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Old 05-09-2013, 07:18 AM
 
10 posts, read 18,763 times
Reputation: 17

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I thought this article was interesting because it contradicts the conventional wisdom that no-down payment mortgages are super risky for banks.

According to the article, these two credit unions have created no money down loan programs that are seeing few, if any, delinquencies.

VA loans also require no money down and have very low delinquency rates.

Is a down payment essential for a solid mortgage? Two credit unions suggest no. - The Washington Post

Are they on to something here - that prudent underwriting and intensive servicing (not just selling off the loans as fast as they can make them) can count more than the size of the downpayment - or is there another explanation?
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Old 05-09-2013, 08:02 AM
 
2,726 posts, read 3,693,210 times
Reputation: 2906
Here we go again!!
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Old 05-09-2013, 08:20 AM
 
983 posts, read 698,369 times
Reputation: 1950
1st home I ever bought was a zero down VA loan.

1997 - 7.5% 30yr fixed - 0 down payment.

Refied twice ( no cash out ) got down to a 6% fixed around 2002 or so I think. Lived in that house until Sept 2011. Sold it for $185K - orig price was 155K. During peak 2006 or so I think could have sold around $300K.

Loan payoff was around $115K when sold late 2011.

New house was $330K - placed $80K down in Dec 2011. Borrowing 250K mtg. 3.75% rate. $1157 payment ( plus ins - taxes paid separately )

My personal story ... oh yea - have never made a single house payment late in my life
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Old 05-09-2013, 12:05 PM
 
3,318 posts, read 7,257,563 times
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VA loans have no mortgage insurance payment. And military veterans are more disciplined than - - pretty much everybody.

You open up zero-down loans, that leads to zero-down loans with closing costs rolled in, which leads to doing that for a broader fico bandwidth.

I would make a ton of money. Then, the market would again be destroyed. Not worth it.
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Old 05-10-2013, 03:02 AM
 
504 posts, read 628,393 times
Reputation: 506
I think they're fine as long as the banks apply some common sense like these seem to be doing...

What caused the problems during the bubble wasn't any one type of loan. All of these can make sense in some situations:
- No/low downpayment
- No/reduced documentation
- Interest only
- ARMs
- Subprime credit
- High debt to income ratio
- Even negative amortization

It was the combination of these multiple features in ways that had never been done before and by banks and buyers of MBS being irresponsible by assuming these combinations were much lower risk than they actually were. Not to mention the behavior of many consumers who seemed to think they were the next Donald Trump and could get rich quick buying a house with no intent to live in it (or even rent it out) and then turning around and selling it a few months later to the next sucker.
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Old 05-10-2013, 04:50 PM
 
1,263 posts, read 2,646,009 times
Reputation: 1872
I wish people were required to save at least 5% before buying. It would be good to have savings set aside for repairs, too. Broadly speaking: if you can't afford to save, you can't afford to buy.

I bought my first condo with 3% down, which is practically nothing when you consider selling costs if I'd gotten into trouble.

My mortgage payment + HOA was less than rent on an equivalent apartment, so it seemed like a good deal. Combined with my 800+ credit score, low debt and long term job, I was "low risk".

Although it worked out well, I think it was a mistake in retrospect. I was upside-down from the moment I bought, and I had no savings in case of a major repair. What if I'd had a serious plumbing problem?!
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Old 05-10-2013, 07:06 PM
 
3,576 posts, read 5,905,354 times
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Navy Fed. They cherry pick their no money down clients.

That's means they won't give loans to people who have defaults, short sells, , previous foreclosures, bad credit etc on their reports.

Read the article. They target those with credit scores in mid 700s with good income. Duh. No wonder why the default rate is low.

Whereas during the housing boom. You has liar loans. You had subprime loans that were zero down.

I'd like to see the percentage of true prime borrowers (credit score mid 700s with real income) no money down loans during the housing peak who defaulted. That percentage default is much lower.

There is nothing against the banks keeping these loans in house. They should. If its the banks money that is being lent they will screen the borrowers closer than trying to immediately resell it to Fannie Freddie.
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Old 05-10-2013, 07:31 PM
 
Location: Mishawaka, Indiana
6,214 posts, read 8,363,422 times
Reputation: 4643
VA loans require 0 down payment? That is fantastic news, I wonder what kind of APR rate I would get? In a lot of cases it's cheaper in the long run to buy than to rent.
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Old 05-11-2013, 06:18 PM
 
Location: Eastern Colorado
3,757 posts, read 4,401,645 times
Reputation: 4850
USDA loans are zero down as well as the VA loans, yet both VA and USDA loans have a lower default rate than FHA loans which now require 3.5% down. Fact is the amount of down payment is not the biggest factor in whether or not the loan will default, the biggest problem with the housing bubble was people stretching to buy houses they knew they really could not afford. The approval process on both VA and USDA loans have always been more stringent, and guidelines followed much more closely, the people buying these house are almost ensured of getting a good house they can actually afford to pay the payments on.
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Old 05-11-2013, 11:12 PM
 
3,318 posts, read 7,257,563 times
Reputation: 4100
Quote:
Originally Posted by jwiley View Post
USDA loans are zero down as well as the VA loans, yet both VA and USDA loans have a lower default rate than FHA loans which now require 3.5% down. Fact is the amount of down payment is not the biggest factor in whether or not the loan will default, the biggest problem with the housing bubble was people stretching to buy houses they knew they really could not afford. The approval process on both VA and USDA loans have always been more stringent, and guidelines followed much more closely, the people buying these house are almost ensured of getting a good house they can actually afford to pay the payments on.
What point are you attempting to make? Guidelines followed more closely? Guidelines were followed on everything. The guidelines THEMSELVES became lax. Were you ever in banking?

Expanding zero-down qualification, at all, would not be good. Period.
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