Sometimes it seems that the mortgage business has gone insane!
So, can someone explain this to me?? Perhaps I have simply missed the "logic boat" here, but I don't think so.
I have a buyer with $190k CASH to put down on a house. He has good credit, and has lived in the same home (which he just refinanced) for many years. He is a successful business owner of 10+ years, but he can't get a mortgage for a $340k second home with a 56% down payment because his "ratios are bad".
Now we're not talking about a "problem child" here - just a business owner whose income dropped slightly due to the economy, but who still makes a great living for his family. They have money in the bank, a secure business and $1.5m in personal assets. They even have the remainder of the payoff in an IRA that they will have access to in just over a year. (Heck, I may even loan them the money for the right rate!)
Contrast that with a buyer whose has only 10% to put down (but great ratios). This buyer will get signed up immediately!
So what happens if the real estate market drops just a bit? Which one of these buyers do you think is likely to bail out on their mortgage? Which one is likely to leave the bank with a foreclosure that's worth less than what is owed? I can all but guarantee that it's not the one with the HUGE investment!
I can tell you that if it were my money involved, I would bet on the buyer who has great credit, a strong business history and a huge down payment. Oh, well... at the end of the day it's not my money, but I still don't follow the logic.