Up until the 1990s you had to put down 10% and 10% was insured through private mortgage insurance. And the 26/36 rule was there. FHA was 29/41. VA was 41% only with no front ratio.
From 2007 to 2010 my wife and must have sold 80 houses or so. Only one buyer put down more than 3%. Not one of those buyers have gone into foreclosure yet.
What caused this mess was phony values and no doc “B” paper interest only and and adjustable loans. People bought what they could afford at the time but when the rate adjusted the houses had dropped to what they should have been valued at to begin with. Now they can’t refinance because their house doesn’t appraise. Were they stupid to have paid the over valued prices? Sure. But knocking another huge percentage of buyers from the market is not the solution.
I can see a mortgage moratorium in the future. Plus, a major bank failure is looming, too. Times are really going to get tough.
And I forgot the zero down stupidity. But there were many who did put money down but their rate went through the roof and their value went through the cellar so they couldn’t refinance. Plus there are millions who bought by the rules but are losing their homes because they lost their jobs.
People are saying on here to let this sort itself out and homes will sell when the price reaches it’s bottom. Sadly I’m afraid many of them will be crack houses by then. And those will never sell.
I don’t know what the answer is but I do not believe the government going to the extreme is the solution.
Terry, I share your concerns, but removing truly unqualified "buyers" from the market is a big part of the solution.
If a young couple know they're going to have to put down 15-20% to qualify for a house, they'll do it, even if it means they'll have to give up their Beemers and all the other goodies that they thought they were "entitled" to.
It makes no sense whatsoever to approve a mortgage with a 25% front end ratio, when the back end ratio is over 60% due to student loans, car loans, and credit card debt.
The real problem is more on the income/assets/credit side than the down payment side. Stated income loans, etc, and just general overvaluation caused by easy money.
Should people have “skin” in the game? Absolutetly. Does it have to be a full 20%? Maybe, maybe not. Traditional FHA loans had low overall losses until recently, when they started giving them to people who really didn’t qualify, hoping they could be swept under the rug when they were packaged and sold.
What do you mean by a mortgage moratorium?