The Fallacy of the Necessity of Down Payment.

[Lee Ali]

Banks have led a great many people to believe that the mortgage mess exists because too many loans were given at or around 100% LTV.

That is hogwash spread by banks because they don't have access to the free Wall Street money they used to have access with.

Wall Street got a hold of $27 Trillion somehow. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a0jln3.CSS6c

They had to spend it. The equity "supply" was manufactured because of this once-in-a-life-time "demand" from foreign money.

Residential sell based on DTI (debt to income) and commercial sell based on NOI (Net Operating Income), CAP Rate and DSCR (Debt Service Coverage Ratio) which are three very inter-related numbers.

Many residential underwriters approved loans at DTIs of 60%, 70% and I have heard over 100%.

Commercial lenders approved loans at DSCRs of less than 1.2 (Income 20% above mortgage payments), 1.1 (Income 10% above mortgage payments) and even 0.95 (Income 5% below mortgage payments).

This is how the mess was created and NOT because of lack of down payments.

The new owner has got to have money in his/her hand to take care of emergencies; whether it is furnace blowing up or losing job. "Donating" 10% or 20% to sellers does not do anyone any good.

Not a whole lot of people get this at the core level.