So, what do you think? John McCain, friend or Foe to Real Estate buyers? Here is what I do know about buying a house. When I bought my first house, I had to put down 10% plus closing fees. That was the best deal I could find. My mortgage interest rate was 7.9% and I had to get a 5/1 ARM because I couldn't afford the 30 fixed rate. So my wife and I got second jobs, and tightened our belts to make ends meat, and save for our first "real" purchase. That's just the way you did things back then. Owning your own home is the American dream. It's a privilege to own your own home, not a right. I believe you should work hard and save towards having enough down payment, so that you have some "skin" in the game. You should have a sense that you "earned" it. Today's youth thinks they deserve a "break" at every turn. No one, it seems, wants to work towards earning anything.
Did you know that you can now buy a box of Crunch Berries?!?!?! You don't even have to wade through the "Captain Crunch" anymore! Were is the satisfaction in that?!
So, what do you say about the subject? I'd like to hear from you. There is no wrong answer.
Kenneth Harney: Housing industry is again requiring equity upfront
Tucson, Arizona | Published: 04.05.2008
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Partisan politics aside, presumptive Republican presidential nominee John McCain proposed something March 25 that no other major presidential candidate has advocated in decades: raising minimum down-payment levels for home mortgages.
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.
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 currently negotiating reform legislation that would cut FHA's minimum to zero — favored by the House — or 1.5 percent, favored by the Senate.
Proponents of low FHA down payments say 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.
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.
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, many borrowers found themselves in negative equity positions, owing more on their mortgages than the market value of their homes.
Though neither of his potential Democratic opponents nor the White House has commented on the McCain proposal, efforts to rein in down-payment minimums already are under way by major private mortgage lenders and insurers. Fannie Mae and Freddie Mac both have raised fees on new loans where borrowers have less than 25 percent equity. They also have increased minimum credit scores for low-equity mortgages.
Private mortgage insurers have tightened availability of new loans with less than 5 percent down by sharply raising credit standards for applicants, and refusing to underwrite such loans in markets they designate as "declining."
The emerging trend in the private marketplace reverses one of the hallmark practices of the housing boom years. When the National Association of Realtors surveyed thousands of first-time buyers in late 2004 and early 2005, it found that a stunning 43 percent had put no money into their purchases. The same study documented the median down payment by first-time purchasers at just 2 percent.
The net result, as the real estate market began turning in mid-2005, was that large numbers of people started their homeownership experiences underwater. Research by a subsidiary of First American Corp. found that by 2006, one out of 10 households that took out loans the prior year were already at a zero or negative equity position.
The same study found that one out of three purchasers nationwide had an equity cushion under 20 percent. Forty-four percent had less than 30 percent equity. Areas where owners had the least equity — California, Colorado, Florida and Ohio — subsequently have seen some of the highest foreclosure and delinquency rates.
From the fourth quarter of 2006 through the fourth quarter of 2007, homeowners lost $387.5 billion in net equity holdings — mainly because of property devaluations in major markets around the country. The year-end $9.65 trillion in equity was the lowest figure since mid-2004.
Most homeowning households still have hefty cushions.
At the end of 2007, according to the Fed, American homeowners' equity was 47.9 percent, down a full percentage point from the third quarter, and 6 percent below 2003.
But don't look for the return of mass-marketed zero-down mortgages anytime soon. Whatever the politicians do, the private marketplace is heading back to more traditional standards, where equity upfront was the rule.
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