[quote=bearishgurl] I could understand why the Kansas City market has to cater to “high-leverage” borrowers in most areas there, but I don’t understand why CA coastal markets do. Why do “very desirable” markets with a “captive audience” (such as SD Co) need to cater to “high-leverage” borrowers? Before 2000?, FHA loans only represented <5% of overall purchases in SD County. Back then, the local FHA ceiling was set in line with the likes of SFR pricing in Spring Valley, Lemon Grove (just barely) and other similarly-situated communities in the county .... as it should be.
I don't understand why the ceiling EVER rose beyond $300K in SD County. Certainly, with the recent run-up in local home prices everywhere (2013), $400K should be the current max FHA mortgage available in SD County ... the absolute max. $400K is a HUGE mortgage for a moderate-income buyer.
In a nutshell, why is the FHA attempting to serve households with more than the "average income" in a particular county? It doesn't make sense. That is the sole purpose of fannie, freddie, portfolio lenders and the VA (for eligible vets only, regardless of income). It was never and is not today the FHA's role to provide this level of leverage.[/quote]
The entire bubble was built on increasing the available leverage. Back before 2000 you could save money at a bank by getting 5, 6, 7% CD rates that beat the 3-4% inflation and save your way to a down payment. Real household income was still increasing relative to inflation. Banks kept loans on their own books and actually had to price risk. It was when the banks figured out that they could move the risk onto investors and lie about the credit quality of the borrowers that 0 down came about.
The fed helping to drive investors into higher yielding riskier assets through suppression of rates helped as well. In essence they didn't want you to save, they wanted you to spend to "boast" the economy. It did boast the economy in the short term but now the long term impacts are being felt. People that didn't get into the system before the easy money policy of 2000's have had a hard time building the savings it would take to go back to the old system. Now that we're use to near 0 down it's hard to go back since building savings in ZIRP sucks.
So the people buying the hot markets right now with cash or decent down payments likely are older and enjoyed the benefits of the 1990's or happen to be in the top 20% of income. It will probably stay that way in certain areas of north county coastal for while as a wealthy retirement destination, but I don't expect it to apply to most of San Diego.
