There is growing number of mortgage connected people that predict that soon the

[WCGreen]

normal down payment would rise from 20% to 30%...

The question was will this move put an end to the American Dream...

I think it would actually do the opposite and house prices would fall so that the future 30% would equal or hover around the dollar amount that is now 20%...

Example: Say right now the house costs $200,000 and the 20% down payment would be 40,000. Under the new rule, the down payment would be $60,000. The price of housing would, I believe, drift down so that the $200,000 house would slide down to a point were it would be affordable, to a $48,000 down payment and the value of that house would be $ 160,000.

I believe that the actual price of a house is irrelevant to the buyer because they are more concerned with affordability of the down payment, the taxes and so the actual monthly payment.

People who are purchasing a home are trading off the price of rent vs. the investment of owning a home.

If you make it harder to afford the monthly payments, the market will tighten and then fall to match the affordability measure which to me is the cost of the down payment and the monthly payments.

[Warren Stupidity]

1. That would suck for people owning houses

who would tend not to want to sell them at a loss.

[WCGreen]

3. I think it is a reflection of the over pricing that has fueled most of the

expansion here in the last 10-15 years...

Prices are going to fall because of over building. It's going to take several years before the current housing stock is absorbed.

[Liberal_in_LA]

19. The folks who bought houses (generally more responsible or more financially stable) now lose

a huge part of their investment as housing prices fall. Then what? We are all screwed.

[FreakinDJ]

2. When was it 20% - bought my first home with 5% down

in 1990

[badtoworse]

4. Insufficient skin in the game was one of the reasons for the crisis

[Warren Stupidity]

12. not really. It was a scam perpetrated from the top enabled by crooks at the bottom.

The problem was twofold: at the top the gangsters lead by Goldman Sachs were creating fraudulent security derivatives that they were selling to institutional investors as AAA paper, and in order to have enough of those derivatives to sell, the grifters at the bottom were generating tons of adjustable rate mortgages to woefully unqualified buyers as fast as they could. The problem wasn't 'insufficient skin in the game', the problem was a complete lack of regulatory oversight of the mortgage industry.

[WCGreen]

5. That will still be available through the Federal Mortgage Interest program...

And higher interest rates.

But the people who have 20% now do not have to pay the private mortgage insurance (PMI) that most mortgages below that 20% down payment thresh hold must carry.

[harun]

6. Yah, I think it is still around that. OP is full of it.

[WCGreen]

7. If you read what I just posted above, you will see that yes I did take that

into consideration and no I am not full of it...

[Gormy Cuss]

8. It's been 20% since the 1950s or so. Buying with less usually requires supplemental insurance.

PMI (private mortgage insurance) is the name for it.

http://en.wikipedia.org/wiki/Private_mortgage_insurance

A 20% downpayment avoids that cost.

[Warren Stupidity]

14. so?

That is exactly what happened. Tons of ARMs with next to nothing down, many of them written with ridiculous balloon payments, many of them with negative equity features. Nobody cared about what the long term prospects were as nobody issuing mortgages intended to actually hold them as investments.

[Gormy Cuss]

16. So this.

I was answering the question of when 20% down became the standard (i.e. the standard for a good risk because in the case of foreclosure there should be enough equity to keep the lender from losing money.)

You're describing some of the underlying causes of the current mess. That the lender had no long term stake in the investment is a different issue. Many of those mortgage instruments WERE extended to people who couldn't manage the risk unless the property values continued to go up. Those ARMs and neg equity loans usually required PMI until the borrower could prove an LTV of less than 80% and in the go-go period many achieved that equity stake within a couple of years because of the overheated market. Of course, we all know that with collapsing values those equity stakes began to disappear, compounding the problem.

[snooper2]

24. I don't know what it was in June 2005 but I put 3% down

[county worker]

9. To buy a house you have to have an appraisal done. The appraisal sets the market value of a house.

Appraised values are determined by recent sales of comparable houses. A person who is not in a short sale position would not sell a house for less than the appraised value unless they like losing money.

If you have good enough credit you can buy a house with a FHA loan or if you are a veteran you can get a VA loan. You can finance the closing costs if the selling price and the closing costs together are at or below the appraised value. There is no down required in this case and the VA loan does not require mortgage insurance.

So taking the above into consideration, and the fact that most people who are not in the above situation and are buying a house can afford the down payment required, I think your scenario does not make sense.

[WCGreen]

21. But it does. the best rates will go to the 30% while all the rest

will have to carry the PMI (Private Mortgage Insurance) which increases their true interest rate.

But what you have missed is that I was speaking in general terms and you were citing specific exceptions to the rule...

[mmonk]

10. That plus removing the interest deduction (to flatten out taxes

for the Reaganomics supporters) will damage home sales and building, no question.

[SoCalDem]

11. In 1972 the bank I worked for demanded 30% down for a fixed 30 yr

Even though I worked there, there were no "deals" to be had.. We had to pass up a great house 1/2 block from Lake Michigan...on 1/2 acre..It would have cost us a whopping $24K, but there was no way we could come up with $8K.. That house must be worth "bazillions" now.. It was a quad-split with a big deck in Long Beach (Michigan City), which happens to be where our dear SCOTUS leader (Roberts) grew up..

30% down pretty much means that people who can afford buying a house & who have "skin in the game" are the only participants. It keeps housing prices stable. Until very recently (the last 25-30 yrs), people in their mid-to-late 30's were the ones buying first houses (after years of saving up)...not newlywed 20-somethings with little or nothing down on $400K houses.

If it goes back to that and if the deductibility is limited to ONE HOUSE (the one you actually LIVE in), our housing crisis would abate. The flip side is that the construction industry would stagnate, since builders could no longer lure unsuspecting "newbies" into homes they cannot afford...and flippers would be out of business.

[Warren Stupidity]

13. The mortgage issuers don't care anymore as they sell the paper

as fast as they write it. It is all about churning commissions at the bottom. The more paper issued, the more money you make.

[Yavin4]

15. Housing Valuations Are Falling In Line With Incomes

As incomes fall, so to will housing prices. The majority of the new jobs being created are in low paying service sector, retail sales, cashiers, bartenders, waitresses, office temps etc., and housing prices will soon reflect their income levels.


The whole idea of a 30 year mortgage was based in part on people staying in one job in the same location for their entire life.

[Gormy Cuss]

17. Which people are saying this, and how are they connected to the mortgage industry?

You're right that it would limit the number of people who can afford the monthly payments but I suspect that would be the goal.

[WCGreen]

20. It was in a round of mortgage experts in CNBC talking about an article in the

Financial Times...

[Warren Stupidity]

22. CNBC "mortgage experts" LOL NT

[Gormy Cuss]

23. Thanks for the info. I wonder if the discussion was based on Wells Fargo's recommendation.

In this CNBC report dated 12/15/10 WF argues that lenders should retain more of the risk.

http://www.cnbc.com/id/40672827/Wells_Fargo_Backs_Tighter_Mortgage_Rules

In a letter to regulators last month, Wells Fargo argued most mortgages should be retained. One possible exception would be loans in which borrowers have made downpayments of 30 percent or more....


Some lenders suggested such a rule would give big banks an advantage over small banks since they underwrite more “jumbo” loans in which borrowers tend to make larger down payments.

Other lenders have argued banks have already tightened standards sufficiently....


Ron Phipps, president of the National Association of Realtors, warned in a separate letter that broad risk retention would increase the cost of borrowing for consumers.

[Fool Count]

18. On a bright side, housing prices are falling so fast that the 30% down

payment will take the same amount of money as a currently standard 20%. Together with lower value of the mortgage it would help, not hurt, affordability.

[NNN0LHI]

25. 20% was the standard down payment required on both homes we purchased

That is why I could not afford one until I was well into my 30's. Took us that long to save up the down payment and we really didn't want to lose it. They would let you do it with less down payment but then you were required to purchase private mortgage insurance which guaranteed to to make the payment if you didn't. But that PMI could easily add an extra couple of hundred dollars onto your monthly mortgage payment. Might be able to drop paying it after you had enough equity built up in the house that the local bank was no longer concerned with you defaulting because they figured you now had enough "skin in the game", that was now very unlikely.

Then people began using the equity in their houses as ATMs to make up for stagnant and falling wages and everything went to hell.

Don

[cbdo2007]

26. FHA only needs 3% down.

American dream is alive and well.