You’re the realtor, you should be the one who knows this stuff. By your gut, as you like to say…
As for me, I am going on the information reported by GSEs, NAR, and private companies like First American Real Estate Solutions. None are forthcoming in looking at the data in the form I would like to see. They have a vested interest in downplaying the problem, so they report partial statistics, like the number of first time buyers who put zero down, or the number of all buyers who have less than 15% equity if home prices decline more than x%, etc.
In your defense, not even the mortgage broker interviewed by Kelly Bennett has a clue about how many people put zero down . So I don’t blame you for not knowing either. And frankly, I don’t know either. If I had a source, I would quote it, as I always do. But if you understand the larger picture of our economy and the negative savings rate, the conclusion I draw is obvious.
Last year, 68% of all home loans in San Diego were negative amortization or interest only. 68% of all loans made are not even paying principal! All loans means purchases and refinances. So you’ve got people who bought before 2005, in 1980 or 1990, who refinanced, and out of that group 68% refinanced into a loan where they are paying only interest or only part of the interest.
Fannie Mae reported that 88% of their refinancings are at a higher interest rate, so people are refinancing just to pull money out of their homes. The only time my family refinanced, was to lower the interest rate. If 88% of conventional loans are refinancing at a higher rate, then they need the cash out more than they want the lower interest rate. What conclusion can you draw from such desperate behavior?
Back to our San Diego borrowers from last year. Even if they put 10% down, they could easily be at zero equity. If people were financially capable and responsible, they wouldn’t be buying a home at negative amortization and increasing their principal.
“There are two categories of people who take out these loans said, Craig Bramlett, president of Cal Pacific Mortgage in San Diego. The first is those who could feasibly make higher payments, but choose interest-only for a while to invest their money in other ways. The other category: those who can afford only interest-only or negative-amortization payments, and who rely on the “promise” of home appreciation to help them when the reset comes. Those are the people Bramlett and others worry about, and there aren’t just a few of them.
“From what we hear, there’s a lot of people in that boat,” Bramlett said. “They’ve chosen to do those loans, and they can’t afford them.” – VoiceofSanDiego
