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And I am glad for it. No money down on an asset as large as a home is and was pure madness in my mind. Sure, a few ended up making a nice profit at the end either through appreciation or speculation, but many others were burdened with the threat of a fluid housing market potentially destroying their financial future.

Investors look to multiply the effectiveness of their investments. If they can get into an investment with no money down then the risk level many will assume will be much greater than the market can handle. We are seeing the affects of this now. If I can speculate on 5 homes with no money down and no appreciable assets as collateral and the investment goes south, I have not really been hurt. Even if I lied on the applications and committed mortgage fraud the chances of being prosecuted are very slim.

So I walk away from the investments and look for something new. But now the market has 5 homes that probably do not have the proper maintenance performed on them hitting the market putting pressure on inventory and price and that affects all those in the surrounding community. When and if these houses do sell, average pricing will be impacted potentially putting others upside down in their homes.

So closing the no money down loophole is great for the housing market as it will make those buying a home forced to have a stake in the transaction. Their will be the immediate pain of working through the false inventory out there, but once there is some appreciation the market will be much stronger and less volatile in the long run.

“If someone walks in today with an A-plus credit history and a $200,000 salary but no money for a down payment, I can’t help them anymore,” said Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford, Conn.
The company was notified by its lender earlier this month that the lender no longer will cover no-money-down loans.
In recent years, no-money-down mortgage loans have helped buyers, especially those new to the market, stretch their budgets and get into homes they might not otherwise have been able to afford. Four out of 10 first-time buyers used no-down-payment mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. via the ContraCostaTimes.com (subscription required)

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