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With fewer people being able to afford homes, Freddie Mac seeks widespread expansion of 3% down mortgages.

edsl48

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#1

Low down payment mortgages
are creeping their way back into the market like a cat sneaking up on an unsuspecting mouse. The only difference here is that the mouse is a million dollar crap shack with a 30-year mortgage attached to it. People forget that Freddie Mac and Fannie Mae, the massive Government Sponsored Entities were nationalized U.S.S.R. style during the Great Recession. Now that times are good all caution is being thrown into the wind and we are setting up the stage for Irrational Exuberance Part II. The U.S. economy is built for boom and bust cycles. Massive credit expansion is occurring and while people are working, their dollars are not stretching as far as they would expect. In San Francisco, you are now considered “low income” if you make less than $117,000 a year. That makes sense when a standard home sells for $1.5 million. So now we have Freddie Mac attempting to push 3% down mortgages on a much larger scale since many people are priced out. What can possibly go wrong?



Who needs a down payment?

There are costs associated with buying and selling a home beyond the mortgage or the down payment. You have closing costs and in many cases, there are commissions to pay out once escrow closes. These may range from 3 to 5 percent. So when you purchase a home with a 3 percent down payment, you are essentially putting yourself in a zero or negative equity position from day one if you needed to sell. Any little dip in the market can put you in a tough spot. Say prices drop by 10 percent and we have a modest recession. Then say you want to sell. Now you find yourself underwater and will need to pay to sell which was the case when we had our foreclosure crisis.

Housing values soared in practically all major US areas. Yet household incomes are simply not keeping pace and that is why affordability is so low. That is why California is becoming a renters paradise. So of course it is no surprise that Freddie Mac wants to make it easier to purchase homes with less money upfront:



Now the FHA already backs up low down payment mortgages but these are constrained to lower to middle income areas. Freddie Mac is looking to go even bigger:



The big difference here is that there will be no geographic and income limits. This is really interesting and shows how quickly we forget about financial prudence. The sentiment is clear that people want to jump on the bandwagon and purchase homes even if it means they will go into massive mortgage debt. They rationalize that home prices have soared and don’t want to miss out. At the same time, the stock market has also soared. Why not go back in time and buy Amazon or Apple stock?

The middle class in California has been slowly cut down and you view this through more and more households becoming renters. Housing prices continue to be high because of low inventory, NIMBYism, foreign money, investors, and a variety of other factors. But all of these hinge on a stock market and economy that has been in a bull run for nearly 10 years.

Look at US affordability:



The last time we saw numbers like this was in 2009. But look at the L.A. metro area:



Buying a home is very difficult and so is renting. So it is difficult for many households to save a healthy down payment to purchase a home. In comes Freddie Mac with a potential solution. And since everyone wants a piece of the pie, here we go.
 

Joseph

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#2
Twenty + years ago I was house hunting. good job, good credit, money to put down, etc. When the numbers were calculated, they told me I qualified for $250K home, and proceeded to show me houses on the lake ... I bought a nice brick home for $90K. Still in it today.

With fewer people being able to afford homes, Freddie Mac seeks widespread expansion of 3% down mortgages.

Perfect. Shades of 2008 ... again. Selling homes to people who CANNOT afford a home ... and WHEN it hits the fan again, we'll pick up the tab ... again.

"They call it the American dream, because you'd have to be asleep to believe it" -- George Carlin
 
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Mujahideen

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#3
Market interface for $100.

If people can’t afford homes then prices will fall naturally unless of course the government interferes.

I guess the government is protecting the portfolio of the banks here?
 

gringott

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Market interface for $100.

If people can’t afford homes then prices will fall naturally unless of course the government interferes.

I guess the government is protecting the portfolio of the banks here?
And the RE agents and assorted industries.

WHY DO THEY WANT UNAFFORDABLE HOUSING?

Just one reason, the higher the cost of buying a house = the higher the property taxes forever.
 

madhu

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#6
The property taxes go down when real estate goes down. The govt must have figured out that it is cheaper to support the Freddie Fannie scam then let go of their property tax windfall
 

Ensoniq

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#7
The gov specializes in distorting the market

Fundamentally, the bank needs to decide on credit worthiness and bear the full risk of default

Then, if a bank wants to offer zero down (or insufficient down), it’s their problem

I’d suspect if this was the case, we’d never ever hear about <20% down payments again
 

Cigarlover

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#8
And the RE agents and assorted industries.

WHY DO THEY WANT UNAFFORDABLE HOUSING?

Just one reason, the higher the cost of buying a house = the higher the property taxes forever.
ding ding ding.. We have a winner. Governments are already stretched to the max. If housing prices fall the tax base crumbles and the socialist utopia they all dream of crumbles. Then we have the state gov pensions that the taxpayers have to fund. I can't afford my own pension but my taxes have to go to pay some other worthless idiot who decided to make a living off the tax payer.

The other day was headed into town. Got stopped at a light by a funeral procession for some guy I never heard of before. This wasn't your average funeral procession though. 15 minutes I sat there while firetruck, met vehicles and every other emergency vehicle passed by. It must have been quite a few counties of emergency vehicles all paid for by the taxpayer for some guy I never heard of.. I have no problem waiting for a funeral procession to go by. If it's in their personal vehicles or maybe even an honor firetruck or 2 from the township he served in. But hundreds upon hundreds of vehicles all fueled by the taxpayer seems beyond ridiculous. I am certain that when I die they won't roll out all those vehicles for me even though my taxes paid for them.
What we need in this country is a tax revolt. Enough is enough. State employees fund their own retirement just like the rest of America. Property taxes should be eliminated for anyone retired. Actually they should just be eliminated. Anyone that lives in states that have ballot measures should get that on all the ballots. Governments have to be forced into managing the taxpayer trough. They definitely can't do it on their own.
 

DodgebyDave

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#9
Loan me 3%?
 

Cigarlover

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#10
Sure we can add that right into your mortgage and no worries if you can't afford to pay it back. As soon as you sign the mortgage doc it will be repackaged and sold off to some sucker as CDO's. When we get enough uncreditworthy folks lined up then we can buy shorts on CDO's and watch the crash happen. We make billions in any event and either the taxpayer bails us out or life as we know it comes to an end and we go back to a cash basis.
Once back on a cash basis, the price of everything gets real again. Cars, houses, salaries everything is based on cash that someone can afford to pay. All these loans and mortgages is all just price distortion caused by the loans in the first place. Without a 30 year loan what would a house be worth? About 10% of what it is with the 30 year loan. Its all a fiction, an illusion but so few understand it.
 

southfork

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#11
Difference this time I think is the loans are no longer no recourse loans, lenders can now go after those who default forever.