20% Housing down payments…Can it stop the mess?

I was reading this article about one person’s solution to the housing melt-down, not to the over-all economy nightmare but purely the housing sector. Implement the 20% down rule, no exceptions. This in itself would put an even bigger crimp on the housing sector and all things considered, maybe a deflationary spiral worse than we are experiencing now. Let’s play the “what-if” game (not a practice I usually do with anything but let’s just see). Okay so “what-if” say 5 years ago they began to require at least 20% down on mortgages, well, first off I would not have gotten the mortgage I currently have, I did an 80/10, 80% first mortgage 10% on an equity line. That is a little hard to accept, but I guess if we knew the rules of the game, it would have taken a little longer but we would have eventually come up with the total 20%, maybe we wouldn’t have gotten the house that we are currently in, who knows (that is why I hate playing the what-if game it could go on forever and it is basically a futile exercise that usually tears you up with fear). And at this point,(knock on wood), we are doing just fine in our mortgage. Thinking over the craziness with sub-prime loans, I would assume a large number of those, many who couldn’t rub 2 nickels together, would still be renters and we wouldn’t be sitting in this recession as we are now. Be honest, we all got a little crazy with our “feeling of net worth/wealth”, didn’t we, feeling like nothing could stop us, well, welcome to the cement wall of reality. Of course our hindsight is 20/20. So now the next question is, would the 20% rule keep us in a recession for longer than we would like, but as we dig ourselves out we will be a stronger economy, or lax the 20% down rule and hope like he!! that these borrowers have learned the lessons of the past 2 years not to over-extend themselves. I don’t know, tough call, I can tell you it would make people look long and hard at their situation (I know most likely we wouldn’t be able to come up with 20% down at a drop of a dime, it would take us some time to do it. And if it would take us some planning and time to do this, my guess it would take 95% of the population some time as well, with probably 65% of those never coming up with the 20%. That may be good for the long haul but if this does happen, we may be in for a rough road back to a strong economy. Maybe there is a happy medium, stair step the requirements, minimum 5% down, than increase 5% more per year, letting people get used to the idea over a period of years. I know that most conventional lenders are already requiring 10% down, which has been a shock to the system, but you still have USDA and FHA offering 97%-100% financing. I am hearing rumblings that these programs are becoming the new sub-prime, scary thought, but on the other hand it could give much deserving candidates a leg up. Tough call. Your thoughts?

~ by debt2dreams on July 10, 2009.

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