Joe Doakes from Como Park emails:
Fannie Mae used to allow 97% loan-to-value meaning you only had to have 3% down to buy. After the crash, they lowered that to 95% meaning borrowers needed to save up 5% to buy. It turns out women and minorities are hardest hit by that change. So Fannie Mae raised it again to 97%.
They point out that only 7% of all such 97% loans given between 1999 and 2012 went bad, about the same as all other loans. What could go wrong?
Yes, and if you started with all loans since Moses, it’d be an even smaller percentage. Look at the loans given in 2007, when prices were at the max and everyone knew the crash was coming but the feds were still signing up any warm body they could find. 28% of the low-money-down loans failed. And by 2011, lending restrictions were so tight nobody could qualify for a house so none of those loans went bad, which makes the overall percentage look even better but means millions of people lost homes they should never been able to buy in the first place.
I can’t help but wonder if this is the start of another boom-bust cycle in housing. Are we intentionally repeating the mistakes of the past because it would be politically incorrect not to? Has fiscal sense gone completely out the window?
Joe Doakes
Or does crisis become the current regime?
Joe has a great point.
Only this time, we are headed for two mortgage industry problems; the second part is the industry that almost no one is focused on; the reverse mortgage industry.
Foreclosures on these borrowers are rising rapidly, as borrowers default on their property tax insurance premiums. Lenders are not allowed to ensure that the borrowers can afford those payments as criteria for lending. As far back as 2011, some industry experts have pointed out these faults, one of them being AARP. They have been blaming HUD for the problem, probably because they can’t make any money off of the reverse mortgage program (snark).
Like the 2008 crash, this one can be dropped solely on the fiscally illiterate Democraps.
DOH! Should have read property tax and “home insurance premiums”.
There it is.
Hate Filled, Middle Aged White Men, bashing poor minorities and strong, independent wymen. Go ahead bigots, stay on the wrong side of history; wave that flag.
You can’t take race into consideration when making loans, except you have to in order to make it easier for certain skin hues to get loans. Gangster Government.
Looking at the data, it strikes me that raising minimum credit scores for these loans is the prudent thing to do–if I were a banker, I’m not giving good rates to someone with a score below 700.
But that said, it also strikes me that giving people loans they cannot afford is about the cruelest kind of kindness I can think of. What are these people thinking? Hand up for women and minorities? Great. Set them up for foreclosure and the ruining of their credit record for the better part of a decade–longer if you count what an observant reviewer of a credit report can see, like high rates even after the foreclosure disappears? Count me out.
Repeat a mistake? Our government is smarter than that. Or – something.