Saturday, March 22, 2008

No more no money down mortgages from Fannie and Freddie

Rhonda Porter says the 100 percent LTV products are history. This is a good thing. Owners with no equity in their houses from the beginning--are renters.

The mortgage market periodically tries zero down payment and negative amortization mortgages. They never seem to work. The HUD 235 program (little down, negative amortization) had default rates of around 35 percent. Graduated payment loans (which had negative amortization) got the not so kind nickname of "gypems." Skin in the game, people, skin in the game. I don't know that it needs to be a lot, but there has to be some.

7 comments:

Rhonda Porter said...

Zero down especially doesn't work in declining markets or for those who are not planning on retaining their homes for an extended period of time.

I would actually rather see a home owner use a program such as the Flex 100 instead of tapping their savings for the 3% down assuming they keep the 3% in the bank for reserves and not use it to buy a large screen tv for the new home.

Austin Kelly said...

But FHA still allows what are, in effect, zero downs. Now up to $729 K in some MSAs. And with predictable consequences for borrowers with no "skin in the game."

"Zero Down Payment Mortgage Default" available at
http://ideas.repec.org/p/pra/mprapa/4318.html

Rhonda Porter said...

I'm not a fan of the DPA programs with FHA...I preferred Flex 100 types over wrapping the costs into the sales price of the home...which is what I would see more often than not. DPA programs with FHA are expensive to both the buyer and seller. Flex 100 WAS (stress "was") more straight forward.

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