0.5% down will get you this house. - What a stupid idea!

By
Real Estate Agent with SUNIL SETHI REAL ESTATE

I was reading John Occhui's post

The Next Wave of Bad Loans - Option Arms

This is not new news; this is a rehash of what has been said about Option ARMS since the beginning. My tag line that I print on my business card and had on my website during the go-go years was, "Friends Don't Let Friends Buy Options ARMS."

I once had a booth at the Fremont Art and Wine Festival, with a big poster with my tag-line, and all the mortgage brokers that passed by laughed because they understood what it meant, but they'd loved the money they were making off option ARMs.

With the exception of the little old blind ladies, there is no sympathy here for borrowers, you were focused on your cash-out and paid no heed to the consequences. If you take a loan with a variable element, you have to be prepared to deal with the variable when it happens.

At an open house last week, a mortgage broker came by all excited because he now was offering an FHA with only a 0.5% down payment. I asked him, if someone can't manage to save 3.5% do you really think they'll be able to manage their money to make the monthly mortgage. He agreed, but continued to try to educate me on the program benefits. Yes, I know it's harder to make money, but please let's not be doing things that will make matters worse down the line.

If they are going to allow people to buy homes with no skin in the game, then they should cap their DTI's to 30%. That would be sensible, but since the same people who ran the banks during the crisis are still running the bank, why should we expect any sensibility from them or the government. Everyone is simply interested in getting their next trick.

Posted by

Sunil Sethi
Broker, President, Owner, MBA, CPA(inactive)

Sunil Sethi REAL ESTATE
38750 Paseo Padre Pkwy, Ste B3
Fremont, CA 94536
(510) 388-2436
www.sunilsethi.com

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