Better hope their company didn’t retrench employees and they can manage the multiple stressors (risk of losing job, decline in house price, decline in share price).
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Let’s put it this way, Mr. Bank, Mr. Mortgage Company or even better Mr Owner, would you honestly be willing to hand the keys over to your precious 1M home with just $10K down, or would you prefer $200K??? I get what you are saying (in theory), but the reality is there aren’t that many capable folks who are so leveraged that they literally don’t have any money at their disposal. What about the crazy sheet that just happens in life? Bang, your Benz broke down (again) and you know every time you enter that dealership it is gonna be at least a grand or two. Bang, your tenant just gave you notice and well you need to turn that apt around quickly to get it back online. Bang, property tax payment due again… It goes on and on and on…
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The owner of the home doesn’t care. They get paid at closing. It’s the mortgage holder that’s taking all the risk. The mortgage holder gets to decide if they want to take the risk and what return they demand for it. If the person has enough money to loan $1M to buy a home, then they probably know enough to evaluate the risk of doing it. It’s not that different than selling puts as @hanera does. They lender is betting the borrower won’t lose their job, and the home won’t decrease in value.
I could see it being popular with doctors that just finish their residency. Now they are making good money, but they have little savings and student loan debt. It’s probably not that risky to let them borrow to buy a home. The same could be said for CS majors who just finished college and get hired making $100k+/yr.
If they were that bad at managing their money, then they’d have a low credit score from late payments and/or defaulted debt. That’s why I think credit score is the key qualifying criteria. The data of who defaulted during the financial crisis backs that up.
There is a big difference between selling cash secured puts and selling naked puts.
The former is slightly safer than buying the underlying while the latter is what speculators did during the tulips craze.
Someone needs some education in risk management and a clear understanding of risk-adjusted return.
They aren’t selling naked. They are selling RE secured puts, because if the buyer defaults they get the RE. These companies are funded by people far richer than us. I’m sure they understand what they are doing. I wouldn’t personally do it with my money, but I’m not going to tell someone as wealthy as their investors that they are stupid about investing.
FHA has risk insurance, and buyer pays this so that lender gets money in case of default. If insurance provider defaults, like AIG, then issue to government.
True, True and True. During 2001 dot.com burst, few of my friends bought home mortgage keeping stocks as collateral ! Stocks went down drastically in 3 days, triggered sale…etc finally company went bankruptcy stage.
Had those friends sold their stock during 2001 when they purchased homes, they would have got the home free after paying LTCG tax and may have additional cash for their life. One bayarea had 2M stocks went down underwater, another Texas had 5M went bankrupt. Both are paying mortgage even today! Both companies are non-existent today!
This is the main reason, I do not mind selling stocks and paying tax. But, you are strong holder since 1998!
I lost a deal bank approved short sale with FHA offer even during 2011. I should have given 20% down payment offer, but offered wrongly with FHA offer. My offer was 600k FHA offer while seller choose non-FHA offer.
https://www.redfin.com/CA/San-Jose/792-Homeward-Pl-95123/home/1106694
The government is the insurer and guarantor of FHA mortgages. That’s why we the tax payers are on the hook for defaults.
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Finally, somebody on my team telling it as it is. 
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That’s not good.
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Not good at all. Will follow Jil to close all 10x position.
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The stage is set up for the oligarchs embedded in this administration to make a move, and you won’t even see it coming.
Aren’t you paying attention?
All kinds of loans are available in the market now. They pre-approved me to a figure (WFC Appx 45-50% DTI) which I have not even imagined ! All my 2018 offers are outsmarted more than 50k (least) to 100k range.
Finally, not only they pre-approve, but they provide finances at 4% or 4.25% rate for 30 years.
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