Mortgage Crisis 2.0: BofA CEO Wants To Slash Down Payments To Help Poor Millennials

Among a host of other issues, one the critical things that contributed to the housing crisis of 2008 was the fact that speculative borrowers had nearly no "skin in the game."Anyone who decided they wanted a piece of the rapidly inflating housing bubble could go out and buy multiple houses with no money down or, in some cases, even do "cash out" purchases whereby banks would finance more than 100% of the purchase price leaving 'buyers' to pocket the excess.

Shockingly, such terrible underwriting standards were a really bad idea. Turns out that offering investors infinite returns on capital, given that they could purchase millions of dollar worth of assets without ponying up a single penny, causes wild speculation resulting in devastating asset bubbles.

But, in the wake of one of the worst asset bubbles in history, new legislation came along requiring traditional mortgage borrowers to put 20% down when purchasing a new home. 

Ironically, the new owner of one of the worst mortgage lenders of the 2008 era, is now arguing that down payment requirements should be slashed in half. Speaking to CNBC, Bank of America CEO Brian Moynihan, the proud owner of Countrywide Financial, said that his mission is to reduce mortgage down payment requirements to 10% for traditional loans. Per CNBC:

"But, you know, I think at the end of the day is people forget that, at different points in your life and different points on what you're doing in life requires you to think about housing differently as a place for you and your friends, as a place for you and maybe your significant other, and then ultimately, a place for family. That drives change. And so yes, it's taken more time. And we talked a lot about this, you know, four or five years ago, that if you require a 20% down payment, it takes just a little more time to accumulate 20% than it would 3% or none, which is what the rules were for a short period of time."

"So our goal, going back to regulatory reform, is should you move the down payment requirement from 20% to 10%? Wouldn't introduce that much risk."

"But would actually help a lot of mortgage to get done. And if you look at the statistics, the difference between 80 and 90 LTV –loan-to-value – isn't much different as it is between 95 and 90. That's when you start to see real differences in performance statistics. And so we don't want to wish people into borrowing money that then they have trouble repaying."

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Gary Anderson 3 months ago Contributor's comment

There is a dilemma here. Yes, we have good laws to protect borrowers. However, it has allowed the uber rich to dominate housing markets, causing rents to rise and American home ownership to drop. That ultimately hurts the very people that the loan protections were meant to protect. I don't have an answer. Just enforce the rule that people should only be given loans they can reasonably expect to pay back. Then let the banks face financial penalty if they don't hold to that standard.