Banks push home buyers to put down more cash

Many economists and housing analysts blame lax lending standards – including no-down payment, no-document loans – for contributing to the challenges in the current real estate cycle. As a result, most lending institutions have increased minimum down payment requirements. Now, a new proposal by the Obama administration calls for gradually raising down payments to a minimum of 10 percent on conventional loans – those that can be bought or guaranteed by Fannie Mae and Freddie Mac.


• Banks have found that larger down payments discourage delinquencies by increasing the buyers’ exposure to loss and reducing the impact of declining prices. According to a study by the Federal Reserve Bank of St. Louis, buyers who made smaller down payments were more likely to default during “unfavorable economic circumstances, such as a housing market slowdown or job loss.”

• A recent analysis showed the median down payment in nine major U.S. cities rose to 22 percent last year on properties purchased with conventional mortgages. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.

• Higher borrowing costs and larger down payments could cause housing prices to decline further, analysts say. For now, borrowers who can’t afford such amounts are turning to alternative programs, such as loans for veterans or those backed by the Federal Housing Administration. Some industry experts say this has created a nonconventional mortgage market for riskier borrowers and those who don’t qualify for conventional loans.
Read the full story - The Wall Street Journal -

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Tags: Real Estate


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Comment by David Stanley on February 18, 2011 at 2:00pm

"Banks have found'? You really dont believe that do you? Say you dont! Banks have not "Found". They have always known that a prospective buyer who puts up a deposit - "Good Faith Money" - is a good bet. They have not just now discovered! This is not and was never the problem even though bankers and politicians would try to make you believe that. Pah! My wife and I sat with one of our bankers a few years ago and asked outright why that bank was advertising and blatantly making home loans to illegal aliens with no security, no down payment, no nothing!!! You know what the answer was???? WE were told that the Federal government was pressing all banks and financiers to  make the loans to attract the illegal to the various states - what?  To secure Democrat votes!! When asked why this bank, a giant operation all over the country and world, would allow itself to be forced into this insane operation the fellow said the bank made lots of money, paid from the Federal government and EXPECTED the loans to collapse, foreclosure to occur and in recovering the homes they could sell them and increase their profits.  This guy was pretty gutsy but honest with us.


So, please dont tell us the banks have found that larger down payments discourages delinquencies. It was a scam from the beginning. This is called a "Moon Walk" as lending agencies scurry to attempt to sidestep being painted with the same brush of corruption as the Federal government.  Can you say "PONZI"???  David Stanley

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