With only a 3.5% down payment and a 580 minimum credit score requirement,
many critics believe FHA loans are encouraging another crisis. In the U.K. and in
Germany for example, home ownership is only for those who can afford to bring
in 25-30% down towards the purchase. In other words, home ownership is for
the privileged few. So why in the U.S. is home ownership given to everyone has
nearly a right? Both the Clinton and Bush Administrations pushed heavy
propaganda leading up to the crisis with slogans like, “Every American should be
able to own their own home.” Well, we all know what that propaganda created,
the worst recession since the Great Depression in the U.S.
With the highest default rate in the sub 600 credit score category, some FHA
lenders are pushing this requirement of 580 up to over 600. But with such low
down payment requirements, what would prevent these borrowers from
walking away when times get tough? In my opinion, nothing will prevent them
from walking away if the market crashes again with such low down payment
requirements. What is there to lose?
Posted by Corey Curwick Dutton, Hard Money Lender
America has always encouraged home ownership - America liked to be known as democratic - in school etc - it worked well for the first 150 or so years. After independence, the country was underpopulated and homesteading was prevalent - or else land was just taken from the indians etc. there are many advantages to having skin in the game. Europe has been densely populated and has a hierarchal society of owners and pwasants which is what America stood against - Germany is more elitist capitalist oriented than the US is, despite other measures of "socialism" which might be argued started with Bismark.
BTW a bank does not have to make a loan - but packaging mortgages was the most lucrative business - which of course led to the crash - banks did not care to whom they loaned - they made so much money on the tranches, they just needed to keep inventory coming so they could sell it to the stupid well heeled investors - it is mainly the banks that brought the crisis to us, by not having to make a buck - by lowering their criteria and lending to people they clearly should not - but as they had no skin in the game once it was tranched so who cares! DB packaged a lot of this mortgage paper here in the US, BTW, approving people who would clearly never be able to pay - like the "Greeks"
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