Hopefully this won't turn into a political discussion, but why do I have a bad feeling that we're saying the makings of a second housing fiasco building here. There have already been plenty of warnings that FHA will be the next subprime, but it looks like the people running it are going to stick their heads in the sand. The opening paragraph really annoyed me:
"The head of the Federal Housing Administration warned that raising down payment requirements or taking similar steps to limit the pool of eligible buyers for FHA-backed loans would hamstring a fragile housing recovery."
Uh, maybe if your economic recovery plans are based around housing purchases by people who can't afford down payments it's time to come up with a Plan B. Also, who says that a "housing recovery" is a good thing? Housing prices have been out of whack with people's salaries for the past decade, and it sounds like "recovery" is an attempt to reinflate them to unrealistic prices.
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I don't see this causing a big issue, seeing that lenders' standards for issuing credit have tightened up considerably since the peak of the bubble. The increase proposed was marginal anyway (3.5% to 5%).
jayK said:I don't see this causing a big issue, seeing that lenders' standards for issuing credit have tightened up considerably since the peak of the bubble. The increase proposed was marginal anyway (3.5% to 5%).
If they're making loans to people who can only afford 3.5% down then even a small increase in minimum down payments would probably do a lot to eliminate the highest default risks.
ppatin said:Hopefully this won't turn into a political discussion, but why do I have a bad feeling that we're saying the makings of a second housing fiasco building here. There have already been plenty of warnings that FHA will be the next subprime, but it looks like the people running it are going to stick their heads in the sand. The opening paragraph really annoyed me:
Building? It's already here. The only way to get out of this mess is either delay long enough for wages to increase and housing prices to stay level so that they are on par or for housing prices to come down to wages. There's really no way around it.
ppatin said:jayK said:I don't see this causing a big issue, seeing that lenders' standards for issuing credit have tightened up considerably since the peak of the bubble. The increase proposed was marginal anyway (3.5% to 5%).
If they're making loans to people who can only afford 3.5% down then even a small increase in minimum down payments would probably do a lot to eliminate the highest default risks.I would rather see credit risk evaluated on a case-by-case basis instead of establishing an artificial floor. I'm sure there are borrowers out there that are good credit risks, but haven't saved up enough for a down payment.
jayK said:ppatin said:jayK said:I don't see this causing a big issue, seeing that lenders' standards for issuing credit have tightened up considerably since the peak of the bubble. The increase proposed was marginal anyway (3.5% to 5%).
If they're making loans to people who can only afford 3.5% down then even a small increase in minimum down payments would probably do a lot to eliminate the highest default risks.I would rather see credit risk evaluated on a case-by-case basis instead of establishing an artificial floor. I'm sure there are borrowers out there that are good credit risks, but haven't saved up enough for a down payment.
I also feel the same way. Increasing the down-payment from 3.5% to 5.0% isn't going to reduce the risk as much. I rather see FHA's credit evaluation being made more stringent to disqualify high rish individuals from qualifying for FHA loan in the first place.
Hopefully this won't turn into a political discussion, but why do I have a bad feeling that we're saying the makings of a second housing fiasco building here. There have already been plenty of warnings that FHA will be the next subprime, but it looks like the people running it are going to stick their heads in the sand. The opening paragraph really annoyed me:
"The head of the Federal Housing Administration warned that raising down payment requirements or taking similar steps to limit the pool of eligible buyers for FHA-backed loans would hamstring a fragile housing recovery."
Uh, maybe if your economic recovery plans are based around housing purchases by people who can't afford down payments it's time to come up with a Plan B. Also, who says that a "housing recovery" is a good thing? Housing prices have been out of whack with people's salaries for the past decade, and it sounds like "recovery" is an attempt to reinflate them to unrealistic prices.
Blanket policies do not work. They need to look at people on an application per application basis. Joe Blow A may have the $ and income to get a house, just not a down payment while Job Blow B wrecked his credit and is in debt over his head. Two different situations that call for different results.
Message edited by: IcemanPk on 2009-10-13 12:39:52 CDT
IcemanPk said:Blanket policies do not work. They need to look at people on an application per application basis. Joe Blow A may have the $ and income to get a house, just not a down payment
In that case Joe Blow A should rent for a couple more years and save up for a down payment.
I understand that not everyone who can't come up with a large down payment is a foreclosure waiting to happen, however at this point they should be erring on the side of excessive caution. Getting a loan to buy a home is not a right, and the past decade has shown us that a government attempt to promote universal homeownership will only lead to disaster.
Zro said:Increase down payment to 5% and increase First-Time Home Buyers Tax Credit to $15,000. Problem solved. next?How about getting rid of the 1st time home buyer credit so as to reduce the incentive for people who can't afford homes on their own to buy them?
Xnarg said:Zro said:Increase down payment to 5% and increase First-Time Home Buyers Tax Credit to $15,000. Problem solved. next?How about getting rid of the 1st time home buyer credit so as to reduce the incentive for people who can't afford homes on their own to buy them?I'd go even further than that...remove all restrictions on down payments. If borrowers have excellent credit and can show that they can afford the payments, let them put zero down. The only restriction should be requiring all FHA loans to be positive amortization.
ppatin said:IcemanPk said:Blanket policies do not work. They need to look at people on an application per application basis. Joe Blow A may have the $ and income to get a house, just not a down payment
In that case Joe Blow A should rent for a couple more years and save up for a down payment.
I understand that not everyone who can't come up with a large down payment is a foreclosure waiting to happen, however at this point they should be erring on the side of excessive caution. Getting a loan to buy a home is not a right, and the past decade has shown us that a government attempt to promote universal homeownership will only lead to disaster.
Why should he be forced to rent when he could be gaining equity in an affordable home? I'm not saying go out and by a half million dollar home with an FHA loan but something that fits his budget with his current income.
Did I say anything was a right? No. But would he qualify for a loan based upon his credentials vs the other guy? Yes.
Again, your blanket conservative policy would fail.
jayK said:ppatin said:jayK said:I don't see this causing a big issue, seeing that lenders' standards for issuing credit have tightened up considerably since the peak of the bubble. The increase proposed was marginal anyway (3.5% to 5%).
If they're making loans to people who can only afford 3.5% down then even a small increase in minimum down payments would probably do a lot to eliminate the highest default risks.I would rather see credit risk evaluated on a case-by-case basis instead of establishing an artificial floor. I'm sure there are borrowers out there that are good credit risks, but haven't saved up enough for a down payment.
Once again, we've seen how people behave when they have no "skin" in the game. I'm in support of a mandatory minimum 20% downpayment for any mortgage, and if it's investment property, 50%.
Approximately 80% of new mortgages come with a government guarantee (from the FHA or elsewhere.)
In my county, 15% of the property owners are not paying their property taxes. Because of the default risk, it would be crazy for a bank to write a mortgage in my county at an interest rate of less than 15% unless it came with a government guarantee.
Cerdo said:jayK said:ppatin said:jayK said:I don't see this causing a big issue, seeing that lenders' standards for issuing credit have tightened up considerably since the peak of the bubble. The increase proposed was marginal anyway (3.5% to 5%).
If they're making loans to people who can only afford 3.5% down then even a small increase in minimum down payments would probably do a lot to eliminate the highest default risks.I would rather see credit risk evaluated on a case-by-case basis instead of establishing an artificial floor. I'm sure there are borrowers out there that are good credit risks, but haven't saved up enough for a down payment.
Once again, we've seen how people behave when they have no "skin" in the game. I'm in support of a mandatory minimum 20% downpayment for any mortgage, and if it's investment property, 50%.The only people who should qualify for a 0% down mortgage would be those with means and excellent credit...and they certainly have "skin" in the game in the form of their credit. If that's not enough, make 0% down mortgages into recourse loans.
Setting an artificial floor would disrupt the free market and prevent lenders from making perfectly good loans.
staci86 said:If only we had some historical basis to judge the soundness of high LTV loans......The historical basis you are speaking of is coupled with loose lending standards, which does not exist today. I would argue that default rate is correlated more with poor credit and lack of means than LTV.
Xnarg said:How about getting rid of the 1st time home buyer credit so as to reduce the incentive for people who can't afford homes on their own to buy them?
Obviously, I was being quite facetious. This isn't so much a problem of gov't policy (FHA offering loans at 96.5% LTV) as it is one of fiscal responsibility at the individual level. A lending institution accepts a certain % of defaults in their portfolio, ultimately impacting cash flow (usually offset by profits). However, an individual, more than likely, cannot sustain a hit. When a person experiences a hardship that significantly impacts cash flow, said person is facing imminent default until (positive) cash flow is restored. This can be mitigated through 'rainy-day funds' and other semi/liquid assets. However, most people do not have a contingency plan like this and they eventually short sale/foreclose or file 7/13 (sometimes both).
You can't legislate fiscal responsibility to the individual level, you can only make it less advantageous.
IMO, this whole first-time home buyers credit was poorly thought out. This credit essentially transitions renters to home owners and creating an artificially (temporarily) high demand for homes, ultimately leading to increased housing prices. However, you now have apartment vacancy rates screaming higher and rents going the other way. Higher housing prices and lower rents? What's that do to the home affordability index?
Then when the tax credit expires and demand goes down, home prices will follow. Rinse and repeat circa 2005-7.
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