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For the case where stock is not being pledged: I would be amazed if the lenders were taking on 100% of the risk of default. Usually there's some assumption of

For the case where stock is not being pledged: I would be amazed if the lenders were taking on 100% of the risk of default. Usually there's some assumption of asset recovery. That probably means the no-money-down loan is being structured so that there is some additional liability on the part of the borrower. (The mortgage itself would be "nonconforming", so it wouldn't be backed by FNM/FRE.) Or maybe we're just back to 2006 standards for mortgages and I'm slow to realize it.

tsunamifury 10y ago
I actually looked into it. You are required to put 4 months of payments in escrow. This is far less than a downpayment, but still shows your ability to pay.
- jpmattia 10y ago
  > but still shows your ability to pay. I wasn't being clear: It doesn't matter that you can pay, it matters that you will pay. (Four months is nothing to the mortgage principal.) Look, the Fed is going to raise rates RSN. Which way does the high end of real estate go when interest rates come off zero %? So suddenly the homeowner is down 10% on the value of their $2M home. Is it worth it for them to mail in the keys to the bank for $200K and tell the collectors to pound sand? For a lot of people, yes. So the bank (or more accurately, the loan service) has to figure out how to send over two guys named Rocko with the power to get their money back. In the bubble, the solution was to lay off all the Rockos because, you know, housing never goes down. Maybe we're back to that state, which would be amazing, but I'd guess the banks are somehow covering for their liability on zero-down loans this time around. Edit for tcoppi's comment: s/FedIncrease/BlackSwan/ because home prices do decline for a variety of reasons. BTW: Implied probability of a Fed rate increase in Sept is back to where it was before Brexit. http://www.ft.com/fastft/2016/07/25/odds-of-16-fed-rate-rise-climb-to-nearly-50/ http://www.ft.com/fastft/2016/07/25/odds-of-16-fed-rate-rise... Edit for dragonwriter's comment (hn doesn't let replies go this deep?): Fed has been trying to normalize rates, and employment/gdp/cpi has been stabilizing. See the link above for implied prob from Fed Futures for how people are betting on Sept.
  - tcoppi 10y ago
    > Look, the Fed is going to raise rates RSN. Is it? It doesn't really seem like it, they raised them .25% in December and haven't done diddly since then, with no signs that they will. Like it or not it is incredibly difficult for us to get out of the ZIRP trap, we most likely won't see anything more than 2% out of the fed for a decade or more. Barring massive inflation, it definitely won't go up fast enough to have a major effect on housing prices like that.
  - dragonwriter 10y ago
    > Look, the Fed is going to raise rates RSN. What in the considerations that drive monetary policy (employment and inflation, mainly) suggests that another interest rate hike is imminent?

tsunamifury 10y ago

I actually looked into it. You are required to put 4 months of payments in escrow. This is far less than a downpayment, but still shows your ability to pay.

jpmattia 10y ago
> but still shows your ability to pay. I wasn't being clear: It doesn't matter that you can pay, it matters that you will pay. (Four months is nothing to the mortgage principal.) Look, the Fed is going to raise rates RSN. Which way does the high end of real estate go when interest rates come off zero %? So suddenly the homeowner is down 10% on the value of their $2M home. Is it worth it for them to mail in the keys to the bank for $200K and tell the collectors to pound sand? For a lot of people, yes. So the bank (or more accurately, the loan service) has to figure out how to send over two guys named Rocko with the power to get their money back. In the bubble, the solution was to lay off all the Rockos because, you know, housing never goes down. Maybe we're back to that state, which would be amazing, but I'd guess the banks are somehow covering for their liability on zero-down loans this time around. Edit for tcoppi's comment: s/FedIncrease/BlackSwan/ because home prices do decline for a variety of reasons. BTW: Implied probability of a Fed rate increase in Sept is back to where it was before Brexit. http://www.ft.com/fastft/2016/07/25/odds-of-16-fed-rate-rise-climb-to-nearly-50/ http://www.ft.com/fastft/2016/07/25/odds-of-16-fed-rate-rise... Edit for dragonwriter's comment (hn doesn't let replies go this deep?): Fed has been trying to normalize rates, and employment/gdp/cpi has been stabilizing. See the link above for implied prob from Fed Futures for how people are betting on Sept.
- tcoppi 10y ago
  > Look, the Fed is going to raise rates RSN. Is it? It doesn't really seem like it, they raised them .25% in December and haven't done diddly since then, with no signs that they will. Like it or not it is incredibly difficult for us to get out of the ZIRP trap, we most likely won't see anything more than 2% out of the fed for a decade or more. Barring massive inflation, it definitely won't go up fast enough to have a major effect on housing prices like that.
- dragonwriter 10y ago
  > Look, the Fed is going to raise rates RSN. What in the considerations that drive monetary policy (employment and inflation, mainly) suggests that another interest rate hike is imminent?