An article in The Hill’s On the Money section describes an alliance of sorts between lenders and consumer advocates who are expressing concerns about the negative impact stricter down payment rules would have on middle and low income borrowers seeking to buy homes.
I think down payment rules need to be stricter. If banks have to capitalize; back up their loans with hard assets, borrowers should back up the mortgage notes they issue with hard assets. The down payment should be 100% of the loan value or 20% of the loan value plus an insurance policy of some kind that provides for payment of the principal should the borrower default. That would speed up the foreclosure process and get the property into the hands of new buyers faster.
In addition, what hurt us Americans during the so called Great Recession was a lack of a diversified basket of capital through which we could have weathered the storm. With Americans holding most our wealth in one basket, a house, we may be setting ourselves up for a financial crisis reboot, especially where that one basket generates no income and still faces a glut of foreclosures that hold down the values of houses. Promoting less restrictive rules on down payments only lays out a welcome mat to more self-imposed financial abuse.
Share your thoughts. Should down payment requirements be stricter?