Mortgage Myth Busters: Is 20 Percent Down the Solution? Would the Real Estate Market then Crumble?

Is 20 Percent Down the Solution? Would the Real Estate Market then Crumble?

 

Is 20 Percent Down the Solution? Would the Real Estate Market then Crumble?


An unstable economy - maybe a crumbling economy - will it matter after today? Can one say rapture?

There has been a lot of talk about QRM, 20 percent down, and much more. For the purpose of this post, let's forget about QRM, politics, what types of mortgages this will affect, and just keep this simple. More skin in the game for borrowers is the issue. Yes or No.

I have been wanting to talk about this for a few months, but I was inspired after reading this post by Bryan Robertson. ~ Why is NAR fighting the 20% rule in QRM? ~ Regarding Bryan's post, the one thing I do agree with is that home ownership is not a right, but a privilege. And that some lending guidelines were too loose.

I am wondering if we can agree on two things. Can we all say that the economy is not as good as it once was prior to 2006? And can we say that the economy is dependent on the real estate market by over 20 percent?

Three of the biggest arguments that have been floating around regarding the mortgage mess and our economy.....

1.)  The lenders were too greedy with some of their mortgage programs, such as 100 percent no doc and stated doc loans.

2.)  Little skin in the game caused the mortgage meltdown.

3.)  Loss of jobs, loss of income.

 

 

 

Consumers upside down on their homes - upside down on their mortgages

One main issue that bothers me profusely, the reasons why people choose to walk away from their homes, because they were upside down on their homes, upside down on their mortgages. And so many state the main reason for this was because they should have put more down as a down payment, because home values dropped. Here is a comment that just scares me...

"The more skin in the game, the more likely one will fight extra hard to protect their investment. There's no two ways around it."

Then please explain the hundreds of thousands of strategic defaults that have plagued the foreclosure numbers. I have spoken to a dozen or so myself that had no problem financially in paying their mortgage payments and other debts. But just because they were upside down on their home, they walked away. Can I ask one simple question? Why? What was the main reason for buying that home in the first place? This will be another blog post topic in a few days.

Read : More than 28% of homeowners are underwater

 

You want shocking input?? Kenneth R. Harney wrote Who's most likely to walk away from their

 

 

Jeff Belonger's Opinions Regarding Less Down or More Down

 

~ Pros of 20 percent down or more ~

  • Security - More skin in the game makes for a better buyer, homeowner. Me? False hope that it will keep more people in their homes, that they are better buyers. 

Quick Rebuttal - Define better buyer. FHA has been around since 1934, allowing for 2% to 3% down payments. You also have VA loans and USDA loans that allow for 100 percent financing. All three of these types of mortgages have been performing well up until 2006, when the whole mortgage meltdown began. One can say that subprime loans had a lot to do with this. Loan officers putting borrowers into loans with higher rates or worse subprime program types, just because it was easier than a FHA loan, making it easier for the loan officer, but worse for the borrower. Sorry people, but this is a fact that I have witnessed first hand and even asked certain loan officers during that borrowers mortgage process.

 

~ Cons of 20 percent down or more ~

  • Stripping away Cash, Savings, Reserves - If I had a choice of putting down 3.5 percent or 5 percent over 20 percent, I would do the lesser. Why? Unless I had a million dollars in the bank, it allows me to have access to more cash on hand for emergencies. And I have shown in prior blog posts, the differences with 5% down compared to 20% down. Besides, your house is no longer an ATM. It's much harder to get cash out once you put it down.

Quick Rebuttal - The buyer would just have to save more to have cash left over, having reserves.

Negative Impact of more down - The borrower might have nothing left over for emergencies such as a loss of job, a death in the family, or even to fix important issues regarding the house.

  • Economy gets even worse - Would more jobs be lost if the housing economy dried up? In my opinion, 110% yes. Anything from new construction, to remodeling homes, to home repair stores, and those that make such materials for everything just mentioned. Kind of like the food chain.

Quick Rebuttal - I honestly can't think of one, can you?

 

 

 

Let's look at some facts.....

How long do you think it would take for someone in today's economy to save 10 percent, or even 20 percent. Here are some figures compiled by specific groups and independent companies. See chart :

 

Savings chart

 

Let's see, it could take the average person 9 years just to save 10 percent down. What so many fail to realize, that we are talking about the average person. There are so many different factors that play into the role of saving money. 

  • Does a family only have one household income? How many in that household?
  • The cost of living is higher than it has been in recent years and decades. Just look at the food prices and or gas prices, which in many cases, out-weigh what one makes on a monthly basis.
  • Unknown debts that the average person does not always have, such as student loans, taking care of their parents, medical issues, etc, etc.

 

I have heard and seen most of it regarding these reasons in my 18 years in the mortgage business. It's been stated by several groups and those doing surveys and studies, that "High down payment and equity requirements will not have meaningful impact on default rates."  

Let's look at a $250,000 purchase price. If I put 5% down, my mortgage would be $237,500 and if I put 20% down, my mortgage would be $200,000. Do you know what the difference in mortgage payment would be? $201.00 a month. Yes, there will be mortgage insurance, depending on the type of loan program. Mortgage Insurance can be a confusing topic and can also be written off for now. Read : Mortgage Insurance

But let's say your mortgage insurance is an extra $180 a month. If you out 20% down, your total savings is $381.00 a month. But wait, that is an extra $37,500 out of pocket. Ouch... That is about 8 years of saved monies. As you can see, buying a home takes careful planning and consideration. When is it a good time to buy a home?

 

 

 

Conclusion :

 

We need to compare Apples to Apples - People keep comparing today to the 1970's and 1980's when their parents were able to save and put 20 percent down. Many say that it was just as hard back then as it is now to save. I disagree because of several different factors.

By forcing higher down payments, would this not penalize the responsible borrower? Which would make home ownership more expensive or out of reach to millions?

In my opinion, I consider Cash is king and a necessity to survive in today's economy. Since many are screaming about at least making it 10 percent down, here is an example of 3.5% down vs 10% down.

What are your thoughts and opinions? For those reading this, even though I am strongly against making more down a requirement, I still always try to respectfully dissect both sides with pertinent information so I can make a sound decision.

Adam Cohn wrote this post (I love stats and facts - research):

QRM would have cut out 39% of homebuyers in 2010: CoreLogic

 

 

Solutions? Calls to Action?

Understand the facts before screaming for such ludicrous changes that could kill the housing market. I do believe in tweaking some of the mortgage guidelines. Such as :

  • Stronger debt ratios
  • Required reserves

 

Here are some scary facts and not just opinions.

Understand the types of people that would truly walk away from their homes.

 

Maybe the economy would rebound better if the mortgage servicers improved. Recovery depends on mortgage servicers?

Maybe higher escrows withheld on jumbo loans? Fed rules on jumbo escrow requirements

 

Call to Action - If you believe in my thought process, print or e-mail this and send it to your Congress person, to other realtors, agencies....

 

One of my calls to action that I wrote about in June of 2009 :

Call to Action - We must fix the real estate market ourselves !!!

 

 

Jeff's cliff notes (remember those?  In my opinion, here are 3 excellent comments out of the 240 + from Bryan Robertson's post mentioned above. Keeping in mind that I have only read about 60 of the comments and not in any order)

Karen Hunt - comment # 167 - Unemployment, tax structure, and lax banking guidelines.

Brian Hoffman - comment # 169 - If forced to put 20% down only, economy would crash.

Dave Jerierski - comment #203 - 20% doesn't guarantee loan payments.

 

 

I wrote about tougher guidelines about a week ago.

Realtors can't sell!!! - Because of Tight Mortgage Guidelines?

Are mortgage guidelines actually tougher? I don't really think so. I think it begins with the loan officer properly educating both the consumer and realtor, and setting expectations to a certain level before one sets out to buy a home. How many of the loans that didn't closed in the last 12 months were probably do to loan officer errors not understanding credit, credit scores, or their lending guidelines.... and not just because the person didn't qualify, which should have been mentioned previous to the agreement of sale.

 

"Fight or argue with facts and not just your heart on your sleeve."

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comment balloon 83 commentsJeff Belonger • May 21 2011 01:39PM

Comments

 

Sorry that this was longer than what I wanted it to be, but what I wanted to get across would have been lost if it was a 2 part post.... if you actually read the whole thing, if I could give you an extra 100 of my own points, I would....

AR gods... can we do this?  ;o) 

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

I believe the 20% down is only for mortgages that are going to be bundled and sold off as mortgage backed securities. This won't change things too much. The PMI companies still want risk to make money on.

Posted by John Saari, "The Mortgage Buddy" over 9 years ago

interesting post and I am with you that perhaps it's not really the down payment amount that's the issue. When you work in a higher priced market higher down payments are tougher for buyers to save.

Posted by Reba Haas, Team Reba, CDPE (Team Reba of RE/MAX Metro Eastside www.TeamReba.com) over 9 years ago

 

JOHN.... not trying to sound rude or stern here... but hence why I made my opening remark/statement to say... let's put everything aside and just talk about 20% down and what it could do if it was forced for everything.

REBA... . In some high price markets, many buyers can still afford those larger down payments. Some markets have high end jobs or job markets... like NYC.. if you buy, you have an excellent paying job...  but yes, overall, it is tougher for more to save than it is for those to save. thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

Jeff, I did read the whole thing although I did not click on ALL of the links. Your argument is reasonable and well thought out. One thing that we might like to do as a nation is to teach children the importance of saving and acquiring wealth over time.

Posted by Maria Morton, Kansas City Real Estate 816-560-3758 (Platinum Realty) over 9 years ago

Jeff - Wowsa !  Very well written and well thought out.  Love the pros and cons.  I agree with the post on so many levels.  The 20 percent argument is ludicrous and I agree that forcing folks to have the majority of their cash in their homes would not be smart... and of course it would then make them do more home equity loans after the fact anyways !    There are plenty of responsible buyers who did FHA, or conventional 5 or 10 percent down or even 100 percent down.  I think the problem was more the lax guidelines.  And a lot of that has already been corrected.

Posted by The Somers Team, Delivering Real Estate Happiness (The Somers Team at KW Philadelphia) over 9 years ago

Jeff

This deserves a feature to engage more in discussion an commentary. I also agree in wany ways. The whoel issues scares the heck out of me, and while we cannot truly KNOW what the impact could be, the potential is mighty scary. And with other economic challenges, like unemployment and gas prices, this would seem have a massive negative impact on the overall economy.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (eXp Realty of California, Inc.) over 9 years ago

Jeff thanks for writing this post. I disagree with the need for 20% downpayment to buy a home, but I have not been able to put into words all the reasons why (as you just did). Thanks for sharing.

Posted by Markita Woods NMLS#196099, Queen of Mortgages - FHA, VA, Conventional, USDA (American Financial Network) over 9 years ago

Jeff

I feel that one of the issues that we're facing in today's economy is accumulation the down payment will be an issue.

Good luck and success.

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) over 9 years ago

Whew, Jeff!  This is a lot to digest. 

I don't think a larger down payment requirement will have a huge impact on defaults.

And if we talk about skin in the game, part of the problem with the whole breakdown is that the banks had no skin in the game once the loans were packaged and resold. 

I can remember during the crazy years looking at financial sheets and scratching my head wondering, "How are these kids going to be able to buy this house and continue to eat?"  The loan to value ratios seemed out of whack even for fully documented loans. 

One thing this post really brings home is that it's really complicated.

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) over 9 years ago

Jeff, you are reacting with some personal knowledge -- some people who defaulted -- and some statistics.

The difficulty is that your argument assumes that 20% down necessarily is all a buyer's resources. Sure, cash on hand for emergencies is important. But also important to an individual's financial stability is credit, the education to be flexible in a changing economy, and a willingness to change.

People who are on the margin financially need to think carefully before making a decision to purchase a home if they have constrained resources. That 15 or 30 year mortgage is a really big commitment that will last a really long time.

I don't want to argue, I like and respect you too much, but it shouldn't be an "either-or", where it's cash for emergencies vs. equity.

 

Posted by Leslie Ebersole, I help brokers build businesses they love. (Swanepoel T3 Group) over 9 years ago

  I typically work with alot of buyers who only qualify for USDA loans because they don't have closing costs or down payment but they DO have sufficient income and good credit.  I believe everyone should be able to have a shot at home ownership.  What I typically see with buyers when we begin to write an offer and I start pointing out all the other costs like escrow deposits, home inspections and appraisals many home buyers are surprised at these extra costs which can total over $1,500 depending.  I would say 80% of contracts in my market include closing cost contribution why because the buyers don't have the extra money, all they have is what they  have saved for the 3.5% down for FHA and not much more.  The larger down payment requirements will hurt in my market but I understand everything is regional and must be in perspective.  It will take buyers much longer to save a higher amount in my opinion--just saying

Posted by Marilyn Boudreaux, Lake Charles LA Century 21 Realtor (Marilyn Boudreaux, Century 21 Bono Realty) over 9 years ago

Jeff:

I read the whole post, and the comments that fellow AR member have made. In the San Diego market where the average median home price is in the upper $450,000 the down payment would be $90,000+ which would not get you into a special home but an average home (with some deferred maintance cost). Plus add on closing cost --it does make one think  can a two income family who is raising a family of 2+ children, setting aside, money for college, keeping up health insurance cost and all the other cost that are entailed with raising a healthy family --will it come down to young adults making a choice that parenthood is just not in the cards if they want a home, or --will it come down to the have's have more and not's have less.

Posted by Lorraine or Loretta Kratz, Certified Negotiation Consultants (Crescent Moon Realty, Inc. & Land N Sea Auctions.) over 9 years ago

Jeff - another great article explaining things in way most should be able to understand.  Now if we could just get them to read it.  For those who believe buyers need to have skin the in game, if they are consistent are saying that buyers should actually put down about 35-40% (since as noted in one of the referred articles "28% underwater" that home values have generally dropped about 20% since their high in June 2006.  Therefore to have skin in the game to want to keep the house they needed to 35-40% equity at the time of the crest.  Otherwise, they are now underwater, and have no skin left in the game, that they can count as theirs.

Posted by Steven Cook (No Longer Processing Mortgages.) over 9 years ago

20% down?  Dismantle prop 13?  High unemployment?  Devalued dollar?  Yikes! 

Posted by Will Handley, Certified Master Inspection Services (Progressive Inspection Service) over 9 years ago

I agree with you and appreciate the amount of research and many facts you have brought into the discussion. This is the wrong tome to toy with the housing market and making these changes could return us to a bad economy

Posted by Scott Fogleman, Greater Good Group (New Home Team 804-573-9592) over 9 years ago

I can certainly see the case for 20% down, and I've always agreed with people like Dave Ramsey who strongly recommend at least 20% down and a 15 year or shorter mortgage. It is a way to protect both the mortgage companies and the homeowner, by making the house less likely to go upside down.

That said, I think it's a really bad time to start requiring this on such short notice. If anything, they could maybe implement the change over several years, and publicize it well. A sudden jump in required down payment so fast could put many potential buyers out of the game, but an announcement that they will be requiring 5% in 1-2 years and then doing incremental increases from there might actually motivate some people to start saving up and to buy before the the changes go into effect.

Posted by Raine Carraway over 9 years ago

I'm with John on comment #2 here.... I don't remember seeing anything that states nobody will be able to get a home loan without a 20% DP if the requirements for a home loan to be bundled up into a Mortgage Backed Security are changed to 20% equity..

For the Sake of the blog article though.. If 20% Down became the new standard... Less Buyers Qualify = Lower Demand = Even Lower Home Values. Lower Home Values means Even More Peope Walk Away..

Lower Home Values = Lower Down Payments needed?

I think everybody needs to start figuring out that there is a supply problem... as in TOO Much Supply. Making it even harder for somebody to get a home loan right now is not going to help out anything... Except for those with cash who will be able to buy homes for even less.

Would less people default if they had all of their cash in on a down payment? Maybe..

But Somebody please explain how a homeowner with no cash reserves is going to make their mortgage payment if they lose their job, have an unexpected illness or numerous other things that can come up. I've come across plenty of homeowners in my short sales experience who put 20% (and even more) down that had a situation come up and they had to get out of their home loan..

 

 

 

Posted by Paul Francis, Las Vegas Real Estate Agent - Summerlin Homes (Francis Group Real Estate) over 9 years ago

Jeff, I agree with you. 20 % down is not the answer. Congratulations on the feature.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 9 years ago
That high a down payment is almost a rarity in my market place. It would be a disaster.
Posted by Cheryl Ritchie, Southern Maryland 301-980-7566 (RE/MAX Leading Edge www.GoldenResults.com) over 9 years ago

Lots of good points. 20% down may or may not be the answer because ultimately, it falls back to the individual. Some choose to walk away because they really can't afford it anymore due to job loss, some do it because that was the easy way out.

Posted by Mike Yeo (3:16 team REALTY) over 9 years ago

Excellent analysis, Jeff! I agree with those here who say this would be tragic if it happens. We see the look in people's eyes when you tell them they must put 3.5% down for an FHA loan; imagine if you had to tell them they need 20% down? Selling a home would be like yesterday's predicted Rapture: it just wouldn't happen.

Posted by Pat & Wayne Harriman, Broker/Owners, Wallingford CT Real Estate (Harriman Real Estate, LLC (203) 672-4499) over 9 years ago

Jeff, this is a great discussion that will go on...in my area the economy is not improving, there is no new industry to bring the jobs in and economy improvement is based on tourism...not good.  Good borrowers lose their jobs too..taxes are incredible there has to be a reasonable compromise in down payment restrictions and who wants to leave that to Congress?

GREAT post!

Posted by Ginny Gorman, Homes for Sale in Southern RI and beyond (RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate) over 9 years ago

Jeff, I think this is an excellent, well-thought out post. Thank you for discussing both sides of the debate with the facts presented. I too think that a 20% down payment would make home ownership next to impossible for legions of people and create more of a surplus of properties for sale. Another issue - many properties (foreclosures especially) need repair, have failed septic systems, mold issues from neglect/being vacant since past homeowners walked, etc. Buyers need reserves to make necessary repairs and a larger downpayment would make that difficult. 

Posted by Samantha Nichols, Massachusetts Real Estate Specialist (ERA Belsito and Associates) over 9 years ago

In my opinion, 20% down would change housing prices and population trends nationwide. 

Many people would not be able to purchase a home at all, so in areas with high median prices, rental prices would increase as demand increased making it even harder for those to save. 

Those that could save 20% would be able to save 20% to purchase a home in those areas where median prices are $200K or less.  Which may not be where those folks want to live.  This would drive people away from high priced areas into other areas of the United States, probably increasing housing pricing there as well.

For example, in my county, the median price of a home is $550K.  20% downpayment be $110K, plus closing costs.  I know neither of my children would be able to save that; I know none of my friends would have been able to save over $100K.  I would never have been able to buy my first home which was done with a 5% downpayment.  My current home was purchased with 10% down.  I'd be renting right now if there had been a 20% rule. 

Obviously, I think requiring a 20% downpayment (if that were indeed the new rule for all new purchases) would drastically impact home buying trends.  We'd all turn into rental agents.

Posted by Kat Palmiotti, The House Kat (406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty) over 9 years ago

Hello Jeff - 20% down would be the "last nail in the coffin" for most deal in South Florida - outside some cash investments. The VA guarantees 125% for lending institutions,, why can't FHA do the same? It may resolve some of these financing problems.

Posted by Stephen P. Panczak, Sr, MBA, Realtor, Property Mgm't, LCAM over 9 years ago

Jeff, I see both sides, but as far as the strategic defaults - as you state - most of those are being done by those that have and had the means for the 20% down.  Those should be paying that now.  Those that have done the best with limited incomes and can now afford a home with 5%, 10% whatever, are much less likely to default.  Let them have a chance.

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) over 9 years ago

Jeff,

There sure are no easy answers, although you bring great light to the debate!

Posted by Irene Kennedy Realtor® in Northwestern NJ (Weichert) over 9 years ago

Jeff:

Borrowers with more "skin in the game" is not the only issue in my opinion.  Lenders should have more "skin in the game".

In bygone days, lenders held the mortgages in their portfolios until maturity, which had the effect of making them highly concerned about loan documentation, ability to repay, and appraisal quality. 

Even mortgages brokers had more "skin in the game" as they were responsible for one years' worth of mortgage payments in the event of a default under some circumstances.

Now, with loans sold to GSE's or bundled into securities, lenders have become mortgage servicers with little or no "skin in the game" and with less incentive to be concerned about documentation, ability to repay, appraisal quality, etc.

If lenders had more "skin in the game" a large part of the mortgage meltdown would have been averted..

 

Posted by Jesse Skolkin (Independent New York State Certified Real Estate Appraiser) over 9 years ago

Just to save a downpayment of 20% for a just married couple could be many years. . .with Americans track  record of not being a savings oriented society. . many people will never own a home.

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) over 9 years ago

The 20% down idea is going to make home ownership more difficult for many. The situation is indeed complicated, multi-tiered and something most people just don't get.

That said, any recovery is dependent upon the real estate market recovering. Take that away and the future looks pretty bleak and not just for Realtors!

Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) over 9 years ago

This post could have easily been a seminar which I would have paid to attend. Well laid out points and questions with good comments...This subject will be around for a long time so I wont try to share all my thoughts. Pockets of exceptions exist all over the USA...The places that are hardest hit like my area are going to have a tough go of it for years to come. We suffer from all the wrong things...no jobs, falling values, non-stop foreclosures and lay-offs. That means traditional Real Estate wont visit us soon. When all things are being equal, skin in the game works, but not while people are still losing their shirts....the key word is caution...thank you for a good discussion post Jeff

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) over 9 years ago

Foreclosures have nothing to do with down payment.  It's all about the underwriting.  FAH, VA and FmHA have very low foreclosure rates.  thanks for your blog.

Posted by Michael Ford, Matching Families with Homes (Coldwell Banker Heritage Homes) over 9 years ago

Jeff, great article!  Oh, I'm a big fan of Jesse (#29) and Fernando (#30) who make two great points;

- Lenders needs some "skin in the game"

- Americans are not savers

Both are very true.  One big point left out of these discussions is that QRM is about putting good loans on the books of the banks.  Without going into detail, the reason MBS lost so much value was they included bad loans with low equity.  Is 20% down the only solution, no.

Americans are not savers is another issue.  When I made the statement that it's different for people saving now than it was in the 80s, it's because Americans in general (especially the current generation) don't want to sacrifice like they used to.  When kids get out of college they expect their house to have a 50" flat screen, nice new car, etc, etc.  Go back two generations and people didn't waste money on extras.  They put away every dime to save.

Anyway, you make some great points and I'm glad this discussion is still rolling along.  I think the next big discussion is to find out from our collegues:  what makes the ideal mix of factors to solve this?

After reading all the feedback, my opinion shifted on the down payment.  I'd support QRM if it required 10% down and held the DTI ratios fairly tight.  I'm still wondering if people realize this doesn't impact Fannie, Freddie and FHA loans?

Posted by Bryan Robertson over 9 years ago

The housing market is in the process of finding a "new normal" anyway. The 20% downpayment rule will contribute to the hammering down of the new baseline. It will knock millions of buyers out of homeownership. The country will tilt towards being a nation of renters.

House values will plummet again. Most current homeowners with mortgages will eventually lose their home to foreclosure or avoid foreclosure with a short sale because values will not recover for DECADES.

However, over the long run, we will also became a nation of savers.

Incidentally, it will be easier to save 20%. House values will plummet so low that 20% of LOW is much easier to attain.

Posted by Dave Halpern, Louisville Short Sale Expert (Keller Williams Realty Louisville East (502) 664-7827) over 9 years ago

Thanks for the graph, very difficult to save that much for young people where both mom and dad have to work to pay the bills.

It is not the size of the downpayment it is the credit worthiness of the borrower.

 

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) over 9 years ago

Hey, Jeff!  I made an exception this week.

 

I included this post in Last Week's Favorites.

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) over 9 years ago

Jeff: I think 20% down would lose the first time homebuyer. And they're the only ones consistently driving the market. We're a perfect example. 18 years ago we bought our house with 5% down. Yes, we had mortgage insurance and the payments were about 50% higher than we were paying in rent at the time. But the dream of homeownership was possible. With 20% down, I think it would stymie the market. Thanks!

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) over 9 years ago

Not everyone has 20% to put down.....Lenders are looking for"some skin in the game and rightfully so!"

 

Patricia/Seacoast NH & ME

Posted by Patricia Aulson, Realtor - Portsmouth NH Homes-Hampton NH Homes (BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate ) over 9 years ago


MARIA... . that is an excellent point. I don't have kids, but from talking to my nieces and nephews... I know in some classes, they are starting to teach this when young enough. I remember having a few stock lessons and savings when in 8th grade... but nothing in high school.  Not that many will learn, but we do need to teach it when they are young and do it often and not just once. thanks for the feedback.

CHRIS.... . I totally agree, that there are many responsible buyers with less down and that a lot of the problem regarding the meltodown was due to easy lender guidelines. And yes, this was a long one.. lol  Thanks and thanks for the polite compliment.

JEFF... .  I am glad that someone did feature this... and yes, this is very scary, with those on Capital Hill talking about it...and yes, we don't know what the impact would be, but from my knowledge and thought process, I think I can safely assume that it would be devastating to our current economy. thanks

MARKITA.... . I think many of us would and have agreed that 20% would be too much... and I think I used a lot of words though... lol  A little over 1,600 and was afraid that many wouldn't read this... but it was hard for me to keep it short and to break this up into 2 parts... Thanks for reading it ..

LOU... . savings is tough.. I know part of the argument would be that so many Americans spend freely,, wanting the nice things.. I agree... but many don't do this and it's hard for them to save. thanks

PAT.... .  you bring up an excellent point as did a few others... but my main focus was the consumer and 20% down. But you are correct in saying that part of the problem was the lender not having skin in the game and I agree... some of this is changing as we speak or has changed... but up until a few years ago, anyone that had a mortgage license to operate, as you stated, could do a loan and sell it off quickly..  there are some repercussions that some have not brought up... but as a small company, one could walk away.. and did, and would start up a new company.  thanks for your input...

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

I can't stress, enough, how much I believe the government should stay out of this and put all of their efforts into creating jobs and improving income levels.   With jobs and income there is little or no foreclosure.    JOBS JOBS JOBS.

I know people who pub 20% down and ended up in foreclosure and I know poeple who put 0% down and still own their home.   How much skin in the game had nothing to do with either situation.   Having a job and a median income will, if the lender has done their job, mean the mortgage will carry to term.   If, as has happened way too much in recent years, one or both spouses loses their job, 20% down isn't going to save their house and with many, many markets dunking over 25% in value they are upside and can't even save themselves by selling.   JOBS JOBS JOBS JOBS JOBS.    Bottom line.

Posted by Debby Singleton, Top Producer since 1993 (Springer Realty Group) over 9 years ago

This strikes me as the classic governmental "let's fix what's easy to fix, rather than fix the actual problem" approach. Fixing actual problems is hard; better to look like you are at least doing something, and especially if that something at least on the surface looks plausibly like a problem-fix to the average person.

Posted by Linda Humphrey, CRS, Broker/Owner HHC Realty (Humphrey Home Connections Realty, Reno, Nevada) over 9 years ago

LESLIE.... . just curious, what is wrong with reacting with personal knowledge and actual facts?  The gov't seems to use neither, and just what looks good on paper, and what would make some voters happy or their constituents. #just sayin on the part...

In regards to my assumption... I never said that 20% would be every buyer's assets. Just making a general statement. If I look at all the buyers that I have helped over the years and see that if they put 3.5% down, many had maybe another 3% to 10% left over. So most that I have helped, don't even have 20%... so in my cases, all of their assets would be used, leaving them with nothing.

In regards to arguing with me... Respecting your or not, I do not call this arguing... I call it debating. Too many people on AR get their panties all in a bunch and attack... and or argue or thinking good strong debating is arguing. A huge difference... Anyhoo... you stated this,,,

"it shouldn't be an "either-or", where it's cash for emergencies vs. equity."

Isn't that what we are left with? Either we keep it as it is, so people can have cash left over... or just strip the buyer of all of their cash for down payment? Even if it was just 10% or more down, I don't see that as a solution and would stand behind my argument still.

You made this statement....

"But also important to an individual's financial stability is credit, the education to be flexible in a changing economy, and a willingness to change."

I think this is what we need to focus on... credit, understanding credit, credit worthiness of the borrowers, education regarding the buying of properties, and being flexible in a changing economy.  I think you hit the nail on the head.

Here is my problem with 20% down as I have stated... it doesn't make you a better borrower. Do you know and understand that someone with 3.5% down and credit issues will have a harder time getting approved. But someone putting 20% down with the same credit issues would have a much better chance of getting approved, because it would be approved in the automated system.  But as I have mentioned, does this make them a better borrower?  Now... Just because you have more money with less than perfect credit, doesn't mean you are a better risk. Many questions such as... where did you get the money?  Did you risk paying some bills to keep that money?  And so much more...

Overall.. thanks for your comment, because as you can see, it led to an excellent discussion and debate.. and I hope people read what you wrote and my response... these were some of the things that I wanted to put in my post, but it was already 1,600 words.. thanks and hey, I have always respected you. If you feel strongly about something, I want you to come hard at me. I am dead serious about that... I don't think of it as arguing... but a good healthy debate. thanks...

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

Jeff-Nice way of framing the issues. It is a complicated subject. If've not kept myself informed on the QRM issues, but in general, it seems that the public policy people in Washington, both government and lobbyists, lack much connection with the citizens directly affected by their rule making and decisions. And goodness knows they would not want to hear from you, some of your associates, or realtors about what some of these rules will  do to the market place.

Especially liked the argument that more down payment does not necessarily make one a better borrower. Instinct makes me think the more one has invested, the more one would want to avoid the loss. But maybe you're right.

Posted by Wayne Johnson, San Antonio REALTOR, San Antonio Homes For Sale (Coldwell Banker D'Ann Harper REALTORS®) over 9 years ago

 

MARILYN... . you bring up another good point of upfront expenses... but let's keep in mind, the deposit of escrow can be used for the down payment... so either way, it might be needed... unless doing USDA or VA loans.. but I will be honest with you, I would still like to see that borrower have 6 months plus in reserves even if they are putting zero down. I think this needs to be stressed more than putting a larger down payment down. I know it's hard to save, but something... people can sacrifice... can push themselves... just not 20% down... thanks for your input and feedback.

LORRAINE & LORETTA.... . one thing you mentioned, that I failed to mention as a disclaimer is... that every area is different when talking about this... and you are correct, and I usually mention this.. so thanks.

In regards to some of the details you brought up regarding expenses.. I think the gov't needs to0 focus on these areas before changing down payment guidelines. By trying to save for a larger down payment, yet handling these large expenses that you mentioned, it hurts or kills over half of us easily... and that was one of my main points... thanks for your feedback.

 

STEVE... . I hope many will read this and e-mail it to others, especially those that help make or influence these decisions. Regarding what you talked about when putting 20% down and that values drop... excellent point and I will be talking about this in my follow up post.. it will be just on the upside down issue and theory.. thanks and thanks for the polite compliment.

WILL... .  lol.. like it's not bad enough. How do they sometimes think on Capital Hill is beyond me... wait, do they even think? Do they just throw darts at the board?

SCOTT... . thanks.. it did take me about 3 hours to put this post together... and question, when is it ever the right time?  ;o)  #justsayin... And in many areas, I think our economy is still bad. But in my opinion, this certainly would destroy it... thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

Great rebuttal, and comments that follow.  It's all about the "investors" to the lender.  SURE if they can have portfolios with buyers that put 20% down, that's probably going to increase the value on the portfolios, don't you think?!?  It's NEVER about people, home owners . . . it's all about what the banksters want to profit.

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) over 9 years ago

I don't think requiring 20% down for all mortgages is a solution to our mortgage/housing/economy woes, and I don't think that it's likely to happen.

After hours of research today, I have a better understanding of the risk retention policy and proposed QRM rule but still am not convinced whether the rule will have the intended impact - to make lenders more responsible. None of us know what unintended side effects the rule may have and whether it might eventually result in 20% down for every mortgage - which doesn't seem likely at this stage.

FDIC Chairman Sheila C. Bair states "... The rule before the Board today proposes new standards for retention of credit risk to help ensure that securitizers will hold "skin in the game" which will align their interests with those of bondholders. This will encourage better underwriting by assuring that originators and securitizers can not escape the consequences of their own lending practices."

The rest of the statement can be found here: http://www.fdic.gov/news/news/press/2011/statement03292011.html

Posted by Retired Notworking over 9 years ago

I tend to think like Dave (#35), home prices will continue to go down, it will be easier to put down 20% of LOW.  Prices got so high because it was easy to finance HIGH, if you only had to make a small downstroke.  And Debby #41 is right on, Jobs, Jobs, Jobs would alleviate a lot this mess.  It's the financial uncertainty that's shaking everyone up right now.  No longer is it possible, a la Rosie the Riverter to roll-up our sleeves and get to work.

Posted by Linda Metallo DiBenardo (RE/MAX Impact, Lockport, Illinois) over 9 years ago

Hi Jeff, ironed my panties so I can get into the debate without any discomfort ;-)

I drafted a post last night, might publish today, somewhat based on your and Bryan's posts and several follow up emails with other members.

 

Per the MBA, 90% of the loans originated in 1Q 2011 have government guarantees, which includes FHA, Fannie, Freddie, VA and USDA. 90%!!! It's not the "banksters" funding and profiting from this crisis, it's the taxpayers.

I gnash my teeth over people who want to penalize the banks and want government out of the housing market, but still want low down payments and low interest rates.

Hmmmm, I feel some bunching coming on. I'll go argue with myself on my own blog.

 

 

Posted by Leslie Ebersole, I help brokers build businesses they love. (Swanepoel T3 Group) over 9 years ago


RAINE.... comment # 17.. .  well, I am going to disagree and disagree with a lot of what Dave Ramsey teaches.. and for what he stands for with his seal of approval that other loan officers can buy from him, which doesn't mean much regarding that loan officer.. but another way for Dave to make money. That is a different argument.

But back to Dave's theory of protecting the home owner about being upside down. Who cares about being upside when buying a house. Don't get me wrong, I care, but people think about it to much.. and I am writing a blog post on this tomorrow. Way too much focus is placed on becoming upside down. Let me ask you one simple question... What is the main reason for buying a home? What should be some of the reasons? And where should being upside down factor into all of this?

My point... putting 20% down has been proven that it doesn't save you. Another reason why I will argue against Dave Ramsey is that you just can't walk up to your house and demand some of your money back, if you run into an emergency. And I will be making these points in my post.

Lastly... making small increases to the down payment requirements through the years... what does that do?  Just more money upfront from the borrower, sometimes making it harder to save and buy... yet there will still be risk for the lender and home owner. Just #sayin.  Overall, thank you for your input and feedback.  And I will be writing about this tomorrow... thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

PAUL... comment # 18... . again, as I mentioned to John and a few others... please read my first paragraph, especially my second sentence. I wanted to just debate the 20% down issue that has been around for the last 3 years.. or just more money down. I am not debating the QRM issue, what loans will and won't be involved, and how lenders package up deals. I understand all of that and get it... I just wanted to talk about the basics, and the pros and cons when it comes to putting 20% down. But the rest of your comment, in my opinion, is spot on.. and I agree. You stated it perfectly with this statement,...

"If 20% Down became the new standard... Less Buyers Qualify = Lower Demand = Even Lower Home Values. Lower Home Values means Even More Peope Walk Away.."

Thanks for your input and feedback..

 

GITA.. . Thanks, I just wish more on Capital Hill would look at this closer, and understand more of it.. And thanks, I am glad this got featured.. thanks

CHERYL... .  that is key, what would 20% down do to many local real estate markets... not just overall.. but either way, I think it would certainly hurt the real estate market.

MIKE... I hate the easy way out answer and yes, so many did this... and why?  What was their main reason for buying anyhow. I will be writing about this tomorrow.

PAT & WAYNE.. comment # 22.. .  I loved your last sentence.. lol  But seriously, I think selling homes would come to a screeching halt... thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

 

GINNY... comment #23.... . ah, no new industry, which helps create new jobs. Yes, even though many areas are doing well, many more are not. We just need to make Congress aware of this from our view points... in which I hope many will copy and e-mail this post And thanks for the compliment.

SAMANTHA... . you also bring up a good point regarding many of the foreclosures that need help and only some banks are willing to spend the money. So where else would the money come from? right? And thanks for the kind words and for the polite compliment.

KATHLEEN... . you make an excellent point that higher down payments would drive those buyers to areas where they wouldn't want to live... And that more would be renting. Nothing tremendously wrong with renting, but it would hurt some of the food chain that I mentioned.  thanks for your input and feedback.

STEPHEN... . yea, it's bad enough that Florida has many problems... it would just crush Florida, period. You said... why can't FHA do the same?  FHA is laid out differently than VA and is a different animal. thanks

GABE.... . I agree, let them have a chance... and those that strategically default should be penalized more now and in the future... #justsayin

IRENE...comment # 28 .. . if there were easy answers, I think we all would be in a great place.  ;o)  But politicians need to understand better and not just what looks good on paper. thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

Going to 20% will rule out most of my mortgage buyers. They just dont have that kind of cash to make the deal work. I think they will stick to FHA. They have the credit they just don't have unlimited funds to access.

Posted by Robert L. Brown, Grand Rapids Real Estate Bellabay Realty, West Mic (www.mrbrownsellsgr.com) over 9 years ago

Hi Jeff, Congratulations on the featured post. This is a highly debated issue that will certainly have an affect on the real estate business. Owning a home has long been the American Dream for many first time buyers. I doubt if any of them will be prepared to pay 20% down payment. There real question then becomes, "What needs to be done to prevent people from defaulting on their loans?" I am sure there is NO single answer, and probably NO single solution either.

Posted by Jerry Newman, Texas REALTOR, San Antonio Military Relocation (Brown Realty, 210-789-4216,www.JeremiahNewman.com) over 9 years ago

I love that chart that you out in there with the length of time it would take for the average person to save. And for $170K. Our prices are so much higher in Southern California, that chart scares the heck out of me. 

My vote is against 20% mandates. It would kill the market and depress the entire economy even further.

Posted by Sinead McAllister, Broker - McAllister Homes Real Estate, Oceanside, (McAllister Homes Real Estate) over 9 years ago

Hi Jeff. I do not feel that someone who has 20% down would make for a better homeowner. Why should a homeowner be restricted in pursuing home ownership due to their lack of monies available for a down payment. We all know that it is not so black and white. There are always "gray" areas and it is these "gray" areas I believe where the decision to lend is made; what's their credit, debt, income, etc. We would do great harm to the housing industry if these requirements were implemented particularly when it is so fragile. This is simply extreme financing and extremes is what contributed to where we are at today. Good post.

Posted by Lynn Pineda, Real Estate Promises delivered in SE Florida (eXp Realty) over 9 years ago

Mandatory 20% down is unnecessary overkill ! People don't accidentally have their FICO scores !!!

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) over 9 years ago

How about this? When a person ever has a foreclosure record on their house, they are never to be able to borrow again? Isn't that why the strict VA loans made that clear to active and vets?

One thing good about the country I came from: If you ever wrote a hot check, you are doomed for your entire banking life which will hurt your borrowing ability in the future. If you ever filed for bankruptcy or foreclosure, try 100% down the next time. Foreclosure and bankruptcy rates are highly unusual then. The same with "caught" with drug rule, if you are charged, it's a death sentence. How many people do drugs and be caught? Very little.

I'm not saying that it has to be this way, but definitely we've been far too relaxed. I'm glad to see tighter guidelines. And I agree  20% downpayment doesnt make the homeowner better.

A homeowner is one who is more financially secured: sitting on savings, very very low or manageable debt and the mortgage payment on a very low end of the household budget (25%). Then, even with a 3.5% or 5% down, the homeowner should be fine, dont you think?

Posted by Loreena and Michael Yeo, Real Estate Agents (3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co.) over 9 years ago

I don't understand people walking away if they don't have to.

Posted by Tammie White, Broker, Franklin TN Homes for Sale (Franklin Homes Realty LLC) over 9 years ago

I definitely appreciated reading this post and then seeing the other points of view.  Here in Manhattan 20% down is pretty much the norm. 

Posted by Eileen Hsu, LICENSED REAL ESTATE SALESPERSON (Douglas Elliman Real Estate) over 9 years ago

 

JESSE...comment # 29. . I agree that lenders should have more skin in the game. But if you read my first paragraph, especially the 2nd sentence, I wanted this to be solely on the 20% down issue, and what this would do to new prospective borrowers and our current economy.

You made this statement... "Now, with loans sold to GSE's or bundled into securities, lenders have become mortgage servicers with little or no "skin in the game" and with less incentive to be concerned about documentation, ability to repay, appraisal quality, etc. "

That statement and comparing to the past, that lenders had more skin, is misleading. Lenders will still be held responsible, especially when it comes to FHA loans. Heard of first payment default?

In any case, as I stated, my main point was how 20% down would hurt new buyers and the real estate market, which would hurt the economy even more. thanks for your input.

 

FERNANDO.... . well, that is another issue at hand, that Americans in general aren't good savers... and want it now, the new things. But that goes back to educating younger people, and students. thanks

BARBARA JO ... . yes, this would hurt so many and not just realtors. As I mentioned, like the food chain...home repair people.. people that work at stores like Lowes and such.. and those that make specific parts and such for home repairs... so it would kill the economy..  thanks

RICHIE... . I am flattered by your kind comment and polite compliment... and yes, for many areas, it starts with good employment.  How can one sustain their life style to include paying their mortgage if income is cut or their job is loss. Again, thanks for the polite compliment.

MICHAEL... comment # 33... . well, it has something to do with underwriting... but underwriting can't control job loss and so much more... right?  thanks


Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

Here financing has become less of a problem (NSP programs which still provide 100%) and reduced prices have been enticing to buyers who are paying cash. These two diametrically opposite groups are usually competing for the low end homes. 

Posted by Allison Stewart, St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904 (St.Cloud Homes ) over 9 years ago

Jeff this yet one more example of an unnecessary extreme swing( when most of the 2003-2007 lending problems have gone away).

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) over 9 years ago

20% down is  overkill. In my market the majority of buyers are using USDA or FHA loans. These are responsible, hard working people who are not purchasing over their means.  20% down for any conventional or otherwise would be a death wish to realestate.  Make the lenders be more responsible on assisting homeowners in trouble by answering their phones with legitamite answers and not giving the run around.  Majority of homeowners give up when they cant get the bank to respond to their call for help

Posted by Kathie Searls over 9 years ago

Great read and thank you for all the links. It infuriates me when the government steps in and thinks they are protecting the people and we can see their efforts are everything but....

Posted by Eric Brickley (Zenith Mortgage Advisors (Milford,MA)) over 9 years ago

Excellent points. I hate to think what would happen to the economy if this happens. One thing I hadn't considered was with the home values further deteriorating the increase in the number of people that would simply walk away.

Posted by Brandon Hoffman (RE/MAX Connected) over 9 years ago

In essence, markets find a way, it is an economic law and governments of oll couleur have tried to cahnge them over the last centuries, at the end it never works. In my opinion it needs to be "allowed" to buy a house when you can afford it, be it in payments or down payment and people need to be "allowed" to run their own risks. What should not be allowed it bailing them out and sugar coat what will happen when they default.

So what might be a good idea, coming from lenders rather than Big Brother, is education before lending, making is mandatory to go through a class that involves in drastic terms the risks and how to asses that risk. Otherwise 20, 30 or 50% will not really change the outcome

Posted by Annette Sievert, Corvallis, Oregon (CB Valley Broker) over 9 years ago

Jeff,QRM goes deeper than just 20% down. It dictates strict DTI requirements as well as debt obligation maintenance. I believe QRM has the potential to increase rates, tighten money to lend further or both.  I wrote a post about this just yesterday.

Posted by Ray Waisler, NMLS #6621 - Specializing in Jumbo FHA & VA (Finance of America) over 9 years ago

Jeff: Great post.  I do not believe in 20% down. I work mostly in a rural area where most homes are under $100,000.  These buyers could not save $20,000 in a lifetime to buy a home but certainly could pay a $500 a month in mortgage, which is cheaper than renting.  I think the problem is the lax in rules and issuing mortgages that people cannot afford to pay. 

Posted by Lee Ann Obenauer (Metro Roberts Realty) over 9 years ago

Jeff,  You must know I agree with you completely.  I believe the focus on the QRM and 20% dp is the equivalent of "shutting the barn door after the horse is out"!  As we both know VA loans (with zero dp) are the best performing loan products in the market place and FHA performs very well AND has been around for a long time.

What was not (and IS NOT now) were the stated income, NISA, NINA, option arms with zero down on stated income...we all know the product mix of the early 2000's.  Add the fact that investors and lenders were pushing these products (case in point...working as a lender I lost TONS of loans to competitors because they were offering brokers rebates of 4% compared to my measly 3% max).  AND, anybody with a pulse could leave their job at the local shoe store to make tons of money as a "loan officer".  Also, consumers had to buy right away because the rise in housing prices were going up so fast that they were about to miss the opportunity.  Or, consumers were using their houses as piggy banks and/or paying on the "come" of guaranteed appreciation.

In short, there is no one party to blame; however, if the investors/lenders did not offer the product they would not have been sold.  

Now, the offending products are non-existent (a shame because there is no such thing as a "bad" loan product...just bad counseling and bad execution on the banking front).  We have loan products that have been around for decades and worked prefectly fine for many years.  Remember the FNMA Community Home Buyer Program?  3.5 to 5 percent down without the FHA upfront MI...I taught the classes and built my initial business on the program (in opposition to FHA due to loan limits...Seattle's market, like CA, was totally over the FHA limits).  Cannot tell you how many I closed.  And, to my knowledge not one foreclosure or short sale in the bunch.

Education and correct counseling are what the finance world needs (of which you do an excellent job, BTW), not higher down payment.  Thanks for all your posts and sorry for the length of this comment.

Posted by Deborah "Dee Dee" Garvin, C2 Financial (C2 Financial) over 9 years ago

Great post...I don't believe the 20% rule is the answer and I don't believe that Congress believes this either. The mindset of Americans in relation to greed, instant gratification, instant wealth through real estate needs to change. There are a lot of financially responsible people out there who don't have a lot of money and would be great fiscally responsible homeowners...

Posted by Cory Barbee, Broker (760) 563-4022 over 9 years ago

Jeff,

I just finished reading all the comments and most of your links! Exhausting!

There are so many complications and opinions that it's almost impossible for everyone to agree on anything. Are you keeping score?  

  To me, an income level should have a lot to do with the QRM requirement. Realistically speaking, if you are not making much, you have a much harder time saving for a down payment, but that does not mean you wont work hard to keep your house.

Asking "what are the reasons for buying" is probably the single most important question, to me, that you asked.

For the average person, if you are buying a house to use as a HOME, then you will do everything to keep it.

I am speaking from personal and professional experience.  Even if you paid cash for your HOME a few years ago, you are legitimately UNDER WATER.  Are you living there? 

Strategic defaulting may have been termed a "business decision", but obviously the house was looked at as a business and not a home.

Another good question would be...If you paid cash for your home and now its worth less, would you walk away?   Probably not, so there is something to be said for Skin in the game.

I could write all night but I won't. I think this is the best post I have seen about these subjects and although its hard to keep it down to one question, you did a great job.

Posted by Karen Hurst, Rhode Island Waterfront! (RICOASTALLIVING.COM) over 9 years ago

 

BRYAN....comment #34.. .  first off, as I stated in my first paragraph and more so in my send sentence, this was not about QRM. I know your post was about that and lenders with more skin in the game. I wanted to focus about the argument with just 20% down from borrowers, and that's it. This argument has been around for the last 3 years, in which case I wrote about it back in 2009 and 2010, and gave links above.

With that said.. I do agree that Americans aren't savers... but again, that is not my focus either... because it comes down to a good buyer vs a bad buyer... and having 20% down doesn't make that buyer a good buyer. Do you agree or don't agree?

One thing I do want to address... you said your would support QRM if 10% down and tighter ratios. Again, for arguments sake, 10% down or more would not be the solution. What I would fight for is for common sense debt-to-income ratios and some sort of cash-reserve after closing. And that we need to focus on credit-worthiness and education. Thanks for your input and feedback.. and for the polite compliment.

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

 

DAVE... comment # 35.. . I get what you are saying.  One quick question then... how long do you think it would all take, to where it would help out our economy then? Let me add my .02... making more rent, would leave more houses for sale, which would hurt the economy now, not later. There is a major food chain involved in the housing market.

So, what you stated, might be good 10 years down the road, but would we even be around then? Would we be like Russia? I think so... and it would be even worse than it is now... In my opinion, we need for the housing market to stabilize sooner than later.  thanks for your input.

 

MISSY.... . I think that is a huge issue that you have hit the nail on the head.  Credit worthiness... why can't we focus on this the most. For many years, lenders focused on credit scores, lower credit scores, and look where that got us. Sure, I will agree that there are still good buyers with 600 credit scores, maybe 580... but in most of those cases, I found that it would take me 2 to 4 months to get their scores up to 620 or 640. That is not a death sentence, right? Thanks for your insight, as some of us agree on this same topic.

PAT... . thanks for stopping by and for making an exception.. I am honored.. thanks

PAUL.... . why would 20% down just lose the first time homebuyer? How about many buyers, even those that aren't first time homebuyers. You need to think on a national level and not just your local market. Many that sell are either breaking even or have to come up with cash. So they still would need the full 20% down to buy their next home.  Just sayin... But yes, making it 20% down or more across the board would hurt the economy even more. thanks

PATRICIA...comment # 39... . but this is not even the lenders argument.. it's congress and some others... and we need to make them understand what would happen.. someone needs to have common sense and look at this from all angles. thanks

DEBBY... . several of us have stated the same, that gov't needs to stay out of it.. and yes, jobs in my opinion would seem to be the most important thing to focus on, that would help with many of the issues mentioned above. thanks

LINDA.... . ah, the easy fix.. and ah, what looks easy on the surface. I think that is half our problem within today's gov't, that on the surface, they just say this or that, because the average person would agree... without dissecting it like I did in the post. thanks

WAYNE... . I don't dismiss that this is a complicated subject, which I kind of shown in the post... but you make an excellent point, that the gov't and anyone else up top, lack the true and real connection that is needed in order to have good insight on this matter... and or, for those to stop relying on the so-called experts in our industry, that also have no real clue. These people irk the hell out of me also... and thanks for the polite compliment.

CARLA... comment # 46.. . sure, having stronger portfolio's is a great goal.. but I wanted to really keep political and banking side out of it and just debate 20% down vs the buyer... and nobody else. Regarding the banks?  This would help them and shut more lenders and brokers out of the business. thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

Jeff:

Your first paragraph was:

"There has been a lot of talk about QRM, 20 percent down, and much more. For the purpose of this post, let's forget about QRM, politics, what types of mortgages this will affect, and just keep this simple. More skin in the game is the issue. Yes or No."

Based on your last two sentences in that paragraph, I believe that I was on track by discussing the fact that lenders don't have as much "skin in the game" as they used to.  Based on your first paragraph, I didn't get that you wanted this discussion to be solely about 20% down payments for borrowers.

Posted by Jesse Skolkin (Independent New York State Certified Real Estate Appraiser) over 9 years ago

I guess a way to prove or disprove this is to find out what percentage of defaulted loans (over the last 5 years) were made with 20% down payments.  Of course, that still isn't going to capture the folks that strategically defaulted on their loan(s).

Posted by Adam Mallory, Broker, ABR, e-Pro (eBroker Real Estate 619-566-ADAM) over 9 years ago

Jeff - This is a well-reasoned post.  I tend to agree with many of your points and think that even people with skin in the game may choose to default if their homes are significantly upside down.  I also think the point that many times not being cash poor can make a huge difference in the ability and/or choice to hang on when things are going sideways.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 9 years ago

Sadly, the talk of the QRM ruling / subsequent 20% down is government's way of getting us riled up about one issue so the real mess they are putting forth behind the scenes goes in place with little to no one watching....God forbid should the right hand know what the left hand is doing.   I completely agree with the poster that paraphrased its like shutting the barn door after the horse is out.  20% down after all this?  Too Late.

Posted by Therese Reid over 9 years ago

 Jeff, we've seen defaults in 20 % to 40% down loans as well - they are usually emotional circumstances i.e. death of a spouse, divorce, substance abuse, incarceration, terminal illness, or just plain overleveraging-owning too many propteries and letting some go.

Posted by Jeff&Grace Safrin, SpousesSellingHousesTM (F.C.Tucker 1st Team Real Estate) over 9 years ago

Jeff,

My experience is that the size of the downpayment is much less a factor in mortgage defaults than some think.  IF the size of the downpayment were inversely proportional to the default rate, WE VETERANS WOULD ALL BE HOMELESS.  So I say "NONSENSE" to the critics of low downpayment loans.

I think you nailed the true culprits:

(1) Applicants with sub-par credit histories.

(2) Lenders abandonment of sound underwriting principles.

(3) Politicians meddling in homeownership.

(4) Loss of Jobs, increased expenses, and the ever-present "Unforseen catastrophies of Life" such as illness and high medical expenses.

Things will get better when:

(A) Washington DC stops trying to fix things,

(B) The excess housing inventory deminishes, and

(C) The consumer takes responsibility for his/her own actions.

In the meantime, REALTORS® and mortgage professionals must keep a positive attitude, see the flower in the wall (home values are great for buyers), and be prepared for higher interest rates (they are coming).

We are AMERICANS and we are up to the challenge. 

Posted by Fred Cope, Looking For Homes With A Smile (Reliant Realty in Nashville, TN) over 9 years ago

 

COLLEEN...comment # 47.. . you say it's not likely to happen, but it still scares me, because they have been pushing hard off and on for the last 2 1/2 yrs. As much as you mentioned QRM and lenders, which was not my focus if you read my first paragraph, you did bring up a good point about credit worthiness. And that is where my focus would be, not larger down payments.. thanks

LINDA... . regarding your comment if home prices would drop, that down payments would be easier. In theory, that sounds good... but look at hard cold numbers. $300,000 house drops to $200,000... 20% down.. you got from $60,000 to $40,000. Yes, 20k difference is huge.. but 40 k down? Still very high for the average person. 150 to 100k sales price, going from 30 k down to 20 k down. $20,000 down is still steep for many. So, in theory, in ones head, your statement sounds good. On paper?  Not so good. Would you agree? Disagree? But yes, we both agree that jobs is the main issue... well, should be the main focus, which doesn't always seem like it up on Capital Hill or with the President. thanks

LESLIE.... . wash them first? lol  Seriously... in my opinion, I think you are still missing the main point. I am not talking about who is paying for the previous meltdown aka mortgage mess... I am not talking politics or about taxes, tarp monies, who is profiting, etc, etc. It's whether or not larger skin in the game is the right solution.  Thanks

ROBERT... . I would agree with your comment... we just need to get those on Capital Hill to understand and agree.. and to move on to something more important.

ERICA...comment # 54.. . I am aware about your area and would agree... just as the examples that I gave to Linda in a few comments above... many are struggling, when it comes to tuition, regular bills, higher education, higher health care, and so much more. thanks

JERRY.... . I think that is the main issue, how do you keep people from defaulting... and many think it is having larger down payments. They need to read and understand these studies. Not sure why they can't grasp this.. thanks and thanks for the compliment.

SINEAD... . I always love charts and or graphs, because they can help you visualize better... but only if they are correct. And yes, we agree, more down would kill the real estate market. thanks

LYNN.... . I think there are many gray areas, which many people don't seem to understand... and I agree, a homeowner should not be restricted and have to put more down. And thanks for the polite compliment.

MICHAEL...comment # 58.. . yes, I think it is over-kill and as many of us stated, we need to focus on the credit worthiness of borrowers.  thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 9 years ago

I posted on lending just today in response to Ryan's post featured in the Rain Drop.  I will not add a link as I know it is a violation of rules.

One point you make is the seeming willingness of people to walk away even when they can afford it still.  There seems to be a break down in the basic social contract or honor.  In my opinion the problem with the break down here started at the top. 

The captains of industry did not go down with the ship - they lead the looting!

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) over 9 years ago

I think we are missing the larger picture.  Given that savings accounts generally have a negative appreciation 0.25%/annum vs 3+% inflation rates, any buyer is pushing a serious uphill battle. The real problem, in my opinion is how may buyers would it take out of the market and for how long? To me, this is like going back the 18% A credit mortgages of the late 1980's.  There will still be people that can afford and will buy real estate, but prices will fall drastically in the process.

Posted by Robert Heider over 9 years ago

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