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

[Uncle Bill Climbs Mont Pelerin]

sfvrealestate: how many properties are there *total* listed for under $1.1M? The house with 6 offers -- how do you know there are really 6 offers? I'm not playing devils advocate: Genuinely interested.

[arroyogrande]

"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."

OK. From Kaye Thomas' real estate blog (she could hardly be considered a doom and gloomer):

http://www.beachcityrealestateinfo.blogspot.com/

"The rumors are true.. if you want to buy a home in Manhattan Beach or any of the Beach Cities you have to have money and excellent credit...If you are looking at a home under $800,000 there are still a few programs that will let you buy with 10% down, a conforming first loan and a second for the balance providing you have almost perfect credit and money in the bank...If you are looking for a property in the $1 million plus range then you are going to need 25%-35% down along with high FICO scores and cash reserves in the bank."

And on Fannie/Freddieditching the "declining market policy":

http://www.inman.com/news/2008/05/16/
fannie-mae-ditching-declining-market-policy

"Private mortgage insurers who insure most loans purchased by Fannie Mae and Freddie Mac in cases where borrowers put down less than 20 percent have their own requirements, including 3 percent minimums and stricter standards in declining markets "

This includes MGIC Investment Corp., Radian Group Inc. and PMI Group Inc.:

"In the face of rising losses, mortgage insurers have significantly tightened their underwriting standards in recent months -- particularly in markets where prices are falling -- further limiting opportunities for homebuyers as the credit crunch that began last year shows few signs of abating.

Radian, for example, stopped insuring loans with down payments of less than 3 percent on March 31, and will no longer insure "alt-A" stated-income, stated-asset loans after April 30. Radian is raising maximum loan-to-value ratio for condominiums or co-ops in declining markets to 90 percent at the end of April (see Inman News story).

PMI has taken similar steps (see story) and MGIC has identified 30 declining markets -- including all of California, Florida, Arizona and Nevada -- where 10 percent down payments are required on all loans"

and:

"According to the letter, borrowers in restricted markets will have to make down payments of at least 5 percent to obtain mortgage insurance from MGIC, regardless of their credit scores. Only those with credit scores of 680 and above will be permitted to put less than 10 percent down...MGIC will not insure any cash-out refinances of investment properties, regardless of the market, or loans with the potential for negative amortization, such as pay-option adjustable-rate mortgage (ARM) loans. Borrowers with credit scores below 620 will not be eligible for insurance from MGIC in any market. In restricted markets, MGIC will no longer insure any reduced-documentation alt-A loans, investment property loans, or cash-out refinances."

and:

"In "distressed markets" where prices have been falling, PMI won't insure loans with down payments of less than 10 percent, and borrowers must have a FICO score of 620 or better. Pay-option adjustable-rate mortgage (ARM) loans are not an option in distressed markets, and limited-documentation loans require minimum down payments of 15 percent. "

And if you think that it will be only a matter of time for the mortgage insurance companies to bring back looser lending practices:

"Private mortgage insurer PMI Group Inc. acknowledged it will need to raise "significant additional capital" in order to continue writing new business after posting a $1 billion net loss in the fourth quarter...Although PMIs own mortgage insurance operations generated a $236 million net loss in the final quarter of 2007..."

Interesting times...I think we'll need the US government to nationalize the entire mortgage stream (and take all of the risk of default) in order to bring back easy credit. That way, private investors don't bear the risks...only taxpayers!

- arroyogrande

[John T Watts]

Here's an idea; How about if retired people move to less expensive parts of the country where they can get more house for their money and leave the expensive areas for people who have to stay there in order to have a job. A retired person with a fully paid for home could sell that home to a younger person and take back a 100% loan at, say, 6% interest only. They could then use their savings, which they probably have, as a down payment on a home in a less expensive part of the country. The 6% income from the house they sold could make their new mortgage payment with some left over for other needs. They could even put a 5 year call on the note so the funds would not be tied up forever.

[sean]

This easy financing crap is how we got into this bubble in the first place. Just another BS solution from NAR.

How about a LAW that requires at least a 10% downpayment as well as DOCUMENTED income statements. Then, perhaps, the deadbeats who took out loans they could not afford to pay off will not screw things up for the rest of us.

[RZ]

0% for a downpayment is just unfair. It's like renting and getting the tax write-off. Maybe 20% for a downpayment is too high, but there needs to be some sort of minimum to purchase a house - and some sort of guarantee that the buyer intends to carry out the contract and keep paying for the home.

[RZ]

Steve, regarding your questions: "doesn’t the borrower eventually have to pay back the loan regardless it’s 100%, 95% or 80% loan?"

Yes, that's right, but it's a whole lot easier for someone to walk away when they haven't made a large up-front investment on their home. The government keeps insisting on trying to bailing out people who bought homes they couldn't afford, and the availability of 100% financing loans gives an incentive for this sort of behavior to keep up.

[Laker]

RZ: "...The government keeps insisting on trying to bailing out people who bought homes they couldn't afford, and the availability of 100% financing loans gives an incentive for this sort of behavior to keep up.....

TRUE,
Government still gives loans (via FHA secure) with 3% down and sometimes ZERO down....
I actually think that buyers that bought homes with 20% down payment or more in cash, and never refinanced to buy toys, boats, etc, DO deserve some sort of bailout in case they need to sell, and are upside down.
However, "loan owners" that bought with zero down and/or refinanced their house and bought toys, boats, RVs, plasma, absolutely do not deserve any bailout. They need to go to debtors prison! The sooner the better!!!!