clifp
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Oct 27, 2006
- Messages
- 7,733
s unscathed, including taxpayers. And only the taxpayers are going to come out of this with no part of the blame.
Second:
I hope they get tougher. But I think you go overboard, at least on one thing - 20% down.
I bought my home with 5% down in 1998. Excellent credit, acceptable income, blah blah. But I wasn't ready to come up with 20%. Since then I've refinanced twice. Went from [6.125% 30 yr] to [5.75% 20 yr] to [5% 10 yr]. Each time I knew exactly what I could afford, and I plan to pay things off in Q1 2013.
None of this could have happened if I had to have 20% down. (Remember, no exceptions.)
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I don't agree. Prior to the depression mortgages required closer to 70% or 80%, but stocks only required 20-25% down which is why we had a bubble in the stock market in the 20s which spread to the housing market.
My first house was 10% down, had graduated payments and negatively amortized this was back in 1984. Meaning that each year the payments increased, I was not even paying the interest (13.75% ) until year 3 and I think by year 5, I owed 5% more than I borrowed so effectively a 5% down. I was 24 years old, and while my credit was good I didn't have much history and I had excellent job prospect. They had my parents co-sign but since they were retired and California is non-recourse state them cosigning didn't really help since they were in no position to take over the payments. Over course because housing prices were soaring in Silicon Valley everything worked great for both the bank and myself. In hindsight it was a crazy risk for the banks to take for a a couple percent interest rate premium over a conventional home loan of about 12% (inflation was double digits at this time).
I think making me wait 3 to 5 more years to save up for a down payment would have been a much smarter move on the part of the banks. Yes, it would have a cost me a lot money since the house went from 150K to between 200-250K in those few years, meaning I would have needed a much bigger down. In fact one of the reasons I was so desperate to get into a house and took such horrible mortgage was because prices were going up so quickly, I felt I had to act quickly. Removing a young kid with no savings from the housing market is a good thing because it reduce speculation.
Requiring 20% down is no guarantee that a bank won't lose money on a loan as Chris points out, but letting people use 20x leverage (5% down) is practically a guarantee that in the future we will have another bubble