FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware

With conventional loans and having money down our local banks have a sense of 'security' that the buyer is willing to risk their hard earned down payment so therefore must be credit worthy....not to mention...the more they put down the better the interest rate....supposedly.

With VA loans (the only 100% financing left) they still go through the same strict criteria....and then some and bottom line it's their credit worthiness and making sure they are not overextending themselves (debt to income to loan)

FHA is no different and raising the % down is not going to make a better credit worthy person...

The problem lies in those weird loans (that are no more) and these last few loan programs are making it harder to get a loan....and bump out buyers half way through the transaction with their ever changing guidelines.

The problem lies with putting a carrot out there to give the buyer incentive to buy....and then crush it with unnecessary criteria...such as 'they want more money down'.

I can go on and on...but bottom line....where's the solutions? Giving the banks all that money did nothing but cause them to hoard. :)  They darn sure need more negotiators :)

I guess I'll have to bookmark this blog now so I can read all of those articles - sounds like good reading!  Thanks for posting the link on FB, how I found this....

Belonger - Overall, I agree.  I'm not sure what an extra 1.5% is going to accomplish, other than deplete funds that could be used for the proverbial rainy day.  I personally like the calculations on VA loans.  And Lenn certainly nailed it once again with her comment.  True that.

SALLY.... .  even with putting more money down on the conventional loans, it doesn't always insure better rates. You have to have credit scores above 720 or 740, even with 20% down, just to avoid some type of rate hit.

Overall, I agree, giving many banks that tarp money and so much more, where did it go? And now, the gov't wanting to step in and possibly make things worse?... because they are just assuming?  aaaarrggghh  PS....  VA loans aren't the only 100% left..   USDA loans allow for 100% financing also.  thanks

MELISSA.... .  I am glad that you found this... I hope you read that one link that I mentioned twice, who's most likely to walk away from their mortgages.  thanks

JASON... . some will argue that it's more skin, that it will keep more people from walking away from their mortgage, their home. Read that article that I mentioned above, many would be surprised at who walks away and who doesn't. Hence why I have been so firm in fighting this kind of stuff. And we agree, depleted funds could just add to the problem.  Thanks for your feedback.

Jeff,

As you mentioned there have been numerous blogs written in the past week on this very topic - I know I have written several, reblogged a couple and commented on many more.

In several of my comments I recalled the first home I TRIED to buy - it was 1980.  I was an Active Duty E6 Staff Sgt in the US Army and had just spent 6 of the previous 7 years in Europe as a front line warrior of the forgotten Cold War, stationed on the Iron Curtain - many times less than 50 yards from a Russian Armor Battalion.

So, when I rotated back to 'the world' I was stationed at Ft. Carson, CO.  My family and I wanted to buy a new construction home.  We picked out a real great property - big lot, 3 BR 2 1/2 BA 2 story home with of all things, a 2 car attached garage - which was a BIG deal for the day and location.

Not sure of the numbers anymore but it seems like the purchase price was in the mid to high $50's.  That's OK - I was approved and could handle the payments, despite 18% interest.  If I wanted a house, that was the deal of the day.  (Does anyone else remember when we had Jimmy Carter in the White House and a Democrat controlled Congres how they promised to change things for us?)

Well, construction was moving along when the rates went up - to 21%!  That blew me out of the water.  From what I know, they did not have 'rate locks' like we do today, and there was no contingency like there is today that entitled me to do anything but wave goodbye to my thousand dollars.

The results were kind of disastrous for me.  (At least I thought so at the time - I know, God has the perfect plan for my life - who am I to disagree?) I had just less than a year left on my current commitment to the Army, so my wife, at the time, decided she didn't want to live in a government subsidized housing project and wanted to take our two small children home to California where she could be close to and reunite with her family.

Short story longer, I ended up getting out of the Army, killing my career plans as a soldier (retiring at 37), moving back to California and trying to figure things out in a very bleak economy.

I was not 'entitled' to a house then, anymore than anyone else is today.  My heart certainly goes out to those who are losing or have lost their homes...what I despise is those who are making the 'strategic default' decision - living in their homes for a year or more without paying a dime on their mortgage, while banking the money, and then even expecting the bank to feel sorry for them once the bank takes possession and then negotiates for the highest cash for keys settlement they can before they leave the home.

Talk about blood boiling...

Oops...forgot about that...just haven't had the opportunity with that program :)  As always, you're right about the interest % vs. score but assuming the credit is great ...exceptional....an 800 or so lol

I'll have to check out the articles you mentioned.

Thanks,

Patricia

Mark my words.  Raising the down payment for FHA insured loans will simply reduce the number of home buyers.  Where can they go.

Who will benefit? 

Not the sellers with a reduced pool of buyers. 

Not the real estate industry trying to put buyers and sellers together.

Not the mortgage industry trying to finance home purchases.

Not the US economy that doesn't need another jolt to the economy that is already on it's back because of the mortgage mess.

The housing industry has lead the U.S. economy for decades.  Reducing the number of buyers who can participate in the housing industry is just another nail in the coffin waiting for the U.S. economy.

Perhaps the government's plan is to have us become a country of tenants.  In fact, I believe that the government will soon be taking over vast number of struggling multiple family developments and renting them to people who have lost their homes to foreclosure or short sale.  Fannie, Freddie, FHA, et al. will be the landlords and they will dictate how many bedrooms and baths a family can rent. 

Of course, there will always be a few nice homes reserved for the government officials managing the housing industry.  I believe that they'll be located in Magadan Malabu.

I don't think a 1.5% increase will create a "barrier to entry" for home loans.  I'm from the old days when it was 20% down or go away.  But nowadays when the wealth "strategically bail" on their mortgages, a higher downstroke is no true indicator either.  I guess the three C's of credit will out.

You put a lot of good thought into this article. I enjoyed reading it and Steve's article. It's a lot to think about.

Jeff, as always you provoke a lot of conversation among those of us who wish to get to the brass tacks.  Thank you for this post.  It is very informative, and I feel compelled, now, to study this more in depth for myself.

I read that article about who is walking away from their mortgages and frankly, was a little surprised.  A business decision, as it were.  The problem isn't in having buyers put more skin in the game, but making sure they're fit to play in the first place.  Novel concept indeed.

JOHN... . I can certainly understand the very ending of what you stated, because that gets me angry.  I have had borrowers call me up, asking how they can get a better deal or a modification on their current mortgage, because they are under water. Yet I ask them some questions and they have no problem paying their mortgage. That kills me.  The large part of your story, I am trying to figure out how it relates to the total post. I know an increase of $120 in payment is large for many people, and that could kill many dreams. I guess if I took a stab at it, you are saying that owning a home is a privilege, because many think that they are entitled to a home.  And in my opinion, this has been created more so now than ever before because of the gov't handouts.  thanks for your story and for your feedback.  PS>. I'll try to check out your post later tonight.  thanks

SALLY... .  that's okay, you sell houses and let us mortgage professionals keep track of the financing programs.  ;o)  But yes, the difference between interests will be based on the score, even if you put a lot down.  Thanks for stopping back again.

PATRICIA.... .  please do and come back and let us know your thoughts and or opinions.  thanks

I was not surprised in the least. People who have lower scores know that this is their ONLY SHOT at rebuilding their credit for a decade minimum.

They will budget and pay ahead of time and over the minimum if they can.

And when they rebuild their credit they will treat it as a precious jewel.

More skin in the game = Less cash reserves.

I think the boys & girls in washington need to finally admit that they have no clue about this biz

LENN...  lol  I can't keep laughing at your last statement. "Of course, there will always be a few nice homes reserved for the government officials managing the housing industry.  I believe that they'll be located in Magadan Malabu."

How funny, yet it could be so true. What an interesting idea about the gov't possibly making us a country of tenants.  I have a hard time trusting the gov't in most areas right now, but I don't want this to become political hatred for a certain person.  ;o) 

Overall, many of us agree that by raising down payments for FHA loans and a few other programs, or making more restrictions, will allow for less buyers to participate and truly get us out of this mess. I believe that the average buyer will prevail through this mess, while yes, some will still foreclose. But most of this will be due to jobs in the economy.  This is my opinion.  thanks for you input and feedback.

DAVID.... . you don't think it will?  Do you know that just going from 3% of total monies needed, with 2.25% of that going towards the down payment, to now 3.5% down... has hurt many borrowers.  And that more than before that they need seller help now. Did you read my previous article, that not only is the gov't trying to raise the downpayment, but to kill seller help 100%??  Please read this :FHA loans to 5% down and killing seller concessions?

Besides, keep in mind that each real estate market is different also.  Where you might sell real estate, an extra 1.5% might not be a big deal. In many other markets hurt by gov't because of jobs, 1.5% more down does hurt.  Besides, I would rather my borrower keep that for now, after closing, than have to spend it. Sure, some will argue that they will just spend it afterward, but maybe 75% of them will spend it wisely... I them odds.

JULIE.... . thank you for the kind words and for the compliment. But question... you said that you also liked reading Steve's article?  Steve who?  Please don't hesitate to link the article in your comment. I would love to read it.  thanks

SARAH.... . much appreciative and thank you very much for the kind words. Those that know me, I just hate fluff. We see to much of it from the gov't and some in blogging. And I think some of this information just gets swept under the rug.  And I would love to hear your feedback on this, a view point from another loan officer, even if you disagreed with me.  thanks

Evening Jeff,  Another well thought out and presented analysis !  The article focusing on those most likely to employ a " strategic default " just about blew my mind !  Well done !

JESSE & KATHY.... . thanks for reading that article and for your input. I have been fighting that same very notion or assumption that many were walking away from their homes that didn't put much skin into the game. But I never had stats and or research. Mine was just from talking to previous borrowers and some common sense that I thought was common, because of the situations. But the gov't needs to pay attention to this.  Just as they killed seller-funded down payment assistance programs, because they had misleading facts, but for reason.  They and HUD had a different agenda, and that was profit for them, not helping the average borrower... especially when that program didn't cost the tax payer any money, but the gov't handouts and programs did. ..  hhhhhhmmmm

CANDICE..... I agree and disagree, about those with lower scores.  Some will just go on not paying or paying on time. But we need more studies to why some people don't pay.  For years, so many would just say that they were deadbeats.  But in reality, do we know the true stories as to why?  We could only assume, which I hate doing. I do know that there are many that I talk to that ran into a problem or years of problems, and that they want to be proud homeowners, and they they are saving and paying, so they can be homeowners.  I just think we need to focus on keeping jobs in America, focus on small businesses, and stop this free spending crap that the gov't is so good at, that we will be paying for later in life.

UNKNOWN.... .  I agree 110%, which I have repeated in this post and my previous post about the FHA downpayment of 5%.  thanks for your feedback.

BILL....  thanks for the compliment.  And I am glad you read that article...Who's most likely to walk away from their mortgage?

I think if more people read this, especially the gov't, maybe they would wake up and make better decisions.  thanks

I told ya before, I have seen all kinds of defaults:  80/20s, FHA, VA, 10% down, 20% down, you name it.  They do have one common thread:  they are STRATEGIC defaults because of loss of equity.

Putting this on my outside blog!  Thanks for the contribution Jeff!

I think looking at the credit scores closer will reduce the rates of foreclosures. Look at a person reserves and job history a little more. I think this would be a better way. A 750 score person is less likely to default over a 650 score. This would be my guess? Would I be wrong?  

Now is not the time to mess with FHA !!! Taking all a borrower's liquid cash could prove fatal at a later date !!!

Jeff,

As you mention and others commented on this blog, defaults were due to many other obstacles that this economic meltdown created.   Loss of job?  You are so right.  Buyers could have put 1.5% OR 20% as a down payment and it wouldn't have made a difference in the world in a lot of cases.  Especially when their ability to make money as they did in the past was compromised at these levels.  Our own industry got crushed.  People employed by and making their income in the mortgage, real estate and appraisal fields were hammered!    It has been devastating to so many!  Arizona, Nevada and California and the list goes on.......crushed.   I just think that adding this new layer of difficulty to the home buying process can't be the answer.   Lowering DTI requirements like you mentioned is solid.   Making cash out refinances at risky loan to values harder to get, absolutely.  The risky loan programs are already bye bye for the most part.  This list goes on and on.  What the list doesn't include is adding 1.5% to the down payment. 

 Are you willing to invest in securities backed by 95% LTV mortgages for the same price as  securities backed by 80% LTV mortgages? The market requires a higher interest rate for the 95% loans because it seems to think that there is more risk involved.  Is the market wrong?  If so, you should be able to make money on it.

Putting more down definately is going to make more people stick with their home longer.  On a $300,000 home, 5% down vs. zero down will make a big difference when your home value goes down to $285,000.  After struggling to save the 15% down payment, you're going to think long and hard about walking away from the home and not only losing your money but your credit.  With zero down all you are losing is your credit.  It's going to make that decision so much easier. 

Jeff this is a great post, very thought provoking. I'm thinking about how many people barely have the 3.5%. It's true that there are lots of honest decent people who would not default on a mortgage regardless of whether they had 3.5% or 5% skin in the game. I would like to see why people do not have the down payment, is it credit card debt, lower wages, living large? 

I recall reading an article about foreclosures in general that stated that negative equity was the biggest indicator of foreclosure, not credit-worthiness... so, having more "skin in the game" meant more than sub-prime status... 

Of course, for strategic foreclosures, the rules are different.

RENEE... . I agree, something that I have been preaching for several years and arguing the 'skin in the game' theory. Overall, people will walk away no matter what.  They have plans... and thanks for the compliment.

ERIC.... . Again, just as some will say that skin in the game is good, many will say credit scores are just as good.  Yes, it's been proven, the higher the scores, the less risk you are. But I will disagree slightly with this also, because the common denominator would be... are you a sound borrower, do you qualify with income.  Credit scores don't always mean the number that they are. Wait, if you have one credit card for 1 year and no other credit, yet your score is 700... are you saying that you are a better credit risk of someone with a credit score of 650, yet you have 3 credit cards, even 80% maxed, you have paid on time?  I truly think that if you qualified correctly, and within reason, that you are as good of a risk as the next. It comes down to job security and do you lose your job a year later... or that your income is reduced.  Crap happens... I think it should be more than just credit scores. I think it's a poor factor in some cases.  Just my .02.

MICHAEL.... . I would agree, hence why I wrote the last blog about FHA possibly going to 5% down payment, and that I wasn't in favor of this.  thanks

JOHN.... . loss of job... death in the family...  divorce... any kind of hardship, which doesn't seem to be tracked and or researched. Yet the gov't wants you to think that we need stricter lending and more down. We are a powerful nation, extremely smart, and that we have the technology. Why can't we figure that out?  Is it that complex?  Or just so simple, that we over-look the obvious of the obvious, and just assume what is in front of us... EQUITY...??  Thanks for your feedback.

TIM.... . did you read the article that I supplied above. You are speaking common sense, which doesn't apply here. Please read this and then tell me that you still agree with your statements.  Who's most likely to walk away from their mortgage?

Again, what you state is common sense and that is how the gov't is looking at it... but read that article. It's the opposite of what many would think. Read Renee's comment, # 19.  People think these things through. I know more people that put less down that actually fought for their home than those who put 20% down. Yes, I have spoken to them also, so I agree with the article. Once people went under water, they wanted to walk away, the same people that put 20% down. SO your logic doesn't seem to apply, hence why I think the gov't intervening and wanting 5% down on FHA loans will hurt the real estate market. We need to let it correct itself in some areas, and not force it to fail.  Just my .02.  Thanks for your input, as it always is appreciated, even if we don't see eye to eye. ... because I do like how you think and think that you are a stand up person. But we need to research in this case and not assume.  thanks

DAVID.... . why people don't have the down payment?  The average person making the average pay with a family. .. it then comes down to the cost of living. I see sales people making good money, those on commissions, that are doing well... those with a salary and a commission, because their income can be greater than previous years, in a tough market. It's the lower to middle class with a salary of like 75l or less, yet they have a household of 4 or 5. Now, this is just my opinion, but if I had a company to put the data together, I would love to see where I would stand. This is a guess, an assumption. But so far, in the last 2 years, I have been pretty good with such assumptions.  I think the gov't takes the high road, skips data research, or if they do it, they misinform... just as they did when they were fighting seller-funded down payment assistance programs. Two independent companies proved the gov't wrong. Yes, debt has a lot to do with it, but I think it's a combination, especially semi large families living on one income.  And thanks for the compliments...

wow great article lots of time and thought and some very good points I the most important is the ability to repay I have seen people put down 150k or more on their home only to be losing it now since the job they had is no longer there. 

So 5% down or 10 % down no job no money what does it matter tons of 6 figure jobs have disappeared and are still disappearing.

Don't ever expect government to determine that it is the problem and not the solution.

LANE... .  I would agree that rules could be different. But I think one of the problems with this mess is that we need to recognize the differences and just not assume because it's an equity issue... or in many cases, the lack of equity or the lack of sweat equity, skin in the game.  thanks

GENE... . many of us will agree, having the ability to repay. And if you lose your job, you are a deadbeat?... because you couldn't pay your bills? We need to look at this more closely in order to help with better solutions. And thanks for the compliments.

JIM.... . ain't that truth. Well, we need to keeping writing more about this, hoping that those on Caplital Hill will read this. thanks

I did read that article Who's More likely to .......  I don't think that a bigger down payment keeps people from losing their home.  Yes, it lowers their monthly mortgage but when a family's financial situation is reduced to one income due to unemployment, divorce, death, etc.  The homeowner simply can't meet their obligation any longer whether their down payment was 3.5%, 5%, or 20%. 

Requesting a larger down payment bars a great number of Americans from the American Dream.  Hence, FHA 3.5% came about to provide access to those who otherwise wouldn't be able to purchase a home. 

People should live within their means and should not have a sense of entitlement. Buy what you can AFFORD and don't expect a handout (bail out or stimulus package - get it?)  This excludes people who become unemployed, divorced, a homeowner dies, etc.

I have done BPOs (pre-foreclosure analysis) and it is pathetic going in to a house that has in effect been "looted".  The appliances are removed, cupboards gone, light fixtures missing, air conditioner nowhere to be found, including the copper! OMG, what a sense of hatred directed at the bank - these homeowners should be looking in the mirror for someone to blame not seeking revenge at a banker.

Just because I have checks in my checkbook doesn't mean I have money in the bank, duh!

AN ON THE LEFT, one of those who don't want to make a political argument out of the proposals to raise the FHA downpayment to 5%. 

It's a political matter.  Why cannot a political argument be made???? 

deduction. 

We are experiencing the aftermath of a catastrophic even in Real Estate . .over compensating the solution will takes us to the other end. . why do we have to expect and wait for the Government to fix everything?

JEFF

Interesting enough there was an "upscale" community (designed to attract golfers and equestrians)  here in Florida, which attracted many upwardly mobile buyers.  Most had in excess of 20% skin in the game.  Homes ranged from 400K- to over $1,000,000. 

When the market tanked, these upwardly mobile professionals took a huge hit in lost equity.  Today these homes are now selling from $129- 350,000+  (some are in unfinished condition)  At one point about 40% of the homes were in recievership.   Most of these people had considerable money down. Many were foreign nationals investing huge sums of money in this project.

Proving no one is bulletproof.  And no one was there to bail them out at the critical turning point.

Today, we have families who are attempting to participate in the housing market recovery under more scrutiny than in the past and new appraisal guidelines which specifically target conventional lenders (HVCC) who are still able to put 20% down- however, they are not getting past the appraisal process.  Again due to the intervention of politicians who are causing more harm to Real Estate market recovery than helping it. 

So what would make us think that increasing the downpayment is a sage idea?  Given their previous track history, what is abundantly clear is the view they have from THEIR Ivory towers is merely a mural of the fantasy world live in and clearly not  a snapshot of the real world which we all are living in.

Jeff, a really great and well thought out post.  I'll be re-blogging this one also.

Jeff,

Nice post. I really don't think the extra down is going to do it.  I would agree that fixing jobs would go a long way toward stemming the foreclosures. 

I actually think requiring buyers to have some sort of emergency fund to qualify is not a bad idea.  How about having the extra 1.5% in a savings account.  I see agents running around with buyers that don't have a nickle to their name.  If anything goes wrong with their house, they couldn't pay to fix it.  That's not a responsible way to purchase. 

Jeff, I'll hve to go back and read many of the other posts you made reference to.  It would be nice if the government consulted Real Estate Professionals before they started making decisions; it seems to me they don't know enough about the market to help it, only hurt it further.  And honestly, some people don't care if you'll have any money left if hard times should hit....I've seen it and it's very sad.

The big picture includes more than money down. Documentation and credit score standards have risen, so it is logical that down payments would be fair play as well. 

One problem with 100% loans that are based on a person's ability to pay:  When the market turns downward (as we have just seen) and unemployment rises dramatically (as is the case), people without work can't pay their mortgages and must sell their big houses (the ones they highly leveraged with the 100% money).  No skin in the game makes it easy to walk away for those who simply just don't care about the macro picture of the economy.

Many just don't care and will walk away.  Like they did.  Like they will do again.

I told Lenn I thought the concept of 100% money was looney the way it was being practiced.  There are a some people in this world who can handle that kind of leverage, but those people are few and far between.

I would hand my rifle to a hunter any day of the week and trust him to use it properly.  I would NEVER give that rifle to a young child unsupervised.

In a way, that is what much of this 100% money was all about.  Giving it to people who had no business delving into that part of the world of finance.

ability to pay and desire to do so are key.

remember the real old days and the 3C's

credit, charactor, collateral

charactor means having some, not being one.

another question? why must a responsible person, anticipating a problem have to wait till they're 30 days late to get help. 

as you well know the extra 1.5% will have little to no effect, but it will make a nice headline. 

Jeff - I've been thinking about this one for a day or two now. You know, when homes were appreciating at double digit rates, banks were willing to lend 125% or do 100% financing with 6% seller concessions for people with a 575, and having $50,000+ in collections that were allowed to stay open. (Remember LongBeach?). Requiring more of a downpayment isn't the issue - qualifying people with decent credit and actual income is. FHA documents gifts, concessions, everything. This alone makes it drastically different than the poison loans of yester-year.

I agree fully with Lenn's statement, inso jobs is the major issue. People can't pay a 95% loan, a 100% loan, or a home they put 50% down on when they have no job. Savings only last so long for the few borrowers that actually have a savings. Fix jobs, you'll fix a huge portion of the bad loans. More money down is a stupid idea. It will simply be MORE money lost when a home forecloses. Alright I'll stop this novel here.

ALMA.... . common sense would make you think a larger down payment, with more skin in the game, would make you keep you home. But the article says otherwise.  And I agree, FHA was established for a reason, to help those with that American Dream. Now the gov't wants to screw things up even more... lol  When does it get old??

LINDA.... . being able to afford something is one thing, being qualified to do so is another. Overall, there are homeowners that aren't responsible, but that goes with any industry. What you mentioned about in regards to homes being 'looted' per se is a disgrace. That part makes me sick, no matter how they feel. Sure, shit happens at times, loss of job, etc, etc... but it still doesn't mean that you rip items out of a home.  thanks

LENN.... . it is a political matter from the government's side of things.  They are trying to show the American people that they care and or are trying. But I think they keep missing the 'real' focus that has been mentioned in this post and in many of the comments.  The gov't needs to read such comments and get on the same page.  You did semi lose me on the last sentence, "why can't a political argument be made?? " Could you go into detail?  Maybe I am missing a point?  Maybe it's because it's morning... lol  thanks

FERNANDO.... .  well, we do need to have the gov't help in my opinion, but not the way they are going about it. But the help they keep offering, will destroy this country and definitely kill this real estate market... or just make it harder and take longer to recover. That is my opinion.  thanks

ALLISON.... . in regards to your first statement, about those that put 20% down.  Did any of those homes foreclose?  You said many took a huge hit, which I would understand, but did any leave their homes behind?  Overall, we will agree, are these interventions being done from their 'ivory towers', not being in the trenches, to understand what is truly going on. As I mentioned, do they even do their research.  And if so, do they ignore it?  thanks for the input.

GABE.... . thanks for reblogging this and thanks for the polite compliments.

I like the phrase 'no one is bullet proof'. I read the post the other day where default stats were given and that's the 2nd article that's verified numbers. It's not the 3.5% FHA buyers that are the 'most troublesome' as one might expect. I guess doing a little research into the subject will broaden your horizons here!

I don't care how much a person has down, I'll sell them a house. As Lenn says too, the 3.5% down does not have to be changed. A good thought though is the difference between qualifying VA with the inclusion of all costs and utilities. Gives a much better 'total' budget focus for the buyer & lender both.

I'm not for the 'put more skin in the game'. I think that everyone is looking for one magic reason and it's too varied to single out. Varies by what part of the country too. Congress is looking for that magic pill to 'fix' this. Too many variables.

BRIAN.... . even though many would say that the buyer would spend that reserve, I also think it is a better start, then having them use it for the other part of their down payment.  And thanks for the compliment.

CAROLE.... . the problem that I have with your suggestion, even though I agree, is that there are many that feel differently about this and do argue skin in the game, that the buyer should have more down. So, the gov't does what you say, yet they listen to the wrong people, then what?  I see it at times on FOX News and CNBC, when they have these so-called real estate & mortgage professionals, yet they are either misleading or give wrong information... it infuriates me. But in many of these cases, it's who you know. Don't get me started on this one...  ;o)  More on it later...

J. PHILIP.... .  you stated, "Documentation and credit score standards have risen, so it is logical that down payments would be fair play as well."  -  Are you saying that since we have raised these other standards, that more of a down payment should be made, fair game in that respect?   Just trying to fully understand which direction you are going in before I reply to your comment.  thanks

DAN... . did you read the article that I supplied above? Who's most likely to walk away from their mortgage?

In my own opinion, even without reading that article, you are just assuming that those that put less money down, are more in likely to walk away. Common sense would make us think this way. But how about talking to homebuyers, researching this.  I have spoken to many, I have been allowed to review billions of dollars in spreadsheets from other major lenders, showing that there were plenty of people that put 20% down, who have now gone into foreclosure. How about those no doc loans that made buyers put 20% down, but didn't really have the income.

My whole point?  In my opinion, you are assuming.  I will agree, that some 100% programs and practices were very bad.  But VA and USDA loans are okay, even though they are now defaulting more than ever before. But wait, I now see a pattern, and if you look into it, more of the reasons are because loss of jobs.  Yes, there will always be buyers that aren't responsible, this went back to the cave man days also. You get my point on that I hope. We need to dig deeper and just not assume, which I believe the gov't is doing, assuming and trying to correct a major problem on the fly. Again, just my opinion.

In regards to your last statement, "In a way, that is what much of this 100% money was all about.  Giving it to people who had no business delving into that part of the world of finance."    Yes and no... there were many and still are, that received 100% financing that still have their homes.  Again, I think you are just assuming, taking the road of what one would think is common sense.  Keep in mind, too many, buying a home is an American Dream. And many people take this seriously. I know many people struggling, fighting to stay in their homes, but a lot of it has to do with the cost of living and less income now. How about many of the homes that went into foreclosures because bought them thinking that they could make money off of them, from 2002-2005, because house values were rising at record levels.???  And these people still put money into the home, 5% to 10% down... yet they walked away because they lost more than that, and didn't expect this to happen.  Just more food for thought.  Thanks for your input.

JAY.... .  I agree, the ability to pay and the desire. Some people just say, I don't need to pay now, the gov't will bail me out. Didn't the gov't help create some of this problem(s).  In regards to your other statement, I don't truly understand why people ask for help when they are 90 days down, and not when they are 30 days down. Maybe some of it is pride... maybe some of it is saying, "I will get out of this mess"...  I am sure many of us have done it on smaller scales of things.  I know I tell each and every home buyer that I do a mortgage for, that if they EVER get in trouble, to call me ASAP and not wait... especially 60 days...  thanks for that feedback.

STEVE.... . you and I have been lending for a long time now...  and yes, I remember those days clearly... and so many loan officers where just going ape shit, getting people into homes, as you mentioned, with 585 credit scores, 100% financing, and thousands of dollars of unpaid collection accounts... and yes, 55% dti's.   Yes, that is irresponsible lending.  Sure, I helped a few clients like this, because they would have gone some where else. But what I wanted to see was a clear indication that they were improving their credit and not having the same patterns as prior. Those people that I helped like this, still have their homes, thank god. I have had 3 people foreclose on their homes in 17 years.  2 were on 2nd homes, and both had loss of incomes.  The 3rd was on a primary home, FHA, who had her son co-sign, who was helping with the bills.  He died suddenly and she foreclosed.  Hhhmmmm... seeing a pattern here?  Loss of income.  thanks for the feedback.

Jeff, thanks for the information I need to reblog to get this out even more to the public...

Excellent post, I agree with Lenn, better qualification, not larger down payments, is the key. 

Jeff, in the early 1990's, the FHA fund was considered insolvent. Rather than up to 5% they increased the upfront insurance fee and the monthly. Once the fund reached a certain level they went back down. I do not understand why a raise in the down payment will help resotre a fund that is paying for past history. This is no way to move forward, and I am betting on enough political stink being raised to not see the down payment go up.

Good Stuff Jeff!  I think that 3.5% is sufficient right now given the state of the market!  Larger down payments just keeps potential buyers on the sidelines for a while longer...we need them in the mix now!!

Jeff,

Once again our friends in Washington are sitting around thinking of ways to justify their jobs and trying to legislate us into oblivion. Great post, thanks.

As you so eloquently and correctly stated that the housing market will not improve with an increase in the down payment. This will only reduce amount of buyers and further hurt sales prices. 

I agree completely with your solution to reduce debt to income levels. Although they are not an accurate reflection of a potential home owner's debt ratio when you look at utilities and other expenses, the current limits do not take into account any other expense.

If something doesn't change, then we will only see more foreclosures.

I wrote a blog on this very subject on Tuesday here.  I wrote another blog today that just reinforces my contenetion that Groucho Marx was right when he said, "Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." My second blog deals with the equally misguided Neighborhood Stabilization program and the reintroduction of the Community Reinvestment Act.

If you believe that lack of equity in a property will encourage a home owner to default, there is one solution I can think of to put equity back in everyone's property.  Get rid of HVCC.  All it is has done is drive good and experienced appraisers out of the business.  It has pressured appraisers to lower the values they place on properties.  In addition, because appraisers get paid so little, they cannot spend the time necessary to  properly evaluate a property.  Now we have appraisals done by inexperienced appraisers who have no knowledge of the neighborhood where the property is located.

LYN..... . I also like that term, no one is bullet proof.  I also use this one often, that I made up myself. "That's a blind statement made in the dark"....  In any case, numbers and stats are very good, if properly documented and researched. And thanks, I do think we could revisit the qualifying of income and use housing

REBECCA.... . my pleasure and thanks for reblogging this.  We do need to get this message out.  thanks

JASON.... . hey, didn't I say that also?  lol   I agree and thanks for the compliment.

JOE.... . not so much raising the down payment would restore the fund, but keep it from slipping further. Then again, not trying to knock the gov't, but your question merely states that I would have to assume that they haven't thought this through. They are just assuming that this would help, be better. They need to review the current situations and facts. I do hope it doesn't move forward.  thanks

STEPHEN..... . many of us will agree that larger down payments will keep more buyers on the sidelines.  Thanks and thanks for the compliment.

I agree. The extra 1.5% won't make a huge difference. If they can't pay the monthly, nothing else matters.

Jeff, My apologies sir, you did say that as well, I agree with YOU!  :-)

5% down will be a killer here. And definitely with no seller concessions.  My first-timers who have the 3.5% almost always need the concessions to make it happen.  Essentially that bill will raise the amoutn a buyer has in the game to 8-10% (5 for down, 3-5 for closing costs and prepaids).  so more than double what they currently need now.   I have had only 3 borrowers this entire year that could have done that.  They went conventional instead, lower costs.   

I agree with Lenn - another nail in the coffin if this gets anywhere.

Let's hope that the banks start loosening up on the time it take to get the Short Sales closed.

The qualified buyers on the Short Sales are walking because regardless of their good credit and cash deposits, and full cash offers, these banks are killing the deals because they are holding out.  Haven't these "troubled assets" already been compensated for by the "Bail Out" money?

What is going on?  Is this all smoke and mirrows, you think?

To play Devil's advocate, on the strategic foreclosures, why shouldn't those who bought high, and are facing massive loss of home value buy a "2nd home/ investment home" for a 40% discount, and then walkaway from their first?

They're playing by the rules. If they don't pay the mortgage, the bank gets the house; That's the same deal we all agree to, right? The buyers were willing to sign that mortgage, the bank was willing to write the loan, all under those rules.

So what is the effect? Home prices will more quickly move to where they should be, under "old school" mortgage UW guidelines, ie, provable income. The days of StatedStated, NINA, and my favorite Aurora's 100% 1 loan investor StatedStated are all over. Mortgages are based on the ability to repay the loan. With those programs gone, home prices will fall to what people can borrow based on income.

Since home prices won't be going back to the 2006 levels until income in America goes up about 45%, why should people be trapped in a negative equity situation?

And before anyone cites personal responsibility, tell me how much of that TARP money went to Bank of America's executive suites for office remodelling.

MARK... comment # 50.... . I sometimes wish I had that job and that kind of control... lol  Thanks for the compliment.

DARRELL..... . and I think many of us will agree on the gov'ts solution not working. In regards to the debt ratios, I would partially agree, that it's not an accurate reflection with what's been mentioned, but it could be a step in the right direction. thanks

PAUL... . I will take a look at the blogs that you wrote. But I will disagree in this statement of yours.. "If you believe that lack of equity in a property will encourage a home owner to default, there is one solution I can think of to put equity back in everyone's property.  Get rid of HVCC."

You then went on to say this... "All it is has done is drive good and experienced appraisers out of the business.  It has pressured appraisers to lower the values they place on properties."

In my opinion, you are assuming waaayyyy too much. We have a good AMC company set up with very qualified appraisers.  Maybe you see these issues with one kind of lender?  In my honest opinion, you are making the same assumptions just as the gov't is assuming that more of a larger down payment will prevent foreclosures. I know many realtors are upset about the HVCC issue... but to make those blind statements that you just did? What and how are you basing your comments on?? What facts do you have, that these are inexperienced appraisers?  That it is driving good appraisers out of the market?  Based on one or two that you know, that are complaining to you?  Keep in mind, this issue is not local, that it's national.

Overall, not trying to argue on this, but I am extremely curious on how you came up with these statements that make it sound like you have a great handle on this issue. thanks

NICHOLAS.... . bingo, if they originally can't pay, most nothing matters..  I added most.. ;o)  Nothing just seemed 100%, never. But yes, many of us agree on the issue of wanting more done, that more would pay. Just a 'blanket assumption' in my opinion.

JASON.... comment # 55... . lol... no need for Sir...  but thanks for coming back.  I just love good feedback and thanks for your input.

Well said and I agree, fabulous post! There are so many emotions that are flying around in the past couple of years. Anger at decisions made or are being considered, happiness when a new home owner joy at getting their new home and moves in, sadness when you watch someone loose their home due to unfortunate circumstances.

I absolutely agree, It should be based on ability to pay, I would personally like to see it lowered perhaps fluxuate the down payment amount based on ficos and your ability to pay . Example If ability to pay is solid and FICOS were 660 then you could lower the amount of down payment to 2 1/2 or 700 FICOS and ability to pay 2%, 750 and ability to pay 1% and 780 and above 0 Down. Especially when the condition of some of these homes are in such need (dead grass, horrible carpet, etc). They do need a little extra money and TLC to bring them to a better standard of living. Maybe this would help the economy as a whole to encourage people to pay on time and take extra care about their financial position. 

I am a free market type guy, but we have not had a free market for a long time.  Those that go on against low down payment FHA and other such programs do not seem to get upset by all the equity that is added to homes because they are easier to buy and so demand is increased.  Take the government out of the equation with Low Down FHA loans and watch this collapse accelerate.

I don't see 1.5% more being enough more "skin" in the game to make a difference.  Average sale price locally hovers around 200,000.  So you have 3,000 more dollars down. Your payment is going to be about 1500.00.  I just don't see that being enough more skin in the game, to change my mind.  So I don't see that solution being very worthwhile.

Does anyone happen to have statistics on 100% VA loans going into default? 

I agree 100%, I am Realtor and also a Loan Officer.  Thanks for sharing the article.  This is exactaly as I have been telling people my opinion...who ask anyway.  It's not the Poor who are walking, it is the Middle to upper income class just walking away from homes that are valued lower than what the owe, but a ton....

Good Stuff, thanks for sharing all those articles.

Jeff:  Great post!  What about the general over-spending .... what about all the equity lines that are capped out ... money spent on cars, vacations, etc.  I know far too many people are in trouble today ... under their mortgage ... due to a HELOC that allowed them to expand their quality of living right to court house steps.

Likely one of your top 3 posts buddy- great job Jeff! Wish I could get involved in the lively debate but have to close these deals before 11/30!:)

Keep up the charge though, you know those who really know are 100% behind you!

Gerry Suarez, Jr.

Your FHA Loan Pro!

Jeff, forgive me...no time to read the 66 comments so this may have been said somewhere by someone.

Increasing the amount of down payment will hurt the first time homebuyers. Mike and I bought our first home in 1979, we used FHA and put down 3.5% downpayment.

If a person is truly qualified putting down a large DP only helps the seller is looking at two offers. It is more pleasing to them and shows they are committed to this house.

Wow. I just read the St Petersburg article--very interesting Jeff.

I keep hearing comments from people who think 20% down should be the rule.

I think the heart of the matter is underwriting guidelines that make sense. I would suggest combining a package of liquidity requirements, disposable income, and debt-to-income ratios. For example, someone with a higher debt-to-income ratio would require higher cash reserves than someone with a lower debt-to-income ratio. In addition, someone with a higher disposable income can have a higher debt-to-income ratio than someone with lower disposable income.

Many lenders (especially in the jumbo loan market) have a one size fits all debt-to-income ratio, usually 40% or 45%. The family that makes $10,000 per month can afford this ratio more than the family that makes $5000 per month. How much sense does it make to have the same ratio for people with disparate income?

In my mind, concentrating on these factors are more important than equity because the ability to repay is more important than the willingness to repay. I think most people have the willingness to repay, but if their income and cash reserves don't allow it, it doesn't matter how much equity they have, they can't make the payments.

SHEREE..comment # 56.... .many will agree, not only the 5% down, but taking away seller help will definitely hurt many markets. Those that did put more down, I wonder how much more and that they went conventional, I wonder if that was still a good choice.  I wrote this a few weeks ago, comparing FHA & conventional together with 10% down and good fico scores of 659, and the FHA loan was still better. FHA vs conventional with 10% down.  thanks

JOE.... . I really haven't heard of many buyers walking away from short sales, even after putting down a deposit, but I do know that some banks are taking forever.  And you wonder what they are doing and even thinking. I guess they like rolling the dice?

JOHN... .  I am trying to understand the last part of your 1st sentence.  But here is my .02... because they signed a secure note, to repay. Be responsible...  if you can pay, loss of equity should not be your excuse to not pay.  Home values will go up. If you bought your home for your family, and that it is an investment, why should you be allowed to walk away????  Your car loses value, should people walk away from that 3 years into the loan, on a 5 yr car loan?  I can see if you lost your job, but I am getting tired of those complaining that they lost value, but that they can make their payments easily. It's called risk, risk in anything that you buy and invest. I will tell you what, some many got greedy, buying high, hoping that values would keep climbing, and then sell.  But now many are screaming bloody murder. You know what, it's not our job to figure out if they were one of these types of buyers.  I only feel for those that lost income. If you lost value and income, and you can't pay, I understand. If you lost value and can pay, I don't feel sorry for you. If you lost value, but you have been transferred, I can understand.  See the problem that I have with all of this?  thanks for your feedback.

In regards to personal repsonsibility and the tarp money.  Here is what I dislike about your comment. Are you implying that those that got tarp money, that used it to their advantage and didn't pay back, that we should excuse those that don't want to pay on their mortgage?  If so, I would say that is an irresponsible comment.  Let me take it a step further... it would be like me saying..."since he killed his wife for self-defense, I should kill mine just because...  we'll get to the because later.  Just for the fact that he got to do it and got away with it."

My point?  We need to hold the gov't responsible. It's your duty to vote for those that would get the job done, not those that make promises that in many cases, we know they will break them. Overall, then we all need to take responsibility for everyones actions.  ....  ????

Correct me if I'm wrong, if the down payment is raised is raised to 5% fewer people will be able to purchase a home. Meaning fewer homes will sell causing prices to decline further causing more negative equity causing more foreclosures. That makes no sense at all. I see why the government wants to do it.

DIANNE... comment # 60... . You bring up some good points, but I think that kind of scale per se is a little over-doing it. Most lenders & investors already have pricing hits for credit scores from 620 to 700. You already agreed about the down payment, that it really doesn't matter .. well, you said "well said and good post". ;o)   And then state... "I agree, it should be about the ability to pay".  I am only bringing this up, because you have a sliding scale dependent on credit scores.  The gov't and lenders have already done this.  In reality, it's how people handle their finances... poor decisions by underwriters, and some people that just aren't responsible. Other than that, it comes down to jobs and jobless claims. In any case, we do agree on the large picture and thanks for the polite compliments and for your input.

GENE... .  I agree with your first part...  you said this at the end... "Take the government out of the equation with Low Down FHA loans and watch this collapse accelerate."    I just want to be on the same page. Are you saying, take FHA away and our real estate market will crash and crumble even quicker, right?  Thanks for the comment.

DAVID... . many of us agree with this. Maybe the gov't should have used numbers as you did, to possibly see this.  I love using numbers, especially when I am comparing programs and loans... thanks for the input.

JOHN....comment # 63... . working on this.  I have some for USDA loans and even those default rates are up. So, what could this all point to then?  hhhhhmmm.. jobs?  Less money?  Unemployment?  Someone did tell me that the default rates on VA loans were up like 5%, 3% less than FHA loans.  That is another problem of mine.. the gov't just seems to pick and choose.. they aren't consistent.  thanks

Brian... . well, I would say that some poor are walking away, we can ignore that.  But the article does talk about those that do put more money down have walked away as much and or as more. In any case, many of us agree on this.  Thanks for the kind words.

KATHLEEN... . another good part about those equity lines in the past, that allowed people to borrower and spend more.  But that doesn't really happen as much now, because the banks have lower LTV restrictions. But it did add to the mess. What I wanted to preach is the fact that 1.5% is not going to curb the foreclosure issue.  In my opinion, the gov't is just reaching, reaching far, very far.  And thanks for the compliment.

GERRY.... . wow, thank you very much for that polite compliment. I think I have had many more, but I'll take that one. Can I cash it in, and make money?  ;o)  Seriously, thanks for stopping by and for the kind words.  I hope you can stop by later or over the weekend and read some of these comments. Would love your opinion on comment # 58... and there is another.  thanks

Thanks for all the great information-I will return to read when I am fresh tomorrow morning with my cup of coffee!

Jeff,

We ought to look at a set of solutions to get this mess squared away. One single adjustment isn't going to do it. By the way, thanx for mentioning my blog. That could be one of many solutions to consider. 

MISSY... comment # 67 ... . what, you didn't read all of the comments, 50% of them saying the same thing?  ;o(   Seriously, most of us agree that even a slightly larger down payment will hurt the first time homebuyers.  I just wonder if the gov't actually wants the real estate market to fail. They give out tax money, that we have to pay for in one way or another, yet it can't truly be applied as the down payment, not unless you use a state program...  they give other handouts that help other people and their friends, yet they don't help out those in trouble... and now they want more money down?  And yes, a larger down payment does make a seller happy and the listing agent, thinking that offer is better.

ERICA... . yes, that article is an eye opener.  .. and yes, so many think a larger down payment is the solution. Hey, it would be common sense, but it's not the case. And I have talked to many that have fit that description... and they told me what they were doing.  thanks

PHIL.... . many of us do think that the extra equity is not the solution. You bring up some good points about higher ratios requiring more reserves. The jumbo world is different than conventional and FHA.  On the conventional level, they are finally coming to their senses, and will have DTI restrictions. In the old days of FHA, reserves did matter.  They still do, but the DU model seems to fit the higher credit scores more... which is what got the 100% fannie mae deals in trouble with the high credit scores, that allowed high sti's... like 43% front and a 55% back.  We do need to make some slight changes in this.  thanks

FRANCE & MARK...comment # 71 ... . well, you do bring up an interesting view point, that less houses sold, the more values come down. But each market is different and in some markets, values are increasing, even with just average # of homes sold. I truly don't think the gov't is thinking this way though, make it miore difficult to buy, thus it would bring home values down.  That in my opinion would not work.  Thanks for your input.

PAM... . my pleasure and I hope you chime in after you read those articles.  thanks

ESKO... comment # 75 ... . I have been looking at solutions.  Not sure if you read my call to action blog? The gov't seems to do things that cost money, costing the tax payer money after the fact. And my pleasure about mentioning your blog.  thanks for your input.

I agree that we should look at the buyers ability to re-pay as the main factor in loan approval.  The problme is that the loan guidelines are all black and white.  we need to have great underwriters that can really look at a buyers exact situation and make an intelligent decision about whether they can re pay or not.  This will not be easy, but may help us avoid foreclosures in the future.

Jeff,

Back when Loan Officer were in fact Loan Officers and made decisions we not only looked at ability topay but willingness to pay.

Latter underwriters made such judgments.

Today a very arbitrary credit score is weighed to avoid any one having to make a decision.

I've made an awful lot of 100%, 103%, and 107%, not to mention hundreds of $500 down Community Home Buyer loans with out any of them going bad!

Skin has nothing to do with risk! But, more requirements mean fewer and fewer decisions have to be made.

Bill

Jeff,

Sorry for rambling above (#5) - and you were right (#12) much of what I shared really was not as relevant to your specific post but more ot the stir in the air about the FHA over the past week, with everything going on there.

Guess I was just trying to make the point that this country has gone by the wayside of entitlement and not that long ago it was much tougher to buy a home...

So before I go any further, I say good night...

John

I always enjoy reading your posts Jeff and the ensuing comments.  I read your article that you referenced hoping that it might shed light on the number of 100% mortgages that are defaulting but I didn't see those statistics in that article.  Maybe I missed something.  I did find it good reading and the info helpful though - thank you.

In regard to me "assuming".  These were not my assumptions, my comment was based on conversations with a colleague I've know in the financial industry in London for many years.  I draw your attention to my post: http://activerain.com/blogsview/1135530/they-called-me-chicken-little-hey-what-did-i-know-

If you read that post, you will see that my comment really wasn't an assumption at all, no rather it was an opinion formed after lengthy conversations with an expert in the field, and because of how accurate my colleague has been in his understanding of our markets in the past, I believe what I said has merit.  "Free money" many times leads to poor behavior in the marketplace and this current economy has suffered from it in my opinion.  I would submit that the entire country was hooked on the cocaine of easy money and promises of property riches in a repeat of many periods in history.  Perhaps I could be persuaded to say that no 100% money mortgages are good, but I won't go that far yet.

Heck, our govt. understands "free money".  They are printing it right now as we live and breathe.  Now, there's a topic for discussion.  Do our politicians have any skin in the game?  Nope.  They spend everyone else's money and I'll bet they will be the first to cut and run when things go sour.

Once again a fabulous article giving us tons to think/talk about!  I only wish I had the time to read all the articles and comments!

I was quite surprised when I heard the raise in downpayment for FHA.  It seemed counterproductive to what they were trying to do with the Tax Credit.  Did they feel the market has been corrected and it's time to slow things down?  Just made no sense to me...but then I remembered it came from the government so it's status quo.

Jeff: Thanks for the post. I agree with you. There really isn't a good solution except that government doesn't know best. I remember when we bought our first and only house 16 years ago. Ratios were 28/36 and underwriting was really tough. I can't tell you how many pints of blood we gave to get our loan. At that time, we couldn't even do FHA (loan limits weren't high enough) so we put 5% down, paid mortgage insurance, and got a rate of 7.25% on a 30 year fixed. I too am a free market guy and would prefer that. I'm not sure we would be any further along even with government intervention. And you have to wonder what all this money spent will mean for us down the road! Thanks again!

Good post Mr. B! Hope that soon everyone calms down and realizes that the more things change the more they stay the same. Lets take a look back oh, 25 years ago. First, as mentioned above, the '4C's' of credit decisions were closely evaluated by an underwriter. Credit, Character, Collateral and Capacity were reviewed by a real live person. Any recent delinquency would likely get you declined. 2 years employment with the same company was required more often than not. Cash reserves were ALWAYS a part of any loan approval. As Paul mentioned 28/36 were the front and back end ratios. Execptions were made as high as 40 on the back end. Homes sold. Loans were closed. Equity grew a the rapid clip of 1-2% in most areas. Compare all of that to where we were not to long ago.

Seems to me we are just going back to where we were, perhaps a tad extreme. But eventually, this stuff will all come out in the wash, as long as our government allows it to happen naturally.  

JIRIUS.... comment # 78... this has been a critical part of financing in the 90's and we got away from that, with many automated approvals just based on a high credit score, then for other things to follow. And the gov't was a part of this, as they pushed lenders to lend more. Now they want to take away something that has worked, just because... because they think they know?  If they did their research to as why people are walking away, maybe they would think differently. And see some of the real reasons to these foreclosures, like the loss of jobs and income.  thanks

WILLIAM.... . bingo, about the credit scores, as I just briefly mentioned to Jirius above you. Many of the models have put more weight on the credit scores, but over-looked some of the basics.  Thanks for that input, which might be another post this weekend. And in regards to all of those kinds of loans that you made, none of them going bad.  That is awesome. Nothing against you though, but there is always luck with this, because if someone lost their job, in most cases, it's hard to have the ability to pay.

Overall, in 17 years, I know of 3 clients of mine going into foreclosures.  2 were 2nd homes which both were done with subprime financing. But both had family and job issues that led to these foreclosures.  And my other one, a FHA loan to where the woman's son co-signed for her and he was supporting her. Well, he suddenly died at an earlier age and she foreclosed.

JOHN.... .  don't worry about it. Yes, I don't get a chance to read many of your posts, but from the ones that I have read and from your comments in mine, I have gotten to know you and respect you as a person and as a professional realtor. I can't say that for everyone.. ;o)  Seriously though, it's good to hear certain stories. I do agree that our country has gone by the wayside and that it was much tougher to buy a home, but in some cases. From '93 to '98, even though ratios were lower, people could still get approved, it wasn't hard. But the gov't helped open up the flood gates from 199 to 2005, when they forced Fannie Mae to lend to more, making it easier...  and in 2004, that was when 100% was easy with high ratios of 50%... and then a year later, it went to 55%.  Common sense would tell me that you were looking for trouble. 55% before taxes are even taken out. Shit, what does that leave the homebuyer, for other expenses now.  She, now you got me going.  In any case, thanks for coming back.

Jeff, I don't see a cure coming until we have unemployment under control.  If someone with a credit score in the 800's buys something with a decent down payment at a price he can easily afford, that all changes when the pink slip shows up later on.  So I think you're spot on with that one.

Jeff, do not get me started on the issue of HVCC.  Here is my experience with AMC's and the experience with other loan officers I have talked to about this subject:

1.  Appraisal costs have jumped an average of $100.  For example, an appraisal that used to cost $350, is now costing $450 and talking with appraisers they get about half of that money.  So now where an appraiser would be getting $350, he is now getting $225.  The consumer is being charged more, the appraiser gets less.  Where is this money going, to an AMC.

2.  An appraisal that used to take three days now takes 10 days, thus slowing the transaction about a week.  If you need a correction on an appraisal, before HVCC I would have it done in a day.  Now, working through an AMC, even a minor correction takes about a week.

3.  I am getting appraisals from appraisers who are not local and have no idea about the neighborhood where the house is located.  Through an AMC I get appraisals that include REO's as comps and ignore recent sales of homes that where closer.

4.  The level of professionalism is down.  I get appraisals with mislabled photographs, wrong boxes checked, describing the property as owner occupied when it is an investment property or vice versa.

5.  I know of two appraisers who I repsect who have left the business.  One told me that the straw that broke his back is when an AMC was going to pay him $60 for an appraisal when it would have taken him an hour to get to the property (distance was not the problem, it was New York City traffic) and would have cost him $10 dollars in tolls.

6.  HVCC assumes that every time a loan officer or a realtor talks to an appraiser is trying to influence an appraiser.  On refi's, I want to know in advance if the refinance can work.  If I cannot ask the appraiser in advance what he thinks the value of the property will be, it is crap shoot.  I do not want my borrower to pay for an appraisal with an inflated fee and then find out the value will be too low to make it work.  I have several purchase deals killed because the appraisal came in too low as well.  I would like to know in advance what I am dealing with.

7.  This is a nationwide problem.  That is why over 100,000 people nationwide have signed a petition to eliminate HVCC.  Do not want want to take my word for it?  Joesph Canfore of NAR testified the other day in Congress that HVCC is a major stumbling block for consumers.  He said that it has created delays in closing, increased costs for the consumer and failed sales due to artificially low appraisals.  Amen to that.

DAN.... comment # 81...  first off, let me say this, thank you very much for those kind words. Secondly, okay, instead of assuming, I will say that it was a conclusion that you came to, based on something else that someone talked to you about. You mentioned that you read my one article. Not sure if you are talking about the one that I wrote, about the gov't trying to make FHA's down payment to 5%?  No, I didn't give true stats in there. Yes, FHA loans default rate is up to around 8% now, not 3%. But so are VA loans and USDA loans, closer to 6% now. But wait, why is this?  Is it because of easy lender guidelines?  Or how about because so many have lost jobs or have lost some sort of income, in which they were well qualified before. My point to those arguing that you need skin in the game, so you would be less likely to walk away, I have argued this point for years.  Well, someone finally did some research on this one and it wasn't the gov't.  Did you read this article?

Who's most likely to walk away from their mortgage?

I did read your blog post that you mentioned...  first off, for those that knew me from 2002 to 2006, I always tried to get my client into a FHA loan first, before I looked into a subprime loan, a stated loan, or a no doc loan. Let me give you a quick story. I had one client that was referred to me, who met with a loan officer that was giving him a stated loan, because he was self-employed. I said, I still want to see your tax returns.  He fought me on this and I said, I don't care what the other guy said, stating that he had to go stated. Well, would you know that I actually closed him as a full doc loan, because I was able to read his tax returns and pull out specific income to make it work. There are a few places that I am going with this.

In your post, you talked about subprime, and that your friend from England said that this was going to be the reason for the collapse of our market/industry.  Yes and no... it was not just subprime. Yes, there were subprime loans to 100% with 50% back end ratios and allowing those with 580 credit scores, one company that actually went to 560. Many of us know that you usually have to have slow pays or semi bad credit to have those kinds of scores...  But what about the Fannie Mae deals that allowed for 100% financing to 55% back, that was underwritten by a machine... and this was because the gov't forced Fannie Mae to extend credit to more homebuyers.

Let's take this a step further...  why did home values increase so much from 2002 to 2005, so rapidly in many cases?  Because stated loans and no doc loans helped increase many values... because people could reach for the stars in many cases, raising the purchase price to what they wanted, because they wanted those bigger homes.

You stated that "free money" leads to poor behavior many times. I won't disagree with that.  But you take 'free market' away completely, or in this case, as the gov't is doing... controlling it or trying to stop it, you kill all small business.  Small businesses make up a large part of who we are today. Can you agree or disagree on that?

My whole point to what I said above?  You made this statement.. "Perhaps I could be persuaded to say that no 100% money mortgages are good, but I won't go that far yet."

hhhhmmmm....  so, VA loans and USDA loans, and even FHA loans with 2.25% down (prior to a year ago), ...  they were foreclosing at a small clip in the 90's.  We never heard a peep from anyone or any gov't about foreclosures.  100% or not... when did we start to hear about them?  Maybe around 2006? And more in 2007 and 2008....  As I have stated, I have had the honor at being able to review spreadsheets from 5 different major servicer's who had loans on their books that weren't performing. You know what was odd... many, close to 30% of these, had 10% to 20% down from the time of closing. Could we point the majority of the foreclosure problems to loss of jobs?  Unemployment?  Or just the fact that people walk away from their homes because they have no skin in the game.  Again, please read the artcile that I mentioned above in this comment. Who is most likely to walk away from their home.

Overall, I can agree with some of what you are saying. But back to my first comment to you, in comment # 45...  I said.. "In my own opinion, even without reading that article, you are just assuming you have come to the conclusion that those that put less money down, are more in likely to walk away."

I will still say that your conclusion, even based on talking to someone that you respect from England, that works in the financial business, is not completely on target. You use the subprime mess as your answer. I agree with some of that, but it goes much deeper. And keep in mind, the gov't pushed for this, hence controlling 'free market', again. "Free market' should be to where there is not gov't pressure for a specific industry or entity, just because the gov't says so or pushes the envelope. Senator McCain in the late 90's shot down the gov't push for extending credit to homebuyers.  But he lost in the majority vote within congress.  So, I point my stick to the gov't again, for thinking they know best.  Hence the reason why I wrote this.  I can go off of experience and knowledge, with 17 years in this business, and especially look back at most of my clients that bought homes.  Here is what I know to date...

Overall, in 17 years, I know of 3 clients of mine going into foreclosures.  2 were 2nd homes which both were done with subprime financing. But both had family and job issues that led to these foreclosures.  And my other one, a FHA loan to where the woman's son co-signed for her and he was supporting her. Well, he suddenly died at an earlier age and she foreclosed.

Hhhhmmm...  from this and from many others.. and that article written by Kenneth Harney, there seems to be major reason and proof that many of these foreclosures aren't just because their isn't enough skin in the game. 

Again, thanks for coming back to this, adding your input and feedback.

PS… I will be back to reply back to the other comments later…  I need to get some work done, since it is 1 pm EST now.   Thanks everyone…

Jeff,

We make our own luck!

I didn't say I had no forecloses, only none on those programs.

Only two ever bothered me. I had a million dollar plus first payment default once, the lender called me for help (They wanted my head!) it took weeks to find out what happen. It seems the title company padded the closing, then 3 days after recording called the buyers to pick up their money, leaving the title office in a little English sports car, an 18 wheeler ran over them. They never did make a payment, I sent the lender copies of the police report and they never threatened me again.

One I resent was one of only two 125% loans I ever made. It was a great opportunity I was lowering the couples payments well over $3,000 a month, then the funder overroad me at funding refusing to allow title to pay off the debits and title didn't call me they reissued one check to the borrowers. It took the borrowers 5 days to lose it all in a casino. I had a first payment guarantee on those loans! When I explained to the lenders attorney what happen they never bothered me again.

I never wrote another of these because I couldn't trust the lender! I never used that escrow officer again, didn't use her office until she was gone! The key is client counseling on high risk programs and you have to be able to trust your team. Bill's rules: Protect the license. Protect the client. Protect the referralsource (REALTOR). Protect my commission. In that order! There is no commission big enough to risk a client! You only have to buy back one loan to ruin your day.

The biggest loan I ever personal approved defaulted 6 months later, the debtor was racing a snowmobile in a woods, he went under a tree at 70 mph! Left his head on a low hanging branch.

You can do this for 40 years with out some problems.

Bill

Some really great points and yes, I did read the article on who is most likely to walk on a mortgage which did not get near as much coverage as it should have.

Wow Jeff. These are very strange times. Many years ago...walking away was NOT an option.

Jeff, I read that article before and that is what I was referring to.  It was a very good read. 

In that article it did not address the # of people who used 100% loans that were defaulting.  I still would like to see that number.  It used statistics to garner info on the people who defaulted and what similarities they shared, all good stuff, but there is no indication of what kind of loans they had or how much they borrowed; statistics I would like to have seen.  It did state these defaulters are in negative equity markets which is at the crux of the discussion of whether having "skin in the game" makes a difference.  I recognize there are many reasons that people have for defaulting on their loans when they do.  I also know that many 100% loans work out fine and don't end up in default.

I found these points notable from the article (italics mine):

...strategic defaults are heavily concentrated in negative-equity markets - These defaulters have lost their equity in their homes.

...strategic defaulters are clearly sophisticated...they tend not to default on home equity lines until after they bail out on their main mortgages, sometimes in order to draw down more cash on the equity line - These defaulters clearly understand what they are doing. They need or desire more cash and will take it from their equity lines while bailing on their mortgage.

...it's much more likely that when they stop payments on mortgages, the default is intentional and calculated - calculated, it is in their best interest.

Again, I would like to see the statistics that show the # of people who had 100% loans and bailed on their mortgages.  That would be pertinent to this discussion.  It would help clarify my thoughts on this. 

In some of our local markets, where there has been a high walk away factor, we are replete with examples of buy and bail frauds (considered a business decision), straw buyers (where relatives with high scores never intended to occupy the property and didn't care about their credit scores) and stated income fraud.  This speaks to the ethics and intent of the buyers, not to who they are and not necessarily to what their means are.  I do not have those statistics, I welcome anyone who could provide them.

I've said it before, to me, it appears that the entire country was hooked on the cocaine of easy money and promises of property riches in a repeat of many periods in history.  "Easy money" enabled many people to behave poorly and take out loans they otherwise had no business taking on.  The highly speculative nature of the market in the early 2000s can in part be attributed to the excesses of this offering of cash into the economy.  Many people purchased above their means speculating on a rising housing market and bailed when it didn't work out for them.

Let's figure out what caused this mess together and never repeat it again.

Jeff, I agree with you.  I really don't think another 1.5% is going to reduce foreclosures or FHA losses.  There are other things they could target to improve their situation.  Why do we see companies/LOs bragging about closing FHA loans with borrowers with scores below 580 or consumers with back end ratios above 55%?  If a borrower has a 57% debt ratio, do they really have the ability to repay their mortgage loan in the long term?  

Also, there really is no skin in the game when they put 7k down and get 8k back in a tax credit... The concept doesn't really make sense to me.