LOTS OF TALK LATELY about the default rate or presumed default rate of the recently popular 100% mortgage loans.  It's really not as bad as it seems.  Or, at least it doesn't seem so to me.  I know the print media considers this matter one of their favorite foods for negative news about the real estate industry. 

However, I don't see the national picture as negatively as portrayed by the media.  The buyers had the adventure of buying their dream home.  They paid through the nose for the 100% financing.  The lender is going to be insured by the MI for which the buyers are paying through the nose.   The agents collected a fee when the purchaser bought and the sellers sold.  The agent will now collect a fee from the foreclosing bank for the short sale listing.  The lawyers that handle the foreclosure or deed-in-lieu of, or the short sale is going to be paid very well for their involvement. 

Credit scores are the judge of whether or not these buyers should have been approved.  When their credit scores didn't justify a market rate loan, they paid a MUCH higher interest rate.  They'll continue to pay by lost credit and a higher interest rate for everything they finance for the next 10 years.

To me, the above scenario just recycled some money and it this country, we have the solutions available through very sophisticated loan instruments, insurance, incentives to agents to help make the transactions go smoothly.  Mortgage defaults are a part of the cycles of the housing industry.  Lenders, agents, lawyers, title companies, insurance companies all make money on the sales.  In time, the buyers who defaulted or came close to it will have learned their lesson and in the mean time, they'll be renters helping recycle some money through that part of our industry. 

Mortgage companies have nothing to complain about.  They are reaping what they sewed, higher defaults for funding higher risk loans.  For FHA and VA loans, unless things have changed, under some circumstances, the lender may have to buy the loans back if the buyer defaults in the first 6-12 months.  That would surely make a lot of lenders more circumspect in whom they approve and fund.  Or, at what cost to the buyer?? 

It's just not the end of the world when a small up-tick in foreclosures is noticed by the folks who keep track of this stuff. 

Lenn Harley, Homefinders.com, http://www.homefinders.com/.  Serving Maryland and Virginia home buyers.