Realtors' summer rally cry: 100% financing available

I posted yesterday on the problems with down payments -- the problems are, more and more lenders are demanding them and many first-time homebuyers don't have them.

Now, comforting words from Washington: The National Association of Realtors is putting out the word today that rumors of required large down payments have been exaggerated: "Consumers across the country will have access to safe, affordable financing with down payments of only 5 percent on most mortgages, with 100 percent financing available on some loan products, and we could see an upturn in home sales this summer.”

Whew. For a second there, it appeared we might be returning to the olden days when people actually saved up money before purchasing a house. And paid cash for groceries.

The above comment is from NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, and was contained in NAR's press release about existing home sales in April. (Headline from Reuters: "The pace of existing home sales in the United States fell 1 percent in April to a 4.89 million-unit annual rate, the NAR said in a report on Friday that was slightly better than expectations."

As commenter Cal points out, the NAR said "restrictive lending practices hampered home buyers" in April. This is an important statement. The NAR is saying credit is too tight. It is also saying easier credit is on the way.

Analysis: The idea that Americans will have to start saving money for a significant down payment before buying a house is probably a good idea -- it would put the concept of "ownership" back in homeownership. But it bears no relation to the way American consumers behave. It will pass. Americans are not savers, and they are not encouraged by their government to save. The real estate industry needs buyers too badly to wait for Americans to rediscover a savings habit that has skipped at least one generation of consumers. The industry, and the government, will find a way to offer loan products that will not require large down payments.

Photo Credit: Getty Images
Warning to CD: More Laura Richardson coverage coming on the blog.
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[William Jones]

Can't I make my mortgage payment with my VISA card, then use my HELOC to pay my VISA bill?

[Giacomo]

Peter, you may right about American consumerism, and about their seeming inability to save or plan for the future -- so why are you so convinced that these same people are ready to surrender their decades-long love affair with suburbia? Yes, this week, this season, consumers are "shocked" by the price of gas -- but this too will pass (IMO).

[Ramador]

Well, let's face it - the NAR says a lot of things. Some of them are suspect, others are highly suspect, and the rest fall into the category I like to call "Hallucinatory with a large side of Stupid".

Can't wait to see the NAR's "revised" numbers for existing home sales in April. The ones they'll release in about 3 weeks that will be anything but -1%.

Also, the NAR isn't doing any lending are they? Who are they to say what kinds of loans are going to be available to consumers this summer?

[Laker]

NAR saying: "...Consumers across the country will have access to safe, affordable financing with down payments of only 5 percent on most mortgages, with 100 percent financing available on some loan products....."
HEY NAR,
Why don't YOU start financing your words and give loans to people. Let me repeat, why don't the NAR start offering 100% loans to those that are looking to buy a house. And better top it off with stated income, we all know it will help to bring more buyers and create some bidding wars....
ohhhhh, smell of nice commissions once again!

Disclaimer: I have no problem in having the NAR give loans for whatever terms they want PROVIDED, that NO government (tax payer's) money is involved and NO bailouts will be given to the NAR in case of default.
GIVE ME THE DAMN 3% 30 year fixed 0 down stated income Lawrence Yun !!!!!!!!!! I WANT TO BUY A HOUSE !!!!!! 6% commissions......

[jaded]

yeah, why are Americans so resistant to saving money for the future?

Is it denial, immaturity, materialism, unconquerable optimism that the next paycheck will always come?

I've been the struggling student, the lowly paid apprentice, and the out of work loser. But I always found a way to tuck something away, and life today is good and simple.

What exactly is the upside of living paycheck to paychecK/

In the process I learned how to be happy with less, and now

[shockg]

I agree. 20% for first-timers is a thing of the past. The only ones who have 20% down are the ones who already owned before. If you want the truth about the types of available loan products ask the people who are currently shopping loans. The doom and gloom market timers will tell you only first-timers with 20% down can buy today. Keep trying to talk down the market.

[Eddie, Long Beach, CA]

It was the coupling of these gimmick loans with horrible underwriting standards that inflated the bubble. Since the banks and Wall St have taken their lumps and have turned off the supply of money for the gimmick loans, that only leaves the gov't to fund this.

Aren't the underwriting standards of the gov't programs genuinely solid? I'd hope a low downpayment option will only apply if you have the income to support (by gov't standards) the balance on the loan. Thus, with prices as high as they are, these options will not be available in the quantities that they were during the bubble and these programs will have little effect in stopping the market correction.

Just my 2 cents.

[MyLessThanPrimeBeef]

Why don't Americans save?

CPI, that's why; Camouflaged Perfidy Index - CPI.

When CPI understates inflation, resulting in artifically low interest rates, 'smart' people realize they actually lose by saving - they get negative, after-real-inflation return on investment.

I am not defending consumerism. Just saying the first order of business ought to be fixing the CPI. Sure, the Treasury will have to pay more on the national debt. But it is honest.

[Look, Ma, I'm published]

The American economy - and the attendant exporting nations - must have consumers spending money, not saving it.

This is what makes the wheel go round.

Cash flow, baby.

[alex]

I have had nearly a 50% savings rate for 15 years, been saving for 30, and have a large downpayment, but my income has also been dropping over time so I have never been comfortable with the monthly amount I would have to pay in a mortgage on a typical California home. Homes are overpriced, even now, too expensive for most people. An average person has to lock in financial partners now for home ownership. It is so different now from when my dad immigrated to this country and could buy a home for a little more than double his annual salary (a median salary for the area) back in the 50's. He could afford to buy his first home by himself within 4 years after immigrating. I have had to save for 30 years now. And it still is barely affordable.

[Cal]

I've had this ongoing debate with Realtors both online and IRL as to their fiduciary to protecting their clients during the boom. I was saying how could these people get into these loans with their Realtors protecting their clients and doing their fiduciary duty.

The realtors, to a person, said that financing was the loan officers job and they have nothing to do with it and no expertise in that field. To me that isn't someone protecting their client nor an expert in the field of real estate.

Now we have the NAR wanting to define underwriting standards.

It's a political gambit to put pressure on the politicians to set underwriting standards. So know-nothings are pressuring know-nothings to set let guidelines for people who don't know anything. All to line their pockets.

The funny thing is it will all backfire and result in lower sales for their members, it is simple economics. But they think they can turn the housing boom back on. That if lax lending fueled the housing boom, they can bring back lax lending and get the housing boom back.

[Have You Forgotten?]

20% down? Up until after World War II, most Americans didn't own homes. They didn't make enough money, and homes were too expensive. What spurred the big jump in postwar home ownership? VA loans and the GI bill of rights.

"Generations saved for a home," my eye. Generations got low down payment low interest loans via VA or FHA in the '50s and '60s, and without that, we'd be a nation of renters.

[theghostoflereah]

The NAR also stated there wasn't any housing bubble. We know how that turned out.

They can hope for unicorns to fly out of the ground but that isn't like to materialize. People are maxed out. The government won't lend them the money neither will Wall Street. It is true you can go 5% down but you need the INCOME TO BACK IT UP! That isn't the case.

[Doug]

Wake me up when the affordability crisis is over, then I might start shopping for a house.

[anon]

Low interest rate we spend. High interest rate we save. Problem is if interest rate is kept low (for noneconomic reason) for a long time, then our spending will be totally unsustainable; bubble, deficits, debts, leverages, bad investments, over-investments etc...will occur. We are de-leveraging debts now and the process will drive up interest rate. As the result, we'll save more and at the same time inflate our debts. Downside risk is the dollar position as the de facto currency for world's reserves and transactions. Interesting time.

[left of lefty]

30 years ago, very few people had credit cards. one had to be 'rich' to have a credit card.

similarly, car loans were not for most people. my parents had always bought used cars. they weren't 'rich' enough get a car loan to buy a new car until i was almost leaving for college.

today, almost no one is turned down for either. it was inevitable that the same credit 'standards' would reach the mortgage market. the mortgage market is not going to backtrack, just like the credit card and auto loan markets won't disappear.

the only problem with the mortgage crisis is that people who are poor credit risks were getting loan products designed for people who are good credit risks.

so all we have to do is wait for the mortgage industry to figure out the correct mortgage product for poor credit risk borrowers, and money will be flowing once again. i don't know what it'll take .... 50 year loans? 18% rates? low introductory rates? no-payment-til-2010 loans? but it's going to happen. the market will kowtow to consumer demands for credit, because consumer behavior is not going to change. i'm certain very smart people on wall street is working on sophisticated mathematical models to figure this out right now.

of course, the alternative is for prices to come down. but i suspect the mortgage industry will figure out the proper loan before that happens. too many people have too much incentive for keeping prices high.

home prices have nothing to do with income, affordability, or rent ratios. they have to do with the availability of credit. the last few years clearly demonstrates that.

[Rich]

Haveyouforgotten above has it right--there were no "good old days" of homeownership where everyone was saving up 20% for mortgages before getting into a house. Before the war (I suppose for the sake of the current generation we need to make it clear which: THE war, WWII) you lived in an apartment, and after the war you got easy financing from the builder with VA insurance to buy a little box in Levittown where your equity began to build. And Cal has it right that there's too much competition out there among creditors for them to hold to higher standards for very long. In the '90's I knew people who were getting credit card offers 4 months after bankruptcy (and they did get the card as well as the offer)...

[x-man]

Credit is certainly tighter than a year ago. It will be tighter a year from now.

As per your analysis Peter, that industry and government will find a way for new lending. They won't. Mathematical impossibility.

[Tony A]

I live in the Northeast. Just got my oil bill for an April delivery of 235 gallons, a relatively small tank.
$1024!!!!!! its gonna get worse too. if people don't think that is going to effect pricing, they are crazy.

[jdj]

As long-term rates go up, the debate about a down payment will be moot. As the cost of money goes up the price of assets moves down, as does the relative size of the requisite down payment.
NAR is talking of appreciation in the second half of this year and Lereah is still unable to use the word "bubble" but goes on at length about the "balloon."
No one with any sense believes the realtorz forecasts or predictions. They've led far too many people to financial ruin in the past 5 years.

[l.a.guy]

I don't know about the conforming and mini-jumbo (or whatever they're calling the loans falling between the old and new limits these days) but if you're buying in the $1M plus market you're going to have to put at least %20 down. From what I understand most of the major banks are requiring the borrowers to put down at least %25 so that they have some real skin in the game.

That's got to have a chilling affect on the million dollar home market.

[Dougmc]

I somewhat disagree with Haveyouforgotten and Rich about low downpayments spurring the housing market after WWII. What made housing more affordable and secure was long term financing of house purchases, which brought down monthly payments dramatically while providing the security of a fixed payment over a longer period of time. My understanding is that until the New Deal in the 1930s, home loans were less than 10, maybe even only 5 years in length, and had large balloon payments at maturity. Back then such financing was viewed as risky because of the small or non-existent amortization, so home loans were made only when the borrower had plenty of equity, even more than 20%.

The advent of federal savings and loans and the long term, self-amortizing loan in the 1930s didn't have much impact during the Great Depression and WWII, because there wasn't much housing activity going on. Things got rolling only in the post war boom in the 1950s. Also very important was the advent of FDIC insurance, which made runs on banks less likely and encouraged lenders to loan for longer periods of time. Before deposit insurance, banks had to keep housing loans short term to be able to meet demands by panicky depositors for their money (remember It's a Wonderful Life?).

As to the importance of low downpayment FHA and VA loans, I know from personal experience they were a very minor part of the market in the suburbs of New York City in the period 1950 to 1975. Homeowners didn't like to sell to buyers that used FHA or VA financing, because of the extra paperwork hassle and delays in closing and the perception that the buyer wasn't substantial enough. Sellers had no trouble finding enough buyers who used conventional 80% financing.

[RAW]

"As per your analysis Peter, that industry and government will find a way for new lending. They won't. Mathematical impossibility."

x-man:
You haven't read the papers recently. The first attempt by the NAR to get their sales mojo back was to sucker the OFHEO into raising the conforming loan limits. Sen. Dodd called the lending industry into committee after the NAR discovered a couple months back that this somehow failed to do the trick. I remember that I chuckled at the exasperation felt by the Senator that the mortage market, against his best efforts, just wouldn't want to give away free money to bad credit risks anymore. That cannot be, he screamed. The NAR needs me! So now, welcome to the housing bailout bill wending its way through congress. If the free market doesn't want to give free money, there's always the taxpayer. This new housing bill will translate into a giant transfer from the taxpayer to the irresponsible. And voila, we will have cheap loans again, courtesy of Fannie and Freddie, because they CANNOT loose. By law. And Sen. Dodds legislation. You'll unwittingly co-sign many a loan application in the coming months. Just watch your tax dollars at work.

[sfvrealestate]

L.A. Guy, I showed homes today in South Pasadena and La Canada. These are both high-end markets. And neither looked the least bit chilled. There isn't a glut of properties. As a matter of fact, I was amazed at how little was available under $1.1 million. One house (terrific, architecturally significant, but still only 3 bedrooms and 2100 sf), listed for $1,150,000 even has six offers on it already and has been on the market nine days. I'm not celebrating high prices, I am just pointing out how much resiliance is in the high end r.e. market.

[Steve]

Call me ignorant but doesn’t the borrower eventually have to pay back the loan regardless it’s 100%, 95% or 80% loan? Isn’t that the point? So one will own the home outright and no more payments? If no one pays back the loans (HELOC…etc.) then what’s the difference vs. renting? Providing easier loans (100%, 95%...etc.) to keep up the demand and keep home prices from crashing, it’ll just make it harder for the next generation to buy homes at current inflated prices.

No?