Down Payment Practices and Today's Troubled Loans
Throughout spring and summer 2007, state and federal regulators were looking into a nationwide pattern of questionable lending practices. These involved many types of loans aimed at the subprime market, including those with low- and no-down payment requirements. And as housing projections slowed, lenders were reported to be tightening their requirements. In 2006, there were more than 1.2 million foreclosure filings nationwide, up 42 percent from 2005 figures, according to online foreclosure statistician RealtyTrac.
Particularly since the subprime lending debacle of 2007, lenders are particularly sensitive to borrowers who try to pump up positive financial data or hide bad numbers. If you can't prove an asset or a source of funds, then you may be out of luck for the loan. So don't try to fool a lender.
In the future, it's safe to expect that old-fashioned mortgage requirements like the 20 percent down payment will get a fresh look. In late 2007, many lenders were reverting to old policies of insisting on down payments well in excess of 10 percent. The historic target down-payment number has been 20 percent; anything less than that, and mortgage issuers still conventionally charge borrowers for private mortgage insurance (PMI) to protect the lender's interest. It's not like you couldn't buy a property for less than 20 percent down, even twenty-five years ago. But borrowers have always had to pay for insurance against default unless they could work out a lending agreement to bypass PMI, a process discussed in more detail throughout this chapter.
