[quote=patientrenter]… why would any sane person or institution ever lend more than 50-60% of the price of a home?[/quote]
I agree with you. Well, maybe 70% or 80% LTV would be reasonable. But reality is quite irrational.
As you know, the FHA guarantees loans with only 3% down. In fact all the recent boom in sales in places like San Bernardino, etc., is due to FHA sales. The 3% down is a joke: sellers give this money to the buyer as a gift and then simply add it to the sales price.
Instant negative equity! That’s what it is. The knife catchers, soon-to-be FBs start underwater from day one. And then, as house prices drop some more in the coming months, guess how many of these FHA mortgages will be in default and back in the market as REOs?
The whole system is a joke. It annoys me to no end when people say that the current crisis is the result of unfettered free markets. It’s actually the other way around: all those FHA guarantees, the Freddie and Fannie monsters, the mortgage interest deduction, etc., that were in large part responsible for the housing crisis that is bringing the whole system down.
