Lenders faced with growing piles of bad loans, even to borrowers once considered good credit risks, have clamped down on the no-money-down mortgage. The abrupt shift threatens to dash the hopes of millions of potential buyers, especially those shopping for their first homes.
Four out of 10 first-time buyers used no-down-payment mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. But some lenders are now scrapping such loans completely. Others are pickier about who gets them. All figure that the more cash borrowers put down, the less likely they are to default.
This is good, of course, and should’ve been lender policy all along. But this is just proof that irresponsibility can’t last in a (mostly) free, competitive market¹. Capitalism works.
I’m curious how long it will be before some politician decries this as a policy designed to deny the poor access to the American dream, forcing him to legislate guidelines requiring lenders to offer no-money-down mortgages to disadvantaged borrowers.
¹ No, I will not be surprised if we see a Congressional bail-out of failed and failing mortgage companies. Hence, mostly.