20% Down and a 20% Mortgage Rate

Perhaps, hard money (read: subprime) has a bright future after all. Consider this: if the White House and Congress cannot strike a deal on raising the U.S. debt ceiling interest rates will spike. The obvious question is this: okay, just how much will they spike by? Anyone who’s funding mortgages today knows how difficult the ‘purchase money’ business is – especially with loan standards the tightest they’ve been in two or three decades. For a second, just think of how much better the business would be right now if the underwriting pendulum hadn’t swung to the extreme and then ask yourself whether both the White House and GOP realize that there will be no recovery in housing WHATSOEVER if the QRM test stays with a definition of a 20% downpayment. (It’s all odd that Obama and the GOP are on the same page when it comes to GSE reform with both believing that, “First, we kill all the GSEs.”) Anyway, if a budget deal is not struck by August, just think: the average downpayment on a loan will be 20% with a mortgage rate to match: 20%. Hard money lenders, start your engines. Then again, who would be crazy enough to borrow money at those terms?