Lenders May Be Removing Piggyback Loans From Portfolios
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The great 80–20 loan that allows you to take out an 80 percent loan and then a secondary 20 percent piggyback loan may be going away. Lenders are learning that giving the borrower the ability to avoid Private Mortgage Insurance (PMI) by creating a secondary loan in not worth the trouble and risk.
We all forget in a rising market that some of these tools are there for a reason. When properties were rising by 20 percent a year, PMI was a waste of money. If you got into financial trouble, sell the next day, lick your wounds and take your profits.
However, a slow and declining market now means that those that took out the piggyback loans are probably underwater after closing costs and are at great risk. This is the reason for PMI, even though it does cost a fair bit of money. The lenders are now at risk to a greater degree as are the homeowners. And, the lenders have to show the losses immediately on the piggyback loans, not something they want to show Wall Street.
All of this means that investors in bonds backed by piggyback mortgages could endure some pain. Unlike with bonds backed by primary loans, which do not realize losses until the lender sells the foreclosed property, bonds underpinned by piggybacks see the entire balance of the loans written off as soon as the borrower goes into default — after three to six months of missed monthly payments.
“Losses have come in earlier than expected and higher than expected,” according to Grant Bailey of Fitch Ratings’ residential mortgage-backed securities group, who says while none of the company’s investment-grade piggyback bonds have taken a loss to date, “it’s probably only a matter of months until they do.” via REALTOR® Magazine
It probably is a really good time to buy real estate - monthly payments are about equal to market rents ...
The part about the inventory is right on but in my area they are mostly low end and beat up ...
I worked for this man, he is a great con man and has done this in more than States then ...
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Maybe it was kryptonite...
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I couldn't agree more.
The newspaper has always "stuck" it to the real estate agent with rates that were much higher ...
By the way, homeowners trying to get short sale approval should be aware that lenders are comparing the initial loan ...
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well, the guy was here illegally.
serves him right. 
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Comment by havensofmanhattan on 8 June 2007:
Is there a way to balance this out so we don’t have to go back and forth in different market conditions. You’re right, they’re nice for the rising market but dangerous in the declining market.