They used to.
Then young lawyers, fresh out of college, like Barry Obama, took the banks to court on the basis that 20% down was racist.
Some folks just can’t afford 20%, 10% or even 5% down no matter how long they save but they can afford to make a house payment.
Banks should base a loan on ability to repay not by the size of the down payment. A large down payment DOES NOT guarantee the loan will be repaid and that’s been proven over and over.
The one constant in any economic or financial bubble is the over-exuberance of the masses.
The tech bubble was inflated by the aggregate excessive demand of each 401k holder that wanted to get in on the dot-com action. Wall Street just obliged (as they always do) by selling us more dodgy tech stocks and finding them wherever they could get an executive team with plausible CVs, even if the companies didn’t have a clue how they were ever going to be profitable. If we the consumer didn’t care, why should Wall Street care?
The housing bubble was inflated by the aggregate demand of each American home buyer who individually believed that houses can only go up in value, and that they DESERVED that 4000 square foot mini-mansion after their long hours at home. Wall Street just obliged (as they always do), and figured out ways to funnel more money to our demand for loans, by securitization which allowed Americans to, in essence, borrow from every source of capital in the world..
The fact is that no government, and especially not a democratic government, can help a populace that is individually and collectively lacking in prudence.
Sure Greenspan and Frank and Dodd and Paulson and Bernanke poured gasoline on the fires, but they would have been replaced if they didn’t. As long as the public thinks there is a free ride to wealth, anyone that promises it will be exalted, and anyone that hinders it will be shoved aside.
“The industry should regulate itself and 20% down should be about the minimum.”
“Then young lawyers, fresh out of college, like Barry Obama, took the banks to court on the basis that 20% down was racist.”
That is part of it. The rest is the banks then sold those “less qualified” loans and made MBS’s out of them, Mortgage Backed Securities. These were then off loaded onto Fannie and Freddie, and now, the taxpayers. The banks no longer had to have these bad loans on their books, made gobs of money doing it, and want to go back to doing more of the same.
This is why the banks no longer care about the credit worthiness of who they lend to. In fact, they did structure these MBS’s to make MORE money when the loans failed, by making bets with Credit Derivative Swaps, CDS.
Win win for the banks, lose lose for the middle class savers.