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“3% Down” Mortgages: They’re Back!

Written by Gary North on April 3, 2013

With the Federal Reserve System buying half a trillion dollars worth of Fannie Mae and Freddy Mac IOUs a year, the mortgage market is flooded with newly created money.

Lenders are now offering 3% down payment mortgages. Why, it’s 2006, back from the grave.

This has breathed new life into the housing market. This does not include millions of homes in the shadow inventory that lenders refuse to foreclose on. The original owners occupy these homes, rent-free. Why pay rent? No need. Just pay property taxes.

This is not a bubble, but it is a subsidized recovery. As long as Bernanke & Company want to create money out of nothing to subsidize housing, the market will move upward.

As soon as the FED stops buying IOUs from the government-owned mortgage companies, the market will move back down, but not in every region. The FED shows no sign of stopping its purchases.

In the first quarter of 2012, loans with between 3 and 10 percent down payment made up 15 percent of Fannie Mae’s business for home purchase loans (not refinances). In the second quarter it rose to 17 percent and in the third to 18 percent. Fannie Mae has not reported its fourth quarter yet, but that share is expected to rise again. While a credit thaw is part of it, as mortgage interest rates rise and fewer borrowers apply to refinance, lenders are simply looking for more business.

There is a problem here: the number of mortgage applications has remained flat for three years. So, the recovery is nowhere near a bubble. Not enough people can qualify for loans. The rates are great, but only if you qualify.

The time to buy an income-producing rental home is sooner rather than later. But don’t pay retail. Shop.

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12 thoughts on ““3% Down” Mortgages: They’re Back!

  1. Texas Chris says:

    Yes. Shop. Make a friend at the local bank and find out who these people are that are living "rent free" in a should-be-foreclosed house. Call them. Offer to buy their home for the arrears (if they're not totally under water). Even offer to rent it back to them after you refinance to a lower, fixed rate.

    And don't be embarrassed to call them, either. #1, you are providing them a means to stay in the house that doesn't include theft, and #2 it's business.

  2. That sounds like a real good idea and I'm real happy to see it. Those kind of moves are great for my income. I'm a Real Estate Appraiser doing only Foreclosure Appraisals.

  3. lilbear68 says:

    when this bubble pops, and it will, this time they will come for your 401k's etc. the govt, in order to protect us from the evil banksters, will take over the 401k's and other retirement pkgs

  4. Another liberal Ponzi scheme that will send our economy into the dump just like it did in 06-07. Bush tried 3-4 times to put a halt to the practice of loaning money to people that should have never qualified. Barney Frank and all the Libs said everything was great and the Democratic controlled Senate wouldn't allow Bush to stop the practice of making the loans. It's appears history is repeating itself to completely ruin our economy. This isn't Bush's fault!!!!!!

  5. Last one out grab the Flag.
    "Insanity: doing the same thing over and over again and expecting different results" ~ Albert Einstein

  6. Bubble, bubble, toil and trouble.

  7. Maybe not a bubble–yet. But a bubble in the making. Our humin vermin politweasels buying votes–again/ We need serious rope sales in this country.

  8. The definition of liberalism: stupid is as stupid does then repeat over and over and over believing it will eventually somehow "work" but never does.

  9. The madness just continues. Isn't subsidized apartment living enough for the freeloaders.

    Government at all levels is held unaccountable for their follies with taxpayer money. The "prudent man" ideology has been shrinking here in America. Taking its place has been the freeloader mentality and social justice advocates.

    It will take economic catastrophe or collapse where the whole system starts over again to correct this. The main unknown is what type of government will take over.

  10. cash out and get out while you can still remove your cash… we're thinking chile, peru, eguador or argentina, with their booming economies and low cost of living…
    the party here is over… its a fait accompli… unions are demanding everyone else sacrifice in order to maintain their absurdly over paid and extorted benefits, and will, when the well runs dry, stop all public services and take to the streets of anarchy in a manner that will render greece's problems a walk in the park… for when, not if, we are removed as the world's reserve currency it will be too late… in the meantime, screw gold, buy all the guns, ammo and canned food you can get your hands on, as they will soon become the most valuable trade goods you have… and yes, the government will come for them too…

  11. So does the 'federal reserve' then own all those houses that have the defaulted mortgages? They just printed a pile of cash, and now they get the houses? Who owns those houses?

  12. Wow! "Not enough people can qualify for loans." You mean they now have to prove that they have income, a job, and a good credit rating to buy a house now? The banks won't just take your word that you have a job, enough income to make the payments and that you pay your bills?