A new housing bubble?

Los Angeles Times ^ | 23 April 2015 | Edward J. Pinto, Stephen D. Oliner

[Lorianne]

Contrary to the prevailing view that only borrowers with pristine credit records can get a mortgage these days, many risky loans are still being made. A new index published by the International Center on Housing Risk at the American Enterprise Institute measures this risk month by month, based on about three-quarters of all home-purchase loans extended across the country. And the index clearly shows that many of today's mortgages would not perform well under stressful conditions. This conclusion holds for the nation as a whole and for nearly every state individually, California included.

Here's why. In recent months, fully half of all the home loans covered by the risk index had a down payment of 5% or less. With so little money down, those borrowers would be underwater with only a modest decline in housing prices. In addition, for nearly half of the recent loans, borrowers' monthly payments on their mortgage and other debt exceeded 38% of their pretax income, the traditional threshold for acceptable payment burdens. Such borrowers could find it difficult to make their monthly payments if they came under even moderate economic stress, such as a temporary layoff or a reduction in work hours.

The Federal Housing Administration is the prime source of this risk.

[Lorianne]

"The Federal Housing Administration is the prime source of this risk. It now guarantees more than a quarter of the newly originated home loans, and it does so with little regard for risk. Under the banner of expanding homeownership, the FHA provides risky loans to households that often lack the resources to make the payments if anything goes wrong."

Déjà vu all over again

[no-to-illegals]

am getting out at the right time this time ... lol

[no-to-illegals]

bacon ...