CA Renter, I think you are right about that large (e.g. minimum 20%) downpayment requirement being the single best thing we can do to avoid a repeat of what we’re experiencing now. The article in the WSj recently by Stan Liebowitz outlines the evidence to support this, but it was in my gut years ago.
In fact, I pulled someone aside in my last company’s investment area about 2 years ago to say that they should prepare for much higher mortgage defaults. They responded that the investment folks were making sure that the MBSs they bought were super-senior AAA, with lots of collateral, and they did lots of analysis of the credit of the buyers etc. I recall saying that was fine, but make sure that the CLTV is less than 80%, and avoid over-exposure to CA, FL, AZ, and NV. I just felt that downpayments were the KISS thing to watch.
Until we squeeze out anything with less than 20% down for owner-occupiers, and 30% for others (at least anything from FDIC-insured banks, or FNMA or FHA or other govt support) then we are extremely exposed to a repeat of what we’re now experiencing.
