July 13, 2007

Remember when you had to have a down payment? Remember when you couldn't borrow funds to use as a downpayment?

What really sent the system spinning out of control these past few years is the use of "piggyback" loans, where you'd take out 80% or 90% of the value as your first mortgage and then basically charge the rest onto an unsecured piggyback loan.

PMI? Nah!

Save up for a downpayment? Nah!

Have some skin in the game? Nah!

Cause the biggest financial crash in recorded human history? You bet!


Anonymous said...

This is absolutely right. I bought a house in 03 when the kid was born, and was shocked that the mortgage guy (worked for the bank) was able to arrange a 30 year fixed for 80%, and a line of credit for the remaining 20.

Shortly after I bought, I mentioned to a friend that the dirty little secret of the housing boom was the ability to finance 100% of the purchase price. Still think so, except it's not so secret anymore.

keith said...

I tell people here in Europe that in America you can (could) buy a nice home with no income, no job, no credit and no down payment.

Heck you could buy ten of 'em

They think that's pretty cool

And we're showing the world now why that's not

keith said...

You wonder who the piggyback bagholders are

Balanced View said...

What is the true purpose of the downpayment? No one has ever explained it to me. How does it protect the buyer, seller, and/or lender?

keith said...

If you make a downpayment you have some skin in the game. You're less likely to walk away and turn in the keys. You're more likely to water your lawn, make your mortgage payment, and care about your neighborhood and neighbors.

The "new day" of no down payment means crack den neighborhoods, scum as neighbors, massive foreclosures, CDO blowups and the total destruction of the US homebuilding business.

Not a good idea.

Just go to Phoenix for an example

Shakster said...

Remember lying on your loan app?
This is an ACE in the Hole for these freaks.Now Joe Six Pack can't dispute Jack.
Remember the banks paying brokers more to push exotic loans?Becoming common knowledge now,but useless as a bargaining point because remember when you lied on your loan APP?
Did you know that you were eligable to buy a home with a fixed rate mortgage in the first place,and this was not explained to you?Likely the Broker said things like-"This is the only deal",or I have worked hard for you,and this is the best way",or even that"The banks really don't think you qualify for a fixed rate",and the grandaddy scamphrase,"A fixed rate will probably raise the interest rate pretty high".Do you remember?Well forgettaboudit.
This was not disclosed,and you weren't even qualified to sign a loan doc in the first place.These are your bargaining points.
BUT.......Remember when you lied on your loan app? Now they have you by the balls,and you are scared,and you don't even know if you can walk away from your horror house without having to keep paying,or worse.
They knew all of it ahead of time ,and will plead ignorance,and you will be seen as a fraud.
Remember when you lied on your loan APP?
They lied too,and are betting the house that their bluff will win the whole pot,the last big dripping pot.They will eat you if you fess up,and your so clueless that the fear is telling you to give -up.
Whatever you do ,MR FB,don't give up.Find a way to Pay for your home,and keep your family intact.
Your crime is nothing compared to the Banks ,and Brokers,and all the LOWLIFE JUDGES out there,and we all know it,but you must pay for your home.

Anonymous said...

A down payment is insurance (in a risk management sort of way) for the lender. It doesn't benefit the buyer much, especially if interest is deductible.

What has changed recently is that the seller of the loan is not the ultimate owner of said loan. Thus downpayments became impediments to the seller's transaction fees, instead of insurance. Therefore the world has been blessed with the 80/20.

Anonymous said...

Balanced View said...
What is the true purpose of the downpayment? No one has ever explained it to me. How does it protect the buyer, seller, and/or lender?

If the lender only lends you %80 of the cost of the house they have a much better chance of getting their money back in a forclosure. Example: you buy a 500K house, you spend 100k and the bank lends you 400K. You get behind in your payments and the bank forcloses. They only need to get 400k for the house to get their money back. Since you stand to lose your 100k you'll do everything in your power to make the payments or sell the house for the most you can get. If you had spent nothing and borrowd 500k you could just walk away from the house and lose nothing.

JL said...

Two years ago,I went to visit a friend of mine in Cape Coral,FL

I was very glad to see him, it had been a long time. And I came back home...SHOCKED.

see.. he was a nobody when he was somebody (in real estate). But now he owned 12 houses, all on negative amortization, and rented out hoping that ... you know the rest..

Of course I "assume" he used No Income No Asset loans to get that!

But wait.. there was more! His mother, who worked at a local retailer, had already purchased three houses!!!

Sadly this is the STANDARD in Florida....

Out at the peak said...

Back in 2000, I was able to buy with just 4% down. The interest on the second was 10%. The first was a 7 year balloon with a low fixed rate. The next year I was able to refinance both into a 30 year 80% (or less) LTV with a pretty low fixed rate. Things were cool back then including moderately affordable houses.

2004+ has been insane with 0% down and ARMs with teaser rates. "Own for only $1200 a month." So misleading.

Frank@NeverColdCall.com said...

I know someone in Scottsdale who did this. (Surprised? Of course not, since there is no such thing as a down payment there.)

He bragged about "buying" his $400k house with half down. I thought it sounded fishy based on his income, so I pulled up the records on the county recorder's website and, sure enough, he is 100% financed with a $50k piggyback loan for the down.

Oh yeah and the house was only $300k. They have a habit of exaggerating in Fakesdale, Arizona.

Anonymous said...

Remember when homes were homes?

Anonymous said...

Remember when you actually expected to pay for something you bought!

Anonymous said...

Remember when realtors had ethics?

Nah, me either!

Anonymous said...

Remember when you had to prove you were worth getting a loan?

Anonymous said...

Remember when Paris was just a rich heiress?

Anonymous said...

Remember when your bank would turn you down for a loan?

Anonymous said...

yeah, it was yesterday!

Anonymous said...

Remember when this country believed in God?

Not gods, but the on true God!

You know, the one that we trusted on our money!

Anonymous said...

Remember when 'The Bible' was the word of God?

Now it's just considered a self help book for the weak minded (thank you Ted Turner)!

Anonymous said...

I hate real estate.

Anonymous said...

When a loan resets from 2/28 adj can't the owner just get the same loans at maybe a little hire rate.

Anonymous said...

Cause the biggest financial crash in recorded human history? You bet!

YUP, that's why the stock market went up 400 pts this week and set all time highs.

zoiks said...

Must be a chart about the US as a whole, including flyover country. In California, the percentages with piggybacks is closer to 99.99%.

Anonymous said...

As so many mortgage loans go into default, the resale market for mortgage backed securities will go into revolt. Investors won't buy unless the loan is backed by a 20% down payment. The public will be shocked as they'll wonder what a down payment is? Home prices will crash as a result.

Anonymous said...

The largest amount of US bankrupties, public school closings, corporate crime, energy scams, foreclosers, defecits and job losses under the Bush administration is tragic indeed. But even more so, are the elected officials, media companies and business leaders who think Bush's destruction of America, loss of freedoms, war-profiteering, lies, deceptions, mass-murder and 9/11 cover-ups are signs of real successful leadership!

And now, I just read 7/14/07 that russia is backing out of its arms agreement with the US because bushittler wants to build a new MASSIVE LAUNCHING base of MASSIVE WMD's in europe!

So with that said, I think its not the time to purchase a house, even with 20% down. Why? Because nobody in America has the balls to place Bush and Cheney under arrest for massive criminal activity! And just think what's next!

We are all doomed! Wake up! Bush and Cheney-Co remain unchecked and out of control!!! The massive GOP failures, lies and tragic leadership will continue and is getting much worse. Martial law, bank failures and massive job losses are next! PANIC in the streets.

Anonymous said...

Remember when Paris was a city in France!!!!!!!!!!!!!

Anonymous said...

A well-known Clear Lake real estate broker has been charged with using false documents to borrow millions of dollars from two area banks.

Richard Douglas Bell, 48, is being held without bond by the FBI on six federal charges of bank fraud and making false statements in three separate incidents, U.S. Attorney Don DeGabrielle said.

Bell, who operated a Clear Lake residential mortgage office from 200 to 2006, was indicted by a federal grand jury on June 28 and arrested June 29 by FBI agents in his Clear Lake office.

He is accused of bank fraud and making false statements on a loan or credit application relating to three separate loan transaction from December 2004 to May 2006.

According the allegations in the indictment, in December 2004 Bell successfully obtained a $1 million loan from Wells Fargo Bank to purchase a League City home by using false documents detailing his income, assets, bonus and credit history.

In May 2006, he is accused of obtaining a $1.7 million loan from Wachovia Bank to refinance an office building at 17100 El Camino Real by allegedly submitting false documents on his income and assets.

In that transaction, Bell used Fidelity Capital Real Estate, LLC, as the borrower.

Then, approximately 17 days after receiving the $1.7 million loan, he went back to Wachovia and applied for a $2.6 million unsecured loan to Harborside Mortgage Corporation, using the same false documents about his income and assets.

Wachovia approved the loan for $2.6 million, but refused to fund it after receiving an anonymous package with copies of civil judgments against Bell that he failed to disclose to the bank, DeGabrielle said.

All this after Bell was discharged from bankruptcy in 2000, he said.
Bell is accused of submitting falsified federal income tax returns and W-2 wage and tax statements in all three transactions and having falsified information about assets, DeGabrielle said.

If Bell is convicted, each of the three counts of bank fraud and three counts of false statement carries a maximum punishment of 30 years in prison without parole and a maximum fine of $1 million.

The indictment also seeks to demand that Bell forfeit property and funds obtained from the fraudulent schemes, including $1.7 million in cash and his League City home, DeGabrielle said.

Bell attended a hearing on Monday, July 2 before U.S. Magistrate Judge Frances Stacy.
The case is being prosecuted by Assistant U.S. Attorney Belinda Beek.


Frank@NeverColdCall.com said...

Cause the biggest financial crash in recorded human history? You bet!

YUP, that's why the stock market went up 400 pts this week and set all time highs.

Who are these idiots who think there's no housing crash just because stocks are going up?

I think Keith put up an interesting post explaining why this particular phase of the housing crash is actually driving stocks upward.

My car isn't worth more than it was yesterday because stocks are doing well. The same is true for a house.


Anonymous said...

You guys missed another important function of a downpayment related to "skin in the game". Unless someone happens to inherit money or have a windfall, a down payment represents discipline and savings over a period of time. Used to be that those who spent more than they made every month were life-long renters. The 80/20 meant every idiot who couldn't delay gratification and save a little got to immediately get a house.

No wonder the savings rate in the U.S. is so low--what would you save for when you can buy cars, houses, furniture with no money down?

Anonymous said...

The USA is begging China to buy more MBS. This is getting funny. I guess the Fed can't print out enough money to buy that garbage.

Anonymous said...

I just got a rental renewal notice today for my apartment in Orange County.

NO RENT INCREASE for the 2nd year in a row !!! Wow, renting is SO MUCH FUN! Im saving so much money and investing it, and will retire in 3 years at the rate Im saving, and investing my money. Pretty soon, Ill be able to say fuck you to coporate america, and retire to manage my money. Yeeeepie!!!!!

So GLAD Im not a homedebotor like 99% of my coworkers...snicker snicker...

2 years ago, they were ALL LAUGHING AT ME... Today? The only person WHO is laughing, is me !!! All the way to the bank !!!!


Anonymous said...

Nothing wrong with 100% financing. If you have the income and job stability to back it up. Yo also need pristine credit to qualify. I did it in 2003 here in Socal. Got a 100% financing. Instead of the piggybacl I just got ONE LOAN for a bit higher rate than normal. In 6 months I refinanced when rates hit bottom at 5.375. I just sold it an pocketed over 200k. You need to learn to work the system and get in while the getting is good.

Beyond the Consumer said...

You're only a sucker if you bought your home as an investment. If they live there and stay there, they will be living in a house they own just paying taxes while you are still forking over rent.

Anonymous said...

"NO RENT INCREASE for the 2nd year in a row !!!"

Mine went up a whole 1.8% after three years. Talk about pricing power! LOL!

Anonymous said...

"If they live there and stay there, they will be living in a house they own just paying taxes while you are still forking over rent."

Hey Einstein, if they bought at the top they will be living in a depreciating home and soon underwater. Owe the man more than its worth. No more ATM home piggybank. Does that sound like good times to you in the home?