Correction…lending has not gone back to the 90’s…it’s gone more back to the 1970’s!
Fha has been around since the 1930’s and is 3.5% down and has had low default rates. VA is 100% and been around since post WWII and has had low default rates. FHA are full income documentation throughly underwritten loans. You can not even begin to compare it with the toxic stuff that was happening from 2002-2007.
I saw a chart the other day that compared the performance of prime, subprime, alt a, fha, va over decades….really the stuff that got out of control and got us into trouble was subprime & alt a (stated income) from 2002-2007. It was really just 5-6 REALLY bad years of lending Wall Stree product that did it. And contrary to popular belief, the toxic loans were Wall Street products for the most part (not Gov loans Fannie, Freddie, FHA, VA). The underwriting guidelines were created by Morgan Stanley, Merril Lynch, Credit Suisse and JP Morgan & they created a secondary market for those loans.
FHA and VA have never had super high default rates. So it’s a myth that real estate “used to be” 20% down back in the day or it needs to be 20% down. FHA has never been 20% down and it’s been around since 1934.
What we are doing here is classic “throwing the baby out with the bathwater”. Lending standards are OVER-correcting in my opinion. For example, I know a guy with $5 million in the bank but could not show income on his tax returns so he can’t get a conventional loan even with 40% down. He has to buy cash. Now that is plan stupid. This is the kind of borrower “no income verification” loans were originally created for. Not the janitor in 2005 making $20k a year with no money in the bank buying stated income zero down.
I think 5% down and throughly underwritten FULL income documentation loan is plenty.
