See for example (CA): http://www.wwlaw.com/forecl.htm Note that this article is dated 1996, but I don't think mortgage default law has changed in Ca since then (default on a mortgage loan does not require a bankruptcy declaration, I believe). In NY, remedies beyond the subject property are not implied covenants (so, not sure what happens in practice). You're right about the credit risk for near 100% LTV loans. However, generally, any LTV above 80% requires mortgage insurance, and some lenders require the last X% be a second mortgage. I guess the assumption is that the intangible cost (credit report) to walking is high enough to prevent individuals from doing it too often (plus, you can only do it once or so, lol) See http://ideas.repec.org/p/nbr/nberwo/5184.html GSE-conforming loans (cheaper than subprime or jumbo) require 80% LTV and they insure the MBS investor against credit risk (but not prepayment risk) - so I'm surprised that most states would have recourse. Also, a lot of the mortgage pricing literature talks about the "embedded put option" in mortgages so, again, strange (see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=9011).
I think it is pathetic and should be criminal, lenders giving no down loans to folks that are running close to financial redline. That said, in the end, you are responsible for your own actions. The next house I buy I want to pay cash, no joke, even if I have to downsize. I am debt free, except for my mortgage. Most of these dummies are the same ones that say the need a Ford Excursion for 40k to drive their kids to school. Of course they are leased not own. Then they refi the shit out of their homes to afford vacations, freakin idiots. Oh well, I am gad I am not the typical American. If you are a true professional RE investor, I see no problem with no money down loans. Sadly though many people got loans that don't deserve them nor can afford them. Financial Responsibility should be a class taught in high school.
In California the lender can take the house but has no further recourse on residential purchase money loans. But the borrower still has all of the typical zero down programs available anywhere else. As someone else mentioned, the lender will require mortgage insurance, which insures down to 80% LTV. OldTrader
Actually, there is nothing in the original quote that implies the borrower can't "afford" the loan. The original quote is regarding 0 down. Affordability has to do with whether one can service the loan monthly (which is a function of monthly income versus the monthly payment and other monthly debt), which based on this particular statistic is not known. OldTrader
These loans just go to show the mindset of the modern home buyer.....how much down and how much a month. I call it "used car syndrome". How else do you explain that, when a property doesn't appraise to the contract price, not only is the seller, agent and LO upset, but the buyer/borrower wants a "higher value" also. I can only remember a handful of times when I appraised a house that didn't come up to the contract value and getting a thankyou from the borrower. You talk to a typical buyer today and they have no concept that RE values are cyclical. They think they always go up, and that's the rational behind a "no down" loan.
Just bought a condo here in Puerto Rico (Isla Verde). Market dynamics are, of course, different here since it's an Island, and land is not exactly in high supply. Regardless, was offered all sorts of silly financing to start out with, but no f'in way. I put 20% down, and took out a 30 year fixed at 7%.
Sorry, you have an electric couch? P.R. is a beautiful island.... can't wait to go back. I'm so confused on the: 1) Cash is trash, government will inflate/hyperinflate so max out your borrowing vs. the 2) Pay off your debt and own your home outright so you don't have to worry, etc... play that my head is spinning on a daily basis. Two very different sides of the same coin.