zero down mortgages.
You have to know, right now, at many banks, they are going to great lengths to get your mortgage business -- the low interest rates present a great opportunity to grab up customers from other banks through re-financing and bring in new customers through new mortgages.
Now, they're starting to
encourage people to take zero-down mortgages -- higher interest rates, but lower barrier to entry for first time buyers.
Mortgage brokers say those who believe they cannot afford a house because they don't have money for a down payment are wrong. As housing prices have climbed - leaving more and more potential home buyers behind - the mortgage industry has responded with loan programs that allow even those with a short credit history to use, for example, cell phone bills to prove their credit worthiness.
So, this increases the risks for banks, since they initially have no buffer to protect them against default -- in a state like California, it really is no protection as the bank is only entitled to the collateral (the house) if the buyer defaults. There's no going after the buyers other assets.
This is essentially a bet that house prices will continue to rise. Is it rational? Or is this a short sighted maneuver to grab more mortgage businesses? I'd be willing to bet there are more than a few bank employees who's future bonuses are determined by the volume of their mortgage business.
This might also explain why mortgage rates continue to go down despite a steady rate from the Fed.
Even
Greenspan is worried about this one.
Posted by dapkus at March 30, 2004 10:43 AM
| TrackBack