http://www.latimes.com/business/la-fi-fannie-mae-freddie-mac-mortgage-downpayment-20141208-story.html
This Monday, Fannie Mae and Freddie Mac once again announced plans to back mortgages with down payments as low as 3%, in a move containing "safeguards to protect against abuses that led to the subprime housing market crash." The finance giants were seized by the government in 2008 due to their near-bankruptcy because of the bad mortgages they backed. 187.5 billion dollars were pumped into the companies to keep them from going under. They claim that as the housing market has rebounded, the companies have returned to profitability. FHFA Director Melvin Watt announced the new low-down payment option in October, causing a stir of criticism from critics who believe the companies are too risky. Watt, however, says the 3% down payment programs come with "strong underwriting standards that provide a responsible approach to improving access to credit while ensuring safe and sound lending."
I think this is a pretty scary move. Banks are returning to practices that led to a nationwide recession and nearly killed our economy. Even if they have strong underwriting, you can't make someone repay a loan if they have no money. If the FHFA director and his economists are sure about this, they need to be sure to have a plethora of safeguards and experienced economists who are watching the situation closely for signs of inefficient funds or risk selling. If they truly believe that we can go back to the practice that almost killed us last time, they definitely need to closely and vigilantly monitor the situation.
ReplyDeleteI also believe that this move is risky. One of the biggest problems in the last recession was the 0% down payment. I don't believe another recession is in our midst, it is just uneasy to see down payment rates coming down because of what happened last time. I have trust in the FHFA director, so I am not worried
ReplyDeleteJust because there is some down payment doesn't make it any less risky as it did in 2008. Yes some people will be able to pay there mortgages, but many others could still walk away if there is another shock. They need to keep a high standard to who they loan to because it only takes a lack of confidence to have the 2008 recession happen all over again.
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