John McCain is right. He wants to end zero-down mortgages.

Parent Cafe
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<p>Buyers must have skin in the game.</p>

<p>[McCain:</a> No more zero-down mortgages](<a href=“http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/06/RE88VTBNA.DTL&hw=kenneth+harney&sn=001&sc=1000]McCain:”>http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/06/RE88VTBNA.DTL&hw=kenneth+harney&sn=001&sc=1000)</p>

<p>"No more zero-down deals. No more “piggyback” plans that combine 90 percent first loans with 10 percent seconds. No more “down payment assistance” schemes where sellers indirectly supply all or most of the cash needed for the buyer’s down payment.</p>

<p>Even the 3 percent minimum required by the Federal Housing Administration would be raised under McCain’s plan. That puts him squarely at odds with the Bush administration and Democratic leaders in the House and Senate, who are negotiating reform legislation that would cut FHA’s minimum to zero - favored by the House - or 1.5 percent, favored by the Senate.</p>

<p>Proponents of low FHA down payments say that they are necessary to allow moderate-income families to purchase first homes and that if properly underwritten and serviced, they do not lead to extraordinarily high default or foreclosure rates.</p>

<p>McCain also said the giants of the mortgage industry - congressionally chartered Fannie Mae and Freddie Mac - “should never insure loans when the homeowner clearly does not have skin in the game.” He did not specify how much skin would be needed.</p>

<p>McCain’s rationale on tightening up down payments: He thinks a key contributing factor to the current national mortgage crisis was the tiny - or nonexistent - equity contributions required by lenders during the boom years. When the boom fizzled and home values fell, many borrowers found themselves in negative equity positions, owing more on their mortgages than the market value of their homes."</p>

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<p>I can see both sides of the fence on this one, but I actually agree with McCain, my caveat is, they should still allow an 80/10/10. This is where you put 10% down, carry a 1st for 80, and a second for the last 10. A couple of years ago when you did an 80/10/10 they allowwed the last 10 to be an equity line, which you could take 95% out, which in essence meant 100% financing.</p>

<p>People would be amazed at some of the funky loans that were underwitten, my favorite that people were just going crazy for was an MTA. When a mtg. broker says I can put you a 600K home for $900 and tries to explain it using terms like neg. amortization and bonds, the avg purchaser tuned out as soon as they heard $900 (even when you could get a 5%, a 600K would translate into 3K pm), of course these people typically didn’t have the taxes put in the mtg…anyone who knows anything knows your taxes are the first lien, your mtg is the second…the minute you defualt on taxes they freeze your checking accounts and contact the mtg co. who immediately starts the process since they only get what is left after taxes.</p>

<p>I personally know a client who got a 7/23 arm with 20% down, because I was admanant that an MTA would kill them, and told them to take an equity instead. They closed, and the next day took out an MTA, because a friend of theirs, mtg broker…whom I do not use convinced them this was a much better deal. The house was 1 Mil…they took 100% financing and now are sweating because they are in for 1.3 after 3 yrs and the house may be worth 800K…no way any mtg co will give them that loan, instead, they will now jump to a mtg of @8K per mo…had they stayed my route they still would be at 3K and have equity. When they took out the equity it was to buy 3 plasmas @5K ea, and spend 70K for a decorator! In essence they mtg a decorator!</p>

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<p>bulletandpima, along the same lines…</p>

<p>[Lenders</a> retreat as housing market plummets](<a href=“http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/06/MNI1VS96B.DTL]Lenders”>http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/06/MNI1VS96B.DTL)</p>

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<p>McCain doesn’t have to end Zero Down Mortgages. The B are not funding, and any B who say they still offer are not telling the real truth.</p>

<p>what is a MTA?</p>

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<p>I must admit it amazed me that these type of loans ever existed in the first place. When all the risk of homeownership is born by an unknown finanicial institution, the owner has little incentive to keep the mortgage and house when times get tough. Homeownership should be encouraged but not at the price of stupidity.</p>

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<p>I’m with razorsharp. I was surprised to discover how many zero-down had been approved in recent years. Not paying attention, I guess.</p>

<p>They are a terrible idea. And I say that as a person who was 36 before enough money could be scraped together for a down payment on a modest house.</p>

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<p>Midmo,
Yeah, we were 37, had been married 14 years and the kids were in elementary school before we had 10% down for a house. Had to pay off college loans and get the kids out of day care first. Even then, we bought below what the mortgage company said we could borrow because we didn’t want to be tied to two incomes required to support the mortgage and then being left up a creek if something happened – which did, about four years later. Our broker thought we were nuts at the time. Just call us risk-averse!</p>

<p>I don’t know how we could possibly fund retirement, college and a mortgage if we had bought a big house. (I’m not sure how we’re going to do it with a relatively small mortgage payment!)</p>

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<p>I bought my house shortly after 9/11 with 3% down and a 30 fixed at 6.125 This was before things went up alot and no one was out looking at the few houses on the market. I could have put down more $$ but I didn’t need to according to my ‘first time buyer, lower income’ loan program.</p>

<p>Fastforward 18 months. Rates are lower, I got assessed at higher value by $15000 and was able to refinance at a lower 30 year fixed 5.375%. My payment went down by $100 because I no longer had to pay the Private Mortgage insurance. </p>

<p>When I was out house shopping (my first ever at age 40), I qualified for a much higher mortgage than I was willing to buy. My house is now worth nearly 2X what I paid for it (I’ve never taken any equity out) and refinancing after only 18 months of ownership to say $100 a month still seems like a good deal</p>

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<p>We bought our first house when I was 42. It cost a little less than twice my annual salary. My mortgage (5% - 30 year, no mortgage insurance) is less than twice my health club membership. </p>

<p>Now this is in Olympia, Washington. We moved from Santa Cruz, California, where the house we were renting (smaller than our current one) cost slightly more than three times my current one. My current one has about tripled (maybe slightly less) in value since we bought it. The one in Santa Cruz has quintupled. I’d be a millionaire today.</p>

<p>Oh, well, that was never a goal of mine in any case. </p>

<p>"“Homeownership should be encouraged but not at the price of stupidity.”</p>

<p>but it wasn’t so stupid. Folks ended up living five years or more in houses far more expensive than they could have rented, and got to write the mortgage interest off their taxes. Yes, it is painful for them to move now, but they are certainly not worse off than when they began.</p>

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<p>No, the no-money down homebuyers didn’t really lose.</p>

<p>There are plenty of losers though.</p>

<p>Off the top of my head…</p>

<p>Savers are crushed. Lower interest rates than the inflation rate, a built in loss. </p>

<p>Potential homebuyers that couldn’t afford to buy because of the bubble (and because of all the bailouts, probably still won’t be able to buy).</p>

<p>Homeowners who are seeing their equity disappear.</p>

<p>People that are being hurt by inflation.</p>

<p>Investors of the mortgage paper.</p>

<p>Many banks that invested in the mortgage paper.</p>

<p>Many investment banks and investment firms that invested in or used mortgage paper as collateral.</p>

<p>Future taxpapers because our debt is going to be higher than it otherwise would be and so are our taxes.</p>

<p>Stockholders in many companies. Most mutual funds and pension plans.</p>

<p>Homebuilders.</p>

<p>Mortgage companies.</p>

<p>Companies that rely on housing to survive or prosper.</p>

<p>Anyone that is affected by the weakness of the dollar.</p>

<p>The US economy because capital was invested in areas that weren’t productive.</p>

<p>Areas where vacant housing is just sitting there in abundance.</p>

<p>Many school districts.</p>

<p>Municipalities that relied on auction bonds.</p>

<p>Investors of auction bonds.</p>

<p>Entities that need or want access to the financial markets and no longer have that access or have to pay more to issue debt or equity.</p>

<p>Private equity firms that can no longer close deals.</p>

<p>Hedge funds that have to deleverage or have gone out of business.</p>

<p>Some of the most successful money managers of the last 20 years. A vast majority are doing very poorly right now. People like Bill Miller, from Legg Mason, for example, who beat the S&P for 15 years running, but who bought too much Bear Stearns and owns a lot of Countrywide Credit stock.</p>

<p>Many employees and shareholders of Bear Stearns, Ambac, Thornberg Mortgage, etc.</p>

<p>In fact, the bond insuring industry is a joke.</p>

<p>The ratings agencies are a fraud (S&P, Moody’s, Fitch, etc).</p>

<p>Believers in free markets.</p>

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<p>Now, make a list of all the winners. It is very substantial.</p>

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<p>Off the top of my head dstark, I’d say half of your loosers are really winners.</p>

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<p>CEOs of most companies. They always benefit.</p>

<p>Employees of companies that made more with the bubble and the bursting of the bubble than they would have made otherwise.</p>

<p>Borrowers who benefitted from lower interest rates.</p>

<p>Investors that used leverage and got out in time.</p>

<p>Private equity firms and hedge funds that haven’t been too hurt by the bubble bursting and were able to use low interest rates and lots of leverage to increase investment returns.</p>

<p>Shareholders and upper management of companies that were taken over at higher prices by entities that used leverage and low interest rates.</p>

<p>Owners of real estate that were able to sell into the bubble.</p>

<p>Owners of foreign currencies.</p>

<p>Foreigners who want to buy and are buying American assets.</p>

<p>Many export firms.</p>

<p>Companies and individuals that benefitted and are benefitting from commodity inflation.</p>

<p>Governments that benefitted from higher property taxes (though that is turning negative).</p>

<p>Oil companies and oil exporting nations.</p>

<p>China.</p>

<p>Politicians who get their money from lobbyists. ;)</p>

<p>JP Morgan. :)</p>

<p>Maybe Warren Buffett? Not yet though. He is trying to get in the municipal bond insurance game. Many governments are revolting against the insurance though, so we will see how that plays out.</p>

<p>Sam Zell.</p>

<p>Owners of commercial real estate and apartments, who have seen cap rates fall 40%.</p>

<p>Owners of stocks, who have securities worth more because price/earnings ratios are higher with lower interest rates (until the bubble bursts).</p>

<p>Long-term bond holders, those that bought bonds before the bubble and can sell the bonds for prices way above what they paid for them.</p>

<p>Writers of gloom and doom economic literature.</p>

<p>CNBC, their ratings are up.</p>

<p>Auction houses that sell bankrupt real estate.</p>

<p>Psychologists, psychiatrists, and therapists.</p>

<p>Philosophy departments in colleges and universities.</p>

<p>Anyone that offers free entertainment.</p>

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<p>"CEOs of most companies. They always benefit.</p>

<p>Owners of foreign currencies.</p>

<p>Foreigners who want to buy and are buying American assets."</p>

<p>In other words, our owners benefited, both short and long-term.</p>

<p>As well as those who got to live in big houses cheaply for years, and took huge mortgage interest deductions.</p>

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<p>There are always winners and losers. Always.</p>

<p>Bubbles are a net loser for the majority of the population because when they break, you end up with higher unemployment, mis-allocated resources, asset prices decrease in value, higher inflation, usually, unless things get so bad…, less opportunity in the near term and your competition has a weaker competitor. Your competitors may end up owning you.</p>

<p>Mini, I am probably agreeing with you somewhere. :)</p>

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<p>And more maldistribution of wealth.</p>

<p>What’s not to love? :rolleyes:</p>

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<p>And how do we define that? “more maldistribution of wealth.”</p>

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<p>[Foreclosures</a> come to McMansion country - Yahoo! News](<a href=“http://news.yahoo.com/s/nm/20080407/us_nm/usa_housing_mcmansions_dc]Foreclosures”>http://news.yahoo.com/s/nm/20080407/us_nm/usa_housing_mcmansions_dc)</p>

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<p>"And how do we define that? “more maldistribution of wealth.”</p>

<p>Any way WE choose.</p>