflation (energy & houses) we got from low interest rates. It is all a scheme.
I feel similar about a host of payouts as well. It is a scheme, a thieving scheme imo. It's difficult to figure where the garbage begins and ends. As far as down payments go, I don't think it's smart taking ~ 40-100k (for first time home buyers at least) out of savings for it; not in this economy.
I still disagree. The mortgage crisis was not brought about because of no down payment mortgages. This type of mortgage is not new, and many people bought with no down payment with FHA or CDA or other loans for decades without there being a mortgage crisis.
The crisis was caused by no documentation loans, interest only loans, ARM's, and other creative financing that allowed buyers to qualify for mortgages way beyond their ability to repay them. You don't buy a house based on what you think it may be worth a few years down the road, and what you hope to be earning at that time. You buy based on what you can afford NOW.
I agree; zero down payment loans did not cause this mess. Greed did. No one is innocent.
I agree; zero down payment loans did not cause this mess. Greed did. No one is innocent.
So what's the percentage of people who put 10% down who actually ended up defaulting? How about 20% down?
Compare that to 0% down who default?
But I will agree with you that pure greed was the real cause AND Fraud. You had so many people buy many properties at once (lying on their mortgage application about income/jobs/etc) and the banks approved these loans and the investment bankers brought these resold securities.
So what's the percentage of people who put 10% down who actually ended up defaulting? How about 20% down?
Compare that to 0% down who default?
But I will agree with you that pure greed was the real cause AND Fraud. You had so many people buy many properties at once (lying on their mortgage application about income/jobs/etc) and the banks approved these loans and the investment bankers brought these resold securities.
I recently read an article about a woman who makes $50,000 a year threatened with foreclosure on a $500,000 mortgage. How would a 20 % down payment improve this person's situation? Why was she give this loan? Why did she think that she could afford this loan? Greed!
According Citibank, she can afford a $145,000 mortgage without any debt. If she would have purchased a home with no down payment at this price, she would have been okay. However, you can't get much for that amount in NYC. A down payment of 355,000 would have enabled her to afford a 500,000 mortgage. Not likely. The highest indicators of being succesful with making mortgage payments are credit worthiness and income. Down payments allow individuals to buy more expensive homes at an affordable price.
There is a big difference between rent and mortgage, if you can't afford the rent tomorrow you can just tell the landlord goodbye and do something else like rent a cheaper place, get a roomate, move in with family etc. etc. If you can't afford the mortgage you are SCREWED...it is a much bigger commitment.
In addition buying has additional responsibilities like maintainence and repairs which can be substantial costs not reflected in just the monthly payment.
No, I couldn't just tell the landlord goodbye and find another place to rent. There wasn't a single place for me to rent in the first place. I have no family here to move in with.
Regardless, back when I did rent, not once could I not afford the rent. And now that I'm paying a mortgage (obtained with 3% down) I have never been unable to afford it. Household repairs aren't killing me either. Never in my life have I paid a bill late. I am doing better than ever, financially speaking. There is nothing about paying less than 10% down that has jeopardized my ability to meet my obligations.
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