Housing Bubble 2.0: Number Of Homebuyers Putting Less Than 10% Down Soars To 7-Year High

Tyler Durden's picture

A really long, long time ago, well before most of today's wall street analysts made it through puberty, the entire international financial system almost collapsed courtesy of a mortgage lending bubble that allowed anyone with a pulse to finance over 100% of a home's purchase price...with pretty much no questions asked.

And while the millennial titans of high finance today may consider a decade-old case study on mortgage finance to be about as useful as a Mark Twain novel when it comes to underwriting mortgage risk, they may want to considered at least taking a look at the ancient finance scrolls from 2009 before gleefully repeating the sins of their forefathers.

Alas, it may be too late.  As Black Knight Financial Services points out, down payments, the very thing that is supposed to deter rampant housing speculation by forcing buyers to have 'skin in the game', are once again disappearing from the mortgage market.  In fact, just in the last 12 months, 1.5 million borrowers have purchased a home with less than 10% down, a 7-year high.

- Over the past 12 months, 1.5M borrowers have purchased a home by putting down less than 10 percent, which is close to a seven-year high in low down payment purchase volumes

 

- The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upwards in market share over the past 18 months

 

- Looking back historically, we see that half of all low down payment lending (less than 10 percent down) in 2005-2006 involved piggyback second liens rather
than a single high LTV first lien mortgage

 

- The low down payment market share actually rose through 2010 as the GSEs and portfolio lenders pulled back, the PLS market dried up, and FHA lending buoyed
the purchase market as a whole

 

- The FHA/VA share of purchase lending rose from less than 10 percent during 2005-2006 to nearly 50 percent in 2010

 

- As the market normalized and other lenders returned, the share of low-down payment lending declined consistent with a drop in the FHA/VA share of the purchase market

 

On the bright side, at least Yellen's interest rate bubble means that today's housing speculators don't even have to rely on introductory teaser rates to finance their McMansions...Yellen just artificially set the 30-year fixed rate at the 2007 ARM teaser rate...it's just much easier this way.

"The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upward in market share over the past 18 months as well," said Ben Graboske, executive vice president at Black Knight Data & Analytics, in a recent note. "In fact, they now account for nearly 40 percent of all purchase lending."

 

At that time half of all low down payment loans being made involved second loans, commonly known as "piggyback loans," but today's mortgages are largely single, first liens, Graboske noted.

 

The loans of the past were also far riskier – mostly adjustable-rate mortgages, which, according to the Black Knight report, are virtually nonexistent among low down payment mortgages today. Instead, most are fixed rate. Credit scores of borrowers taking out these loans today are also about 50 points higher than those between 2004 and 2007.

Finally, on another bright note, tax payers are just taking all the risk upfront this time around...no sense letting the banks take the risk while pretending that taxpayers aren't on the hook for their poor decisions...again, it's just easier this way.

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cheech_wizard's picture

Because nothing says winning more than paying PMI.

 

Manthong's picture

 

The good thing about being a bit  older nowadays .

..the down payment issue is way in the past and you actually own the thing and   even after a half dozen re-fi’s.

Except there is that little property tax issue that amounts to moar than the mortgage payment was....

..and no BTC in the portfolio

Manthong's picture

 

Just down the street a few doors…..>50 year old 1200 square feet, flat roof … bad drainage… on a slab but on near a half acre in a better neighborhood  in suburban Chiraq… it could be yours tomorrow  for 360K.

What kid could not come up with 36K to live in such a nice mold-infested palace?

 

OK.. OK   OK   it’s a tear down….

…and I will likely get a new neurosurgeon or financier neighbor soon.

…the dump would probably go for >$1 million if it could be teleported to Palo Alto…

…paging Mr. Knight……..   

 

leefool's picture

+100 for Knight reference

JRobby's picture

Lots of PMI companies went bust in the last one. The actuaries at these PMI insurer's had no point of reference for a mass foreclosure / strategic default scenario. Besides, there is no money in putting the brakes on!

"Oh that can't possible happen again. There are safeguards now!"  (Laugh Track Deafening !!!)

SHEEPFUKKER's picture

When all else fails, try the same thing that failed before and hope for a different result. 

Manthong's picture

 

..every time I slam my head into the brick wall…

I keep hoping I will not have another headache.

..kind of like voting for con-gress nowadays

 

jamesmmu's picture
John Rubino – Financial Problems Always Lead to Social Unrest

http://investmentwatchblog.com/john-rubino-financial-problems-always-lea...

 

There will be a riot during next recession

FreeShitter's picture

You mean depression, we have been in a recession since dot com.

Hkan's picture

but ...but ...riots.....that legal? ;)

ReturnOfDaMac's picture

More fear porn, nothing will the happen. Central banks got 'ya back...

I am Jobe's picture

Great. Murikans are broke and exceptional . Keep lowering the standards. 

chomu's picture

FHA and VA are what scares me. Most of those are low credit, low or no $ down turds. And guess who backs those ulitmately....taxpayers

 

 

shizzledizzle's picture

I find it odd that (at least in my experience) when purchasing Land you gotta have at least %20 down... 

Clowns on Acid's picture

No Fannie / Freddie to provide "guarantee" versus a "house / apartment".

Bad Goy's picture

I bought in 2010, and sold in 2015.

I need this housing market to crash again so I can get back in it.

phallusfigure's picture

I am with you, My wife and I sold in 2016. We got way more than it will ever be worth. I just have not been able to bear the thought of overpaying. No big worry. We can wait a little longer.

daveO's picture

If those earnings are in a bank, make sure it's a safe one. Bankers will block withdrawals in the next crash.

corporatewhore's picture

Keep the ponzi going.

eliminate college loan repayment amounts from debt to income ratios.

your credit score is only as good as your current job continues to pay you.  Lose your job and your credit will crater--it's meaningless as to the future unless you lose your job or get a higher paying one.  good luck with that.

Occams_Chainsaw's picture

My boss's daughter just bought a house and had nothing to put down.  So they gave her a loan for the downpaymet to secure the loan for the mortgage.  She so much as misses a day of work she is washed under.

 

"I say we nuke it from orbit....it's the only way to be sure."

graspAU's picture

Wow. And there are loans out there that let them consider income that will be in the household but not on the loan. It's getting wacky. I wonder what's going on with interest only loans? Are they back? I remember they started out at 5yr interest only and then around 2006 people were doing 10year and 15 year interest only loans. Of course they didn't care when interest only was over and the remaining balance was amortized over only the remaining period. No one thought more than 1 week ahead.

So if someone has an 800 creadit score and 40% down they are an anomoly now, unless they are an all cash buyer who inherited money or is bringing in hot money from someplace like China?

 

 

goldoverbtc's picture

What kind of credit score do you need to get that though I wonder?  The financial crisis was caused by numerous factors.  These millenials likely borrowed that money from their parents  as well.  Most people cannot save even 5% of the total value of the house they are trying to buy.  Having inflated rents taking up 40% of salaries is a bigger problem in my view.

www.escapeamazon.com

 

crayinrva's picture

FHA is allowing down to 560 credit scores with a 50% debt to income ratio. This is why we say "FHA is the new subprime" and we mean it. VA is also doing 100% financing with 560 credit scores, although they are a wee bit more discriminatory than FHA.

larrythelogger's picture

Yeah but think of the seconds you can take out to buy granite, Hummer's, pools and vacations when the "price" of your home goes up, up, up!!! I know that because Lawrence Yun told me so.

Death By Cold Steel Report's picture

There's signs all around here that says No Money Down! & They keep building McMansions like there going out of style. Stated incomes are back!

graspAU's picture

stated income, stated asset is back for folks like bartenders and waiters? How about pick-a-pay where you can choose to pay less than the interest and your principal balance goes up each month?

JRobby's picture

Pick-A-Pay took Wachovia down. But Wells who was at least as criminal as Countrywide, was there to "catch" them courtesy of the FDIC.

Byrond's picture

Doesn't matter if interest rates are lower. Underwater and debt-ridden still equates to financial collapse. Houses and cars are way overpriced. Baby boomers with good retirements are fueling growth, but that's temporary. And the apartment/hotel developments underway everywhere are just asking for a major financial collapse. How many banks can that take out? It's worse than 2007.

yellowsub's picture

I believe closing costs was one of the big ones they put into the FHA.  Almost everything can be rolled into the FHA loans.

If cars wasn't so easy with credit they'd probably allow you to add it in.

BSHJ's picture

Help me out here.....so NOW is a good time to buy a house?  Who is best to ask?  Maybe a real estate professional? (/S)

Totally_Disillusioned's picture

Just listed and want to close before bubble bursts and SHTF...

garthbartham's picture

Bubble pops again, wait a year or two until the banks panic and house prices tank by 30-75%. F*ck real estate agents.