John Preston

Big New Housing Problem: Mortgage Insurers Back Off

Karl

Down payment has nothing to do with mortgage defaults. Historically, and I mean for ever, the prime cause for default is the 5 "D's": Death; Disability; Discharge; Downturn; and Divorce.

Down payment is not on the list. Home owners, and rents, pay for the space they occupy with earnings, and rely on liquidity when they hit a bump in the road.

What sort of economy do you want to see in the future. We have seen what a 2-4 percent drop in consumer spending can do the economy....basically, drive unemployment up over 100%. Can you imagine the economic landscape with increased cash hoarding. Someone with better math skills and too much time to invest will fighure this one out.

The real key is stability in the credit underwriting process. Thats were the leveraging needs to managed. The cycles I have experienced over 30 years in the treatment of income, the expansion and contraction of the income ratios (published ratios: 25/33; 28/36; 31/43. Actual ratios: 28/36; 31/39; 64.99/64.99!!!) is what really messes up the market and distorts asset prices.

At some point in the housing process, 20%, or more, down makes prudent sense: Jumbo; Alt, etc.

If the goal is a fluid economy with maiximum participation, then the thought process has be directed towards that goal. If the goal is an elitest, exclusionary, backward looking economy, well then, welcometo the past.

For a while now, there has been discussion of the "new normal"... I don't beleive that we can get back to our grandfathers normal...but, with your approach to housing, the new economic "normal" may be Yuma, AZ....unemployment rate, 24%.