Should there be stricter limits on getting a mortg

[The Captain]

Should there be stricter limits on getting a mortgage?

finance.yahoo.com/

Current poll on yahoo finance business.

Current votes:

POLL.
Should there be stricter rules on getting a mortgage?

Oops you have already voted on the poll
Yes, down payments should be higher (28345) 35%

No, anyone that wants a house should be afforded the opportunity (9419) 12%

Government needs to get out of the housing market (43365) 53%


What I find truly terrifying is that 12% of the polling population thinks everyone is entitled to a house. After the last debacle you would think we've learned our lessons. Obviously home ownership is not for everyone.

[midjd]

I'm in the 35%.

[Deleted]

Stricter than they were in 2007? Yes.
Stricter than they are now? Meh. I'm good.

[Gardening Grandma]

I think that if lending companies were not allowed to sell the mortgages, they'd be on the hook and would tighten up requirements. They have no skin in the game when they issue, then sell mortgages.

[Deleted]

Let's go back to the wild west - I want to see some more robust economic growth.

[Ombud]

Im in the 53%

[Deleted]

Government needs to get out of the housing market (43365) 53%

I vote, yes on this.

[Deleted]

I think the govt WANTS people to buy homes, not pay them off and then the govt rushes in with some new entitlement to buy votes.

[greenstone]

Yes, to higher down payments.

I would settle for stricter government requirements than it leaving the housing market altogether.

[The Captain]

Right now owner/occupant buyers can get a Fannie Mae or Freddie Mac home for 3% down and there is even grants available if they are unable to come up with that small amount.

I see another "crash" in about 2-5 years and this second round of non-qualified people get in over their head and default.

[Deleted]

Jan 11, 2013 9:34:52 GMT -5 The Captain said:

Right now owner/occupant buyers can get a Fannie Mae or Freddie Mac home for 3% down and there is even grants available if they are unable to come up with that small amount.

I see another "crash" in about 2-5 years and this second round of non-qualified people get in over their head and default.

You must be predicting another deep recession then?

People qualifying today at low market prices with low interest rates are only going to default if the job market turns for the worse. It is not like a no/low downpayment in 2006 at peek market prices with a 6% interest rate.

[jeffreymo]

I think the government should stay out of it.

[taz157]

Jan 11, 2013 9:45:50 GMT -5 jeffreymo said:

I think the government should stay out of it.

[bean29]

I am a little confused.

I think if the government gets out of the business of buying mortgages or insuring mortgages, people will have to put 20-25%down. The only house we ever bought with less than 20% down was our first house. We put down 10% had MI, and did extensive remodelling. We were never at risk of default.

I am under no illusions that everyone should be able to own a home. If you can't manage your bills, you should not own. There is maintenance with a house, and if you could not accumulate funds for a downpayment, how do you think you will handle the unexpected.

I do think 3% down is too little and I agree if a bank could not sell at the table and get out of all the risk they would be more careful about the loans they write.

I have to say though, that the appraisal we just had on our house for our refi seems awful conservative. Our basement was 80% done and none of the work added to the value of our house. In the past an appraiser saw new flooring sitting on the floor four our dining room and included the flooring as complete in an appraisal. They don't do that anymore that's for sure.

[bean29]

People qualifying today at low market prices with low interest rates are only going to default if the job market turns for the worse. It is not like a no/low downpayment in 2006 at peek market prices with a 6% interest rate.

I do agree with MMC's comment above. The risk is low on both sides. Low that the borrower might default and low that the lender not be able to recover their investment if the borrower does default.

I do think that lenders are so conservative right now that they may be depressing the market. This refi is the most difficult one I have ever had to go through. Our financial position is strong, but they just kept asking for more info and the appraised value was pretty low - not a problem for us b/c we put more than 30% down and have a lot of sweat equity in our property.

[BeenThere...DoneThat...]

...I'd like to see the mortgage interest deduction removed, and then we'll talk...

[nogooddeed]

New rule on making mortgages was released yesterday. The rule is 804 pages. I can hardly wait to read it. Link below:

files.consumerfinance.gov/f/201301_cfpb_final-rule_ability-to-repay.pdf

[Deleted]

The poll did not show up in the link when I checked.

I think the rules are pretty good now but the situation in 2007 was whacked. FHA has been around a long time, since the 40s. It's been a good program because it's oriented towards (but not limited to) 1st time buyers who have good credit, the likelihood of a rising income but little down payment. The FHA would document the heck out of verifying income, down payments etc. Also FHA required home inspections long before they became de riguer in the 80s. Obviously every program has risks and weak spots but I still believe it's a good program.

Limited doc loans had also been around for a long time, since at least the 80s when I first started in the real estate business in 1981. The difference was that they required 25% down and good credit. While this last down turn saw drops in property value in some areas of 50%, over the last 40 years a more typical drop was in the 20% range. Therefore a 25% down payment was a pretty good hedge against most people walking away.

The real screw up in my opinion, was creating the NINJA loans which had all of the risk and none of the controls of any of the previously mentioned programs. As GG mentioned, no one had any skin in the game so no one (including the borrowers) seemed to care what happened after the loan closed. I have to say while I was aware of these loans I was truly shocked at how many people took advantage of them. While easy, they were more expensive and I really thought more people would think before they signed up for such a big obligation. I was wrong. And as my FIL was fond of saying you can't legislate stupidity!

And while I am one of those dreaded people who believes that smaller government is better, I do see how having the government have a hand in the housing business is important. People either don't know or have forgotten that FHA is the whole reason we have 30 year loans in the U.S. Prior to the FHA virtually all home lending was either owner carry back or land contracts for less than 10 years. It's one of the reasons the Depression was so brutal. When those loans came due (many were not fully amortized over the term) there was no other lending source hence the extremely high foreclosure and homeless rate.

While there's certainly room for improvement in government backed lending I would not like to see us go backwards in time where there wasn't any.

[tskeeter]

Jan 11, 2013 9:10:12 GMT -5 Gardening Grandma said:

I think that if lending companies were not allowed to sell the mortgages, they'd be on the hook and would tighten up requirements. They have no skin in the game when they issue, then sell mortgages.

I think Grandma is right.

But, it was government regulation, which required lenders to make loans that had a high risk of defaulting, that caused the mortgage origination to get separated from the money people providing the mortgage funding. Due to the level of risk the government regulation created, the government stepped in and began to buy the high risk mortgages. When the money people and the mortgage originators no longer were at risk, they began to do things that were, in the grand scheme of things, kind of stupid. Mortgage originators began selling loans to people who weren't qualified (remember zero down, no proof of employment, no doc loans?). The mortgage financing industry began engaging in risky financial deals (selling mortgage derivatives) that substantially increased their level of risk without the financial industry really understanding the level of risk they were exposed to. (I have a hard time understanding how your don't recognize the level of risk when you sell $120 million of guaranteed return derivatives backed by $1 million of mortgages, but that's what happened.) The trigger for this debacle? Government regulation, and the subsequent poorly thought out quick fix patches to deal with the problems caused by the initial regulation. Made much, much, much worse by the poor judgment and greed of the mortgage origination and financial industrys.

[Deleted]

What I find truly terrifying is that 12% of the polling population thinks everyone is entitled to a house. After the last debacle you would think we've learned our lessons. Obviously home ownership is not for everyone.

Of course it really comes down to how that question was worded. I believe that everyone should have a right to a house IF THEY CAN AFFORD IT. I believe that the numbers have to make sense before you should be given a loan. Down payment: To me it doesn't matter as long as you make enough money. I've bought 3 houses over my life & never put down any money on them. One I sold, 1 I paid off & then sold, & this one is almost paid off. So down payment doesn't matter as long as you buy something you can afford.

I think the 2 big causes of the housing bubble were 1. speculation that housing prices would always go up (even way past unreasonable levels). & 2. People being allowed to buy houses that they could not possibly make the payments on. The government changing the lending standards was a big part of the problem & they shouldn't have tried to fix something that wasn't broken. Once again the government trying to "help" people resulted in hurting them.

[nogooddeed]

Jan 11, 2013 9:10:12 GMT -5 Gardening Grandma said:

I think that if lending companies were not allowed to sell the mortgages, they'd be on the hook and would tighten up requirements. They have no skin in the game when they issue, then sell mortgages.

If mortgages weren't sold, the lenders would eventually run out of capital with which to make the mortgages and the ability for anyone to obtain a mortgage would be severely constrained.

[Deleted]

I think that if lending companies were not allowed to sell the mortgages,

Selling mortgages off sets risk. If they didn't do that then companies would all own mostly mortgages around where they are located. If that area had a problem the companies could end up in trouble. Think what would have happened if Detroit banks only held Detroit mortgages? That problem would apply to all small & medium towns too.

[haapai]

Jan 11, 2013 11:02:28 GMT -5 nogooddeed said:

New rule on making mortgages was released yesterday. The rule is 804 pages. I can hardly wait to read it.

News coverage of the new rules has been notably slow. 804 pages might explain some of the reticence, but I also suspect that the new guidelines are toothless.

[Deleted]

Oh, goody. More regs that lock the barn door after the horse has been stolen.

Here's a radical thought: have loans originate at your friendly local bank again, where your friendly local banker looks you in the eye and her kids and your kids go to school together and you see each other in church or at the grocery store every week. Don't allow banks to sell off more than, say, 80% of a loan, so they have skin in the game of trying to select good risks. Personally, I'm in favor of some low down payment loans if it's a good market and the borrowers have the means to make payments; my first mortgage was in NNJ, where it was a real challenge just to come up with the 5% that I did.

And then throw away those 804 pages.

[Deleted]

I see another "crash" in about 2-5 years and this second round of non-qualified people get in over their head and default.

During the "pop" of the housing bubble I too expected prices to rebound withing 5 or so years & then drop again. So just now I went on Zillow to see the price of a house in CA that I used to live in. When I was renting it, it's value was a little over $500,000. At the low (that I saw) during the drop it was valued at $100,000. Today it's value is $137,000 so it has rebounded some. The interesting thing is that depending on the neighborhood it was put into, that would be close to it's value here in central Tx.

So either CA economy is still that bad or I was totally wrong about people having short memories & bidding houses up to more than they are worth. Probably it's a mix of both of those. IF CA's economy rebounds it will be interesting to watch the value of that house.

[Deleted]

Jan 11, 2013 9:34:52 GMT -5 The Captain said:

Right now owner/occupant buyers can get a Fannie Mae or Freddie Mac home for 3% down and there is even grants available if they are unable to come up with that small amount.

I see another "crash" in about 2-5 years and this second round of non-qualified people get in over their head and default.

Where are these grants? I would have loved one.

[Deleted]

Jan 11, 2013 20:45:30 GMT -5 @athena53 said:

Oh, goody. More regs that lock the barn door after the horse has been stolen.

Here's a radical thought: have loans originate at your friendly local bank again, where your friendly local banker looks you in the eye and her kids and your kids go to school together and you see each other in church or at the grocery store every week. Don't allow banks to sell off more than, say, 80% of a loan, so they have skin in the game of trying to select good risks. Personally, I'm in favor of some low down payment loans if it's a good market and the borrowers have the means to make payments; my first mortgage was in NNJ, where it was a real challenge just to come up with the 5% that I did.

And then throw away those 804 pages.

I agree with requiring the banks to keep part of the loan. I don't like zero down but I think 20% is not needed, if you can pay the mortgage.

[The Captain]

Jan 12, 2013 13:11:03 GMT -5 @gin1984 said:

Jan 11, 2013 9:34:52 GMT -5 The Captain said:

Right now owner/occupant buyers can get a Fannie Mae or Freddie Mac home for 3% down and there is even grants available if they are unable to come up with that small amount.

I see another "crash" in about 2-5 years and this second round of non-qualified people get in over their head and default.

Where are these grants? I would have loved one.

You have to qualify (ie low income, nothing saved - in other words be someone who is not yet ready to buy a home).

"The Home Path Mortgage program is a good option for borrowers unable to meet conventional home lending down payment requirements. A unique feature of HomePath is borrowers are allowed to obtain down payment assistance from outside sources. These can include grant money, monetary gift or loan from family, friends, employer, non-profit group or charitable organization.

Borrowers can apply for down payment assistance grants through the Department of Housing and Urban Development Neighborhood Stabilization Program. NSP grant eligibility requirements and program details are presented at HUD.gov."
voices.yahoo.com/tips-buying-real-estate-through-home-path-mortgage-5712108.html

One of the first questions the agent asked me (have you looked into getting a grant?) when I started looking at Homepath properties before he found out I was an investor.

If you can't friggin pull together 3% of the purchase price how the heck are you going to be able to handle the first major repair which will inevitably come up?

[Phoenix84]

"What I find truly terrifying is that 12% of the polling population thinks everyone is entitled to a house."

Well, a large percentage of people think everyone should be entitled to health care, but that's another discussion.

I think having a income to make the payments for the property and a good credit score are more important than a high down payment. I'm not a fan of 0 down, but I don't think 20% is a good idea either. In high cost of living areas, it can be difficult for someone to get that amount of money together if they have to pay a high rent too.

So i think 3-5% is a good minimum down payment.

[Miss Tequila]

Jan 12, 2013 14:47:21 GMT -5 Phoenix84 said:

"What I find truly terrifying is that 12% of the polling population thinks everyone is entitled to a house."

Well, a large percentage of people think everyone should be entitled to health care, but that's another discussion.

I think having a income to make the payments for the property and a good credit score are more important than a high down payment. I'm not a fan of 0 down, but I don't think 20% is a good idea either. In high cost of living areas, it can be difficult for someone to get that amount of money together if they have to pay a high rent too.

So i think 3-5% is a good minimum down payment.

The problem that I see with such a small down payment is then the homeowner has no skin in the game. I live in a recourse state, but in states like CA it is much easier to just walk away from your house if you lose 30% market value. If you put 20% down you might be more willing to stick it out like the rest of us.

The other issue with such a low down payment is that people who need to sell their house are in a position that they can't...closing costs locally run about 8% (assuming 6% realtor fees). If I only put 3% down, I'm already 5% under on day 1.

I've never put less than 20% down on a house. If I can't come up with a decent downpayment then I am living too close to the edge and probably can't afford a house, anyway.