Low Lending Standards Lure First Time Buyers
It may be too little, too late, but CNNMoney wonders if the easy money loans weren't the best move. "Among first-time home buyers in 2004, according to the NAR, the median down payment was 3 percent, half what it was in 2003." First time buyers, getting in at the top, with a 3% cushion; oh boy.
"What is new today is that lenders are allowing for the layering of risks on top of one another. What we don't know is what if we put all these risks together and put them in a rising interest rate environment, a declining housing market, or a weakening economy."
"The shift in lending standards started after the dot-com stock bust in 2000. By 2003, with the refinancing boom coming to a head, banks quickly set about trying to recruit more first-time home buyers, encourage second-home buying and promote home equity lines of credit as an easy and responsible way to fix up the house or finance a vacation."
"The amount Americans owed on home equity lines of credit jumped to about $491 billion at the end of 2004, up 42 percent from a year earlier, and more than triple the amount at the end of 2000." Responsible? Actually, the re-fi boom fizzled after 2003 and lenders fell upon less sound borrowers to keep profits up.