I find this article on MPA.com very interesting in that the author identifies first-time buyers, and 2nd & 3rd time buyers for that matter, and then compares it to the lending that occurred in 2008 where banks and mortgage lenders, like Country Wide, were making loans where the borrowers would eventually not be able to afford the payments. The author states, “When first-time home buyers over-extend themselves or there is very little skin in the game for high-risk borrowers, the adverse effect comes on more like an avalanche.” I find this peculiar.
Here, at the Texas Note Company, we get many requests inquiring how to set up their owner-financed transaction to buy or sell a piece of property. We identify terms and strategies that real estate investors like to see when they purchase mortgage notes for investment. Additionally, a big part of that answer refers to the Dodd-Frank legislation that went into effect in 2014 & 2015, as a result of the lending practices in 2008. Where now an RMLO (Residential Mortgage Loan Originators) must take an application of the borrower and validate that the borrower(s) can afford the monthly payments. The RMLO will also review the documents and make sure that all is compliant.
Dodd-Frank legislation was aimed at the big banks and larger Mortgage Lenders. Single-Family, owner-financed transactions got added to this legislation as well, by default. It adds risk and cost to the investment of owner-financed notes and we are cognizant of it.
My question to the author is what are the banks and mortgage lenders doing if we are reverting to the practices of 2008? Ignoring legislation like Dodd-Frank? I do not see how these lenders could revert to the lending practices of 2008 if they are doing what they are supposed to do. The one point I do agree with is that if the down payment is less than 10%, then the default rates do support her argument.
But then the article should be on down payments and down payments alone, not lending practices reflecting 2008.