Fannie Mae and Freddie Mac

Hey, it's not racist if it applies to everyone no matter what SIG started it.

There are times that it gets just plain stupid trying to meet gov't guidelines. Back in my trail work days we did a lot of stuff with Fed grants and we had to hire a certain percentage of different minority groups for paid work, unpaid volunteer labor did not count. Since there weren't but two part time paid employees (me and one other guy), we had to hire a black girl as #3 in order to cover our butts. I discovered something: very few black girls want to go out in the woods and work on motorcycle trail with two white guys. My partner finally found a black girl willing to take on the job and she was a helluva good worker, BTW.

Then there was the highway contractor in Colorado who had to use a certain percentage of minority owned subcontracting companies or face fines and possibly not get any more federal contracts. He could cover Native Americans for just about everything he did but he had to hire a black owned subcontracting company to build some of the guardrails in order to comply with the percentages set forth in the contract. There wasn't one in all of Colorado and none of the out of state companies were willing to travel. So he was facing huge fines for being late as well. Sheesh, can't win.

I get the idea that there has to be responsible lending and responsible borrowing - I'm singing that song every day. But home ownership is the single fastest way to financial security and quality of life. Encouragement of home ownership is a worthwhile goal. Children of homeowners even do better in school.

Where I live, a decent starter house for a young family, 3br, 2ba, 1600 sq ft, is north of $250,000. I'm not in the most affordable city but hardly the most expensive.

If I had to put 20% down, that's $50,000 plus closing costs plus reserves. That's unatainable for 80%+ of young families, who are the folks that you want buying these homes.

In most cases, 5% down is a significant - borderline "life savings" investment in a home and their future. In the example above, you would need probably $15,000 - $20,000 cash on hand to do the deal. Got $20K sitting around with no place to spend it? 700 credit is quite good. We can't go back to George Bailey and "It's a Wonderful Life". Yeah, it would be great if everybody could return to the lending practices of yesteryear, we'd do a great job minimizing risk but you would exclude most of the market for entry level homeowners.

If you tighten too much, nobody can buy and supply and demand dictates that your home is worth 1/2 of what you owe. A few folks are in that position today (most have lost only 10-20% but imagine 50%). Want to put everybody upside-down on their homes?

Yes, you should be outraged at the greed and stupidity that, to some extent, drove this. Google "Franklin Raines" for a case study. However, in spite of the idiotic managment, they have driven home ownership up - which in the end is probably a net positive.

Bottom line? We can't go backwards too much. A little is healthy and good, a correction, but a crash is bad (as is the case in most everything).

Carguy123 - that sounds like the MI company is balking, declining market or somebody's warehouse line is maxed and they are stalling. Your analysis earlier in the thread was excellent.

bludroptop wrote: IWhere I live, a decent starter house for a young family, 3br, 2ba, 1600 sq ft, is north of $250,000. I'm not in the most affordable city but hardly the most expensive.

I have to nitpick & disagree on this one point - a 3br/2ba/1600sq-ft home really doesn't count as a "starter" home the way I see it. I'd rate that as more of an "average middle-class" type home. I view that very similar to expecting a brand-new car for your first ride. Not that it's wrong or that it doesn't happen, it's just not what I'd call "average", by a long shot.

A 50-year old, 2- or 3-bedroom, 1-bath, 800-1000sq-ft home is more what I'd consider "starter".

Here's the thing, the fewer people that can get approved for loans, the lower housing prices go until people CAN get loans to buy what's out on the market. What we had was a race to the bottom where housing prices were going up, so we were approving loans with more and more risk (10%->5%->0% down, 30yr->50yr->ARM payment plan). Housing gets out of control then under this looser and looser lending practice and it spirals out of control. We need to go back to the basic lending practices that made sense and if that knocks too many people out, they have to wait a couple years before either prices come down or their credit score goes up. Complaining about not being able to help the borderline people that whine and cry about not being able to buy the house they want is what sent us down that path. How about we buck up and work hard and then, like it was before, save and sacrifice so we can afford the house we want later.

Datsun1500 wrote: </cite This is one of the problems that got people into this mess. 15 years ago, having just enough money in the bank to close only 5% down, and a debt ratio of 31% meant you did not get a loan. Now you are complaining that those criteria should mean you can fly right through.... If you only have enough money in the bank to get through closing and a below average credit score, I would not lend you any money.

Nah, 15 years ago or 25 years ago the qualifying guidelines for a 95% loan were 28/36% which means your house payment shouldn't exceed 28% of your income and your recurring debts shouldn't exceed 36% of your income. This means a 31% ratio is way below guidelines for yesteryear and he should have been approved. 700 is not below average credit scores either. And I said he had just enough money to meet all the guidelines and the guidelines specify a certain amount of extra cash or reserves. He is better than all the guidelines and he is still being turned down.

Bludroptop the situation I laid out isn't a maxed out credit line issue or MI issue since it has to make it past underwriting to hit MI. This is the computerized FNMA and Freddie Mac underwriting systems kicking it out. grumble, grumble, grumble

The latest version of the Turndown says he has too many inquiries on his credit - he has had 5 inquiries in the last 5 months.

GregTivo if you are waiting for fewer loan approvals to get housing prices to drop then you've got a LONG time to wait. If it doesn't take a long time then you'd better be hanging on to your hat or should I say your wallet and your job because it is likely they won't exist. Housing values seem to drive major portions of the economy. This is the reason the gov keeps pushing for more home ownership. Who knows which is the cause and which is the effect, but when housing prices are stable or on an upward trend so is the economy. High home ownership rates seem to equate a more stable economic times, higher savings rates, fewer delinquencies on all kinds of credit and fewer foreclosures. So in periods of high ownership the swings in the economy seem to be smaller.

It's kinda like the difference between young single people and young married people. Once they get married they settle down and start using the big head and get responsible. Renters are the young single people and homeowners are the young marrieds.

Now I am not saying renters are scum or anything like that, I understand the situational differences that sometimes require renting, I am just repeating data points that say people owning a home and having roots is good for everyone.

carguy123 wrote: GregTivo if you are waiting for fewer loan approvals to get housing prices to drop then you've got a LONG time to wait. If it doesn't take a long time then you'd better be hanging on to your hat or should I say your wallet and your job because it is likely they won't exist. Housing values seem to drive major portions of the economy. This is the reason the gov keeps pushing for more home ownership. Who knows which is the cause and which is the effect, but when housing prices are stable or on an upward trend so is the economy. High home ownership rates seem to equate a more stable economic times, higher savings rates, fewer delinquencies on all kinds of credit and fewer foreclosures. So in periods of high ownership the swings in the economy seem to be smaller. It's kinda like the difference between young single people and young married people. Once they get married they settle down and start using the big head and get responsible. Renters are the young single people and homeowners are the young marrieds. Now I am not saying renters are scum or anything like that, I understand the situational differences that sometimes require renting, I am just repeating data points that say people owning a home and having roots is good for everyone.

I'm not waiting for anything. I could out an comfortably afford a house right now (though with my job moving me around often, it doesn't make sense).

All I'm saying is that there needs to be a goalpost and we need to stop moving it and allowing this situation to reoccur. Prices will adjust themselves based on the overall supply and demand for houses relative to the prosperity of those applying. People that want a particular 200,000 house and fail to approve don't need to have their application tweaked, they need to go for a cheaper house or wait until their financial situation improves (their income goes up, housing prices drop). If we find that the majority of people are failing to get loans, housing prices are too high for the average income in the area and must reduce until the average person can afford the average house. I'm not saying anything that doesn't make sense, all I'm saying is if we keep stretching the goalpost, and push the government to do the same thing, we end up back here, wondering why everyone's defaulting on their mortgages.

And I don't have anything against homeowners, but I think people should live within their means if we're ever to have a stable society.

GregTivo wrote: And I don't have anything against homeowners, but I think people should live within their means if we're ever to have a stable society.

Exactly. Back in 1994 I bought my first house or more accurately I should say we had our first house built for us. The numbers are going to sound stupid low, but bear with me. It was new construction 'filling out' an existing neighborhood. The house was ~1600 sq ft 3 br 2 ba with a 2 car garage and was $84,500. We added a back porch and a 'fill in' for the back corner of the garage which brought the whole thing to $86,000. The house would appreciate almost immediately based on the neighborhood values etc so we couldn't really see a downside.

Terms were 5% down and we had to show our bills were within guidelines, do credit reports, all that stuff. We had talked it over and we purposely stayed below the amount we could have afforded because we didn't want to be in a crunch if we had to replace one of our cars, etc. The builder set us up with the mortgage company he normally went with and we showed up to start the process.

So the girl doing the loan origination looked over all of our stuff and said 'You can buy a $125,000 house. Let's get you into something like that. Or you can get an ARM up to $175,000.' Uh, no thanks. She freaked, couldn't believe we were not willing to extend ourselves like that. I actually had to threaten to get up and walk out of the office before she would go back to what we originally intended and had asked for: a 30 year mortgage on the house we had agreed to have built. We wanted a 15 or 20 year but since it was the first mortgage for both of us, they wouldn't do that.

We sold that house nine years later for $135,000. That gave us a nice chunk to roll over into the new abode, we were able to do a 15 year mortgage on the new mortgage for a couple hundred dollars a month more than the first mortgage for a much larger house, also new construction. The same thing happened then, the mortgage company rep tried to push us into a larger loan.

I sometimes wonder what would have happened if we had given in and gone with a much larger purchase on the first house. I don't think we would have been in nearly as good a position on the second house.

I think too many people just got stars in their eyes when told they could move to a better 'hood and didn't stop to think about the long term consequences of their actions.

Our mortgage person tried to do the same thing. The only way we'd ever be able to buy a house was with a small down payment. We figured what we could afford and talked to someone. Once we found a house we liked in our range the tried constantly to push us to something bigger for just a "few" dollars more.

http://krugman.blogs.nytimes.com/2008/09/10/one-finger-salute/

Interesting, that a republican is so mad at the whitehouse over this collapse.

petegossett wrote: I have to nitpick & disagree on this one point - a 3br/2ba/1600sq-ft home really doesn't count as a "starter" home the way I see it. A 50-year old, 2- or 3-bedroom, 1-bath, 800-1000sq-ft home is more what I'd consider "starter".

Not sure where you live, but in some areas, that 50 year old house doesn't exist. And if it does, it's in a downtown area and costs more than the newer/bigger home in the 'burbs.

In DC metro, for $400k, you get... A. a really nice mid-90s or newer 2500sq/ft in the outer-burbs (Loudoun, Prince William Counties) B. a decent mid-70s 1800sq/ft home in the middle-burbs (well outside the Beltway*) C. a decent mid-80s townhome near the beltway (Annandale, etc) D. a 2-bed, 1-bath sky-rise condo in the city (Arlington, Alexandria)

Anything less than $400, and you're looking at multi-unit dwellings in older neighborhoods. Nothing wrong with that, but most people are accustomed to single-family units in the suburbs (myself included).

When I bought my first home ($375 in '04) I was approved for up to $600,000. There was no way in hell I could afford that, but the mortgage broker was perfectly willing to cut me a check. Madness.

Jensenman wrote: I sometimes wonder what would have happened if we had given in and gone with a much larger purchase on the first house. I don't think we would have been in nearly as good a position on the second house.

At that time, you would have been in the same position as the bigger house would have appreciated at the same rate, and you would have ended up with possibly even more $ in equity when you sold it. You bought for $86k and sold for $135k. Had you bought for $115k, you probably would have sold for $180k or more if you sold it in the same time frame.

People that used ARMs correctly bought with the rates really low for a couple years then refi'd, or sold, before the ARM came due when the equity went up. It was all the people that used arms to get into more than they could afford then stayed there without being able to refi that were hit hard.

I used an ARM second to build the addition to my house after building up a bunch of equity, then refi'd when the addition was done to get a low fixed based on teh new equity. Even with the market tanking, I came out with the house I want at an affordable (for me) price. Yeah, the dropping in the market makes me a tad nervous, as it might end up making me even or upside down for a bit, but I can afford the payments and I intend to stay here for a long time.

So the girl doing the loan origination looked over all of our stuff and said 'You can buy a $125,000 house. Let's get you into something like that. Or you can get an ARM up to $175,000.' Uh, no thanks. She freaked, couldn't believe we were not willing to extend ourselves like that. I actually had to threaten to get up and walk out of the office before she would go back to what we originally intended and had asked for: a 30 year mortgage on the house we had agreed to have built. We wanted a 15 or 20 year but since it was the first mortgage for both of us, they wouldn't do that.

Yep. The loan officers, the realtor, etc. are all piad on commission. It is in their best interest to stretch you as far as they can. It takes a disciplined buyer not to fall for it. We were approved for roughly half a million. We bought at $165K, in a high growth area. On a 15 year loan, our payments are less than 20% of our income, which allows us to pay greater principle. We will own the house free and clear after 10-12 years. If we are a little more aggressive on the additional principle, we will own a house outright before we are 40. It won't be a luxury home with marble and granite and 52" LCD's, but it will be ours. If we decide we want all of that stuff, then at that time we can duimp the current house and come to the table with ~$200K in down payment, which allows the luxury house to be bought, again, on a 15 year loan. In reality that is probably about when we will start deciding between 20 acres in the mountains or a villa in Costa Rica

Chris_V wrote:

Jensenman wrote: I sometimes wonder what would have happened if we had given in and gone with a much larger purchase on the first house. I don't think we would have been in nearly as good a position on the second house.

At that time, you would have been in the same position as the bigger house would have appreciated at the same rate, and you would have ended up with possibly even more $ in equity when you sold it. You bought for $86k and sold for $135k. Had you bought for $115k, you probably would have sold for $180k or more if you sold it in the same time frame. People that used ARMs correctly bought with the rates really low for a couple years then refi'd, or sold, before the ARM came due when the equity went up. It was all the people that used arms to get into more than they could afford then stayed there without being able to refi that were hit hard. I used an ARM second to build the addition to my house after building up a bunch of equity, then refi'd when the addition was done to get a low fixed based on teh new equity. Even with the market tanking, I came out with the house I want at an affordable (for me) price. Yeah, the dropping in the market makes me a tad nervous, as it might end up making me even or upside down for a bit, but I can afford the payments and I intend to stay here for a long time.

Your case is different than most people's as you already had money invested in your property and you were lucky that when your rate adjusted, your house already had new equity. If your house had gone down in value during the period of the ARM, banks would have been less likely to want to help you refinance. Now that you've cleared that hurdle, you're back on a realistic mortgage.

shakes head

For most people using ARMs to BUY houses, they only work if you assume housing market growth. The bank is betting the house will be worth more in the future and you're betting the house will be worth more in the future and that you can refinance based on the acquired equity. However, if you can't swallow the adjusted payments when they come due and nobody is willing to pay more for your house, then you're in trouble if housing ever falls in price (or doesn't acquire enough value). ARM's are a form of renting, not buying, because essentially, until the ARM adjusts (in most cases), all you're paying is the interest. But its a lease that depends on the property being worth more. It works when everybody believes that property will always be worth more, but falls apart the minute some event someone thinks (hey, wait, why are these houses worth so much?).

So basically, in this scheme, you get none of the inherent benefits of owning (having your money invested in something) with none of the benefits of renting (being able to walk away with minimal penalty). It is a highly unstable system that is fraught with abuse from the start.

GregTivo wrote: For most people using ARMs to BUY houses, they only work if you assume housing market growth. The bank is betting the house will be worth more in the future and you're betting the house will be worth more in the future and that you can refinance based on the acquired equity. However, if you can't swallow the adjusted payments when they come due and nobody is willing to pay more for your house, then you're in trouble if housing ever falls in price (or doesn't acquire enough value). ARM's are a form of renting, not buying, because essentially, until the ARM adjusts (in most cases), all you're paying is the interest. But its a lease that depends on the property being worth more. It works when everybody believes that property will always be worth more, but falls apart the minute some event someone thinks (hey, wait, why are these houses worth so much?). So basically, in this scheme, you get none of the inherent benefits of owning (having your money invested in something) with none of the benefits of renting (being able to walk away with minimal penalty). It is a highly unstable system that is fraught with abuse from the start.

You are confusing an ARM (adjustable rate mortgage) with an Interest Only or Pay Option ARM.

With an ARM, your interest rate and payment might change but it is a fully amortizing loan. Principal reduction occurs at the same pace as a Fixed Rate Loan.

Being in my early 40s myself, I kind of find it hilarious (in a painful way) that so many people went for ARMs this time around after the virtually-identical debacle that occurred in the late '80s.

bludroptop wrote:

GregTivo wrote: For most people using ARMs to BUY houses, they only work if you assume housing market growth. The bank is betting the house will be worth more in the future and you're betting the house will be worth more in the future and that you can refinance based on the acquired equity. However, if you can't swallow the adjusted payments when they come due and nobody is willing to pay more for your house, then you're in trouble if housing ever falls in price (or doesn't acquire enough value). ARM's are a form of renting, not buying, because essentially, until the ARM adjusts (in most cases), all you're paying is the interest. But its a lease that depends on the property being worth more. It works when everybody believes that property will always be worth more, but falls apart the minute some event someone thinks (hey, wait, why are these houses worth so much?). So basically, in this scheme, you get none of the inherent benefits of owning (having your money invested in something) with none of the benefits of renting (being able to walk away with minimal penalty). It is a highly unstable system that is fraught with abuse from the start.

You are confusing an ARM (adjustable rate mortgage) with an Interest Only or Pay Option ARM. With an ARM, your interest rate and payment might change but it is a fully amortizing loan. Principal reduction occurs at the same pace as a Fixed Rate Loan.

Ok, so ARM in general is not a total rental situation, however, it is riskier than traditional loans. You're either betting on increased equity or increased ability to pay. Either way, its a method in which you go in paying less now betting on increased ability to pay in the future. Unless you are superb investor, it makes little sense to payless now for more overall for what you could already afford with a standard loan. At the extreme, it leads to Pay Option ARMs as a way to get people into houses they could not afford otherwise.

Let's just say, the longer it takes a mortgage broker to explain a payment plan, the less likely I am to want to go for that loan.

No, an ARM can be a great loan type, it's just not a good loan type for stretching your buying power. Here are a few good situations for an ARM.

1) If you know you are only going to be in a house a few years before you move then an ARM can cut your home ownership costs quite a bit while giving the same amortization and equity build up as a Fixed rate.

2) If rates are high and you feel they will fall (like in the 80's) then an ARM lets you ride out the rate bubble. I had a 14% ARM in the 80's, but that let me ride out that 18% fixed rate bubble. When rates started dropping so did the rate on my ARM. It did it automatically and didn't require a refinance on my part. You take an ARM out when you think rates will fall, not when the rates will rise.

3) If you have a Jumbo loan the savings from the ARM will usually more than pay for the costs of refinancing every few years.

ARMS typically give you an initial teaser rate to entice you to do the ARM rather than the Fixed. The lowest interest rated ARMs tell you the teaser rate is only good for 6 months or a year whereas others start at more reasonable initial rates and just let the adjustment caps work you back up to the real rate. In any case you can count on virtually every ARM adjusting the maximum amounts for the first couple of rate changes. So with a large enough loan you can make money by refinancing periodically and working the teaser rates.

Actually if you want a Jumbo loan I haven't even been able to find a Fixed rate mortgage program.

4) If you are 100% certain you will have a larger income in the future to pay the monthly payments. The key here is the 100% certain part.

DILYSI Dave wrote:

So the girl doing the loan origination looked over all of our stuff and said 'You can buy a $125,000 house. Let's get you into something like that. Or you can get an ARM up to $175,000.' Uh, no thanks. She freaked, couldn't believe we were not willing to extend ourselves like that. I actually had to threaten to get up and walk out of the office before she would go back to what we originally intended and had asked for: a 30 year mortgage on the house we had agreed to have built. We wanted a 15 or 20 year but since it was the first mortgage for both of us, they wouldn't do that.

Yep. The loan officers, the realtor, etc. are all piad on commission. It is in their best interest to stretch you as far as they can. It takes a disciplined buyer not to fall for it. We were approved for roughly half a million. We bought at $165K, in a high growth area. On a 15 year loan, our payments are less than 20% of our income, which allows us to pay greater principle. We will own the house free and clear after 10-12 years. If we are a little more aggressive on the additional principle, we will own a house outright before we are 40. It won't be a luxury home with marble and granite and 52" LCD's, but it will be ours. If we decide we want all of that stuff, then at that time we can duimp the current house and come to the table with ~$200K in down payment, which allows the luxury house to be bought, again, on a 15 year loan. In reality that is probably about when we will start deciding between 20 acres in the mountains or a villa in Costa Rica

That's pretty much our long term plan. We bought our house for $155K five years ago, the appraised value as of April this year is $205K. It will be paid off by the time I'm 60 (you young kids, do like DILYSI Dave: start early!) and even with this temporary drop in values should be worth at least $250K at that time. I'd like to retire to a paid for place in the mountains then. No reason it can't happen.

Duke brought up an interesting point about ARMs going wild in the '80's. My brother bought his fiirst house (killer deal, guy was being tranferred and sold the house for payoff!) in Greenvile, SC in the late '80's and the interest was 10.5%. He refi'd when the rates dropped.

carguy123,

But, as you know, the first two reasons either bet on home value going up or inflation going down. More risk is involved in either assumption, meanwhile, the bank is not giving you anything for free, even if you are paying down the principle, they'll still find a way to extract more from you by taking on the greater risk of deferring their share of the money (interest) to a later date. ARM's are more risk than most people can understand.

Finally, for jumbo loans, I firmly believe that if you are making a great deal of money in which you hope to afford large houses, you are less guaranteed than you might think to be making that amount of money in the future. Which, should make you even more wary about taking on a great deal of debt. Also, the amount of people you can sell your house to decreases as the value goes up, which makes it less likely you can unload a very expensive house on someone else. Yes, I'd be more careful with a million dollar loan than a 100k dollar loan.

Mortgage brokers should be very careful when telling people to take risks. These sort of manic situations arise because financial salesmen frequently undervalue the risk they promote.

GregTivo betting on the home values going up or inflation going down applies to all loan types and not just ARMs. And as far as property values increasing it has been a great bet for a long, long time. Home values are one of the few things that, in the long run, you can usually count on value increases. Every area (or neighborhood) has some short term flattening of values or rises and falls, but historically they have risen faster than most other investments you could have done PLUS they have the great upside of you being able to USE this investment. So even if values didn't rise you still come out ahead investing in a home. But still the best reason to buy a home is that you like it, you want it, you need it.

My first home cost $19,000, that same home sells for almost $200,000 now. My second home cost $33,000 and I couldn't figure out how I'd handle that $250 house payment. It just sold for $160,000. It wasn't as good an investment as the first house, but what else (other than the price of gas) has gone up that much AND was useful at the same time. And then there's the tax benies. You can have a monetary loss on the purchase and sale of a house and still come out ahead.

You have to have a place to live. You might as well be getting some freedoms and benefits rather than giving all of them to your landlord and letting him take the risks and the profits.

"ARMS are more risk than people can understand" if you take them out as a long term financing type. Short term the can be good. ARMs aren't out there because the lender has figured out a way to get you later by "deferring their share of the money (interest) to a later date."

You have a basic misunderstanding of what an ARM loan is, there is no deferred interest or liability on an ARM. The reason that ARMS have a lower rate than a fixed rate is that you have agreed to share the risks involved of interest rate changes with the Lender. Optimists take out ARMs. When you take out the ARM loan you are saying you are reasonably sure rates will not rise beyond your comfort zone for the limited period of time you will be living in the home OR you are betting rates will drop and you can refinance and get a lower Fixed rate later than you can get now.

Banks price Fixed rates loans out by saying that at sometime in the life of the loan the going rate will be less than the rate of your loan so they price in a larger profit margin to stretch that unprofitable period of to further in the future. The basic principle of an ARM is that they can take a smaller profit margin because they won't have that unprofitable period in the future. They can count on making a profit always.

Oh, and as far as "Mortgage brokers should be very careful when telling people to take risks. These sort of manic situations arise because financial salesmen frequently undervalue the risk they promote. " By the time a person gets to the Mortgage Broker/company they have usually already found a home they want to buy and they are usually quite adamant they will buy it come hell or high water. The mortgage company doesn't promote the risk the purchaser and the Realtor have already built that into the equation.

For the most part, home values are a flat asset.

For reference, this graph

bludroptop wrote: A 50-year old, 2- or 3-bedroom, 1-bath, 800-1000sq-ft home is more what I'd consider "starter".

I live in one of the stranger real estate markets in North America. A house like that sells for $600,000 to $750,000 in my town. However, I can rent the same type of house in the same neighborhood for $1800 to $2200 per month. Even with mortgage interst deductions, from strictly a monthly cash flow perspective, renting is a better deal. I love loving here, but I don't feel like dumping my extra money into the hands of a mortgage company for the hope of having equity later on. Particularly since the economy here is one where people in the private sector get laid off regularly as a result of mergers, buyouts and "restructuring." Equity doesn't buy groceries.

My next real estate purchase is mostly like going to be a rental. I am looking for a place where rents are high compared housing values. If I can actually earn money for owning property instead of paying dearly for it, then I'm intersted in being a home owner.

GregTivo wrote: For the most part, home values are a flat asset. For reference, this graph

I don't know where you got that graph nor what they are referencing as to 100 as that doesn't compute at all to actual prices.

But let's say that inflation eats up any upward value in a home and you are netting nothing at all from the sale of your home and you are getting out the same dollars you put in in adjusted dollars, you still have the utilitarian usage of the home which you don't get from other investments.

So back to Fannie & Freddie. I just had 2 new mortgage programs come across my desk both at 100+% LTVs. AAArrrrggghhhhh! Will no one ever learn!

Downpayment is the biggest impediment to home ownership but it is also the best indicator of loan performance. People have to have money to lose or they'll just walk away from the house. I mean that's what you do when you are renting isn't it. It's what they know.

I don't have the exact figures handy right now but going from memory it comes out to something like this

97% loans are about 3 times more likely to go into default as 95% loans

95% loans are about 2 times more likely to go into default as 90% loans

90% loans are about 2 times more likely to go into default as 80% loans

I haven't seen 100% loan figures but as you can tell it must be high.

IIRC, there were some companies loaning up to 125% of a home's value at one point. WTF was THAT all about?!?!?