Financially, yes, but should the government (who was largely responsible for the problem to begin with) force it?
Also, it would destroy what little equity remains since it would essentially take 70% of potential buyers out of the market for two reasons:
1. Fewer have the 20% down
2. Those that have enough equity to sell and “buy up” no longer will after their values plummet even more.
It will basically snowball a decline in home values to far UNDER their likely intrinsic value for a good decade.
Probably something ultimately good would result, but, there will be a LOT of people, probably 40% of the population, who are so far underwater in their homes that the value of their home will likely be less than 50% of their mortgage balance.
I’m not even getting into the income requirements, but analyzing that it seems to be pretty on-target with what most requirements are anyway.
If a private lender without a government guarantee wants to lend at less than 20% down though, why should the government stop them?
They will all sell those mortgages to someone who is TBTF. Win-win-win for everyone but the taxpayer.
What do you mean by “their likely intrinsic value”?
There are tens or perhaps hundreds of thousands of housing units that will never be sold. Their actual value is zero.
There are millions of units whose nominal value is 20-30% higher than their actual value.
Until the market liquidates these units, and perhaps until units with no value are physically destroyed, this will not improve.
“Financially, yes, but should the government (who was largely responsible for the problem to begin with) force it?”
That’s not an accurate description of the crisis despite the constant repetition of that theme around here.
The bulk of subprime loans and the riskiest were created by non-depository Wall Street firms that were exempt from the CRA and virtually any other regulation. They were mining the subprime market because it was extremely profitable, not because of any government pressure. There was government pressure on retail banks and depository institutions but it didn’t apply to the non-depository firms and pure lenders.
The development of the subprime industry by Argent, Ameriquest, Ownit, Countrywide, and the other major players is the basis of Muolo and Padilla’s ‘Chain of Blame’. It’s well worth reading.