Homeownership ain't what it used to be

The Wall Street Journal reports (subscription required) The National Association of Realtors reports that 45% of first-time home buyers opted for 100% financing between July 2006 and June 2007. The median percentage that first-time buyers financed was 98%.

That's a far cry from the good ol' days of 20% down payments on 30-year fixed rate mortgage. If you want to go back even further, only 15-year mortgages existed. Of course the downside to that was obvious: the requirement of a well-stuffed savings account to make a down payment meant that home ownership was off limits to a huge chunk of America.

ARMs, pay-options, and no-money down loans made "homeownership" affordable for a record number of people -- and of course resulted in the current mess.But here's my point: When we hear politicians and other talk about "Americans losing their homes", it's important to bear in mind that homeownership is something very different from what it was 50 -- or even 15 -- years ago. A family that saved up dutifully to make a down payment on a home only to lose it after a serious injury or job loss is certainly deserving of sympathy and, I would argue, assistance.

But is someone who bought "his" dream home without proof of income or a down payment (That was spent on the SUV silly!) and then faces foreclosure on a home he has no equity in after his gimmick interest rates resets deserving of the same sympathy? I don't think so.

The statistics from the NAR show that relatively few first-time home buyers made sacrifices -- scrimping and saving to come up with a down payment -- before they got into their homes. The second scenario I described is far more common than the first. And, of course, the ones who made no down payments are much more likely to be facing foreclosure. Do they deserve our sympathy, given how little skin they had in the game?
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