clifp said:
In a nutshell it was cause by making risky loans, and there are 3 elements to loan risk, the income of the borrower, their credit score, and the size of the down payment.
I agree with you that it was caused in large part by making risky loans, and those three are the main elements (type of loan - such as ARM, can add more risk as well), however I am not qualified enough to know what role each of these elements play,
If solid research, and not just some shill's opinion, say that a borrower with a good income and high credit score is very likely to not default on their loan, regardless of the percent down, then give them a loan.
It would be... less than ideal.. if the housing market was kept in a continually poor state by imposing arbitrary restrictions that didn't make the loans that much better, but locked out lots of buyers.
If said buyers actually don't present much larger of a risk when not having enough down payment, then let them have a loan. But bottom line is figure out the risks, and set criteria based on that. If sufficient income is necessary for paying a loan (and I'd think it would be), make that an absolute. But maybe you could have the down payment on a sliding scale (i.e. credit scores high enough, you qualify for less down, lower scores means you need more down, etc.) We have PMI to cover when there's not enough down, but certain types of loans (such as FHA) let you put down very little without PMI. That shouldn't happen, IMO. If a loan is riskier, the compensation out to be higher.
My point is that we need to figure out exactly what factors lead to other default and base guidelines on those factors. IMO, the down payment is the hardest for most people, but if the statistics show that they have sufficient income and credit scores that they will pay their mortgage, I don't care that they're not disciplined enough to save up for a down payment, as long as they're disciplined enough to pay their mortgage bill. And in the meantime, it's hurting the housing market.
Don't get me wrong - I'd love prices to stay low for the next 5 years or so, as I'm buying. But I'd rather the health of the country as a whole - which includes the housing market - be improved.
Disclaimer: I am biased. I am in the process of getting mortgages, plural. I am putting 25% down on each. I would love to put down less.
Oh, and I fully agree a bank should have to keep part of the loans they make in their portfolio.