We had the housing boom, with millions of risky mortgages made to shaky borrowers. Then we learned our lesson. Banks tightened lending standards. Congress passed financial reform legislation. What's the result? Today 60% of all new mortgages have down payments less than 5% of principal.
At the height of the boom, only 40% of new mortgages had such low down payments. What happened? Private lenders are now regulated, so they have to require more conservative underwriting. But the Federal Housing Administration has ballooned its lending and is planning on even more expansion in the coming years. This information comes from "How the Government is Creating Another Housing Bubble" by Peter Wallison and Edward Pinto of the American Enterprise Institute. (Hat tip to National Center for Policy Analysis's Daily Policy Digest.)
Dr. Conerly, I read the above mentioned article and I would like to express my take on the situation.
The FHA loans differ greatly from the past subprime loans that started us into this mess. It can be argued that subprime loans were a bad idea, but what the Banks and Wall Street did with these loans is what caused the BIG problem. 1. These FHA loans are highly vetted. No stated income. No lax appraisals. Nothing like the subprime loans of the past. 2. You have to document everything and these loans take longer than in the past. 3. You have to pay mortgage insurance with these loans, one of the thing that subprime loans were designed to avoid. On a $225,000 loan the upfront fee is about $4600. and the monthly Mortgage Insurance payment is about $100. per month. 4. Not everyone who doesn't have 20% down is a credit risk. There are many people who pay their bills and deserve a chance to own a home. The benefits of home ownership to a community are numerous. 5. If 60% of all recent home sales involve these loans, think about how much worse off the housing industry and the economy would now be without these loans. Banks are way to strict (scared) on making loans these days.
As usual your posts make me think. There is always a flip side of the coin and I enjoyed the video you posted about your presentation in Washington State. I agree that the lack of formation of new households is a contributing factor to this housing slump.
Posted by: Wayne Pruner | December 08, 2010 at 07:35 PM