Remember all that junk mail:
Bad credit?
No credit?
No problem! Buy the house of your dreams with no money down!
Well thanks to the great Bush-Obama stimulus package, looks like you will be seeing it again.
When the government says that private lending has dried up, this is code for the strange absence of no money down loans to people with bad credit. People I know, such as my sister in law, who had money and good credit found that lenders rolled out the red carpet for them. There was never lending crisis for traditional borrowers.
When the government says there is a lending crisis, it means the problem is that a drunken no-hablo-English wetback seems to be finding a bit of trouble borrowing. But never fear. Your ever helpful and benevolent government is remedying this terrible market failure. Whatever would we do without regulation and subsidy?
The FHA is now providing one hundred percent government guarantees for loans to people with bad credit. Supposedly the borrower must put three and a half percent down, but since real estate agent fees, mortgage broker fees, and assorted charges theoretically add up to slightly over ten percent, a clawback from the various people involved can and does reduce this to zero. When I transact a house, I usually manage to clawback four to six percent from these various charges, so if I was purchasing a house with what on paper was a three and half percent down loan, and managed to get my usual clawbacks, I would get the house and two percent cash in hand – negative money down. And that is without a kickback from the seller. Of course that is why the lenders would rather do the loan with a drunken no-hablo-English wetback, who is unlikely to be so fierce at clawing back and chiseling down their fees as I am.
When you buy a house on a loan with small money down, you usually also get an under the table kickback from the seller. With a kickback from the seller and clawbacks from agent and broker fees, three and a half percent down vanishes fast.