The perils of 5% down

A condo came on for sale today asking a little less than it was purchased for in 2005 – they won’t get what they’re asking because prices at this project have been dropping straight to the bottom, back to where they should have been all along. Ah, 2005, when so-so construction in marginal areas sold like hotcakes.

The problem these sellers have is that they purchased their unit with two Wells Fargo mortgages, first and second, that came to 95% of what they were buying. That might have worked had prices gone up – as it is, this smells of short sale to me. Which might not be such a bad thing because,given what’s happened to values at this place, they’d have lost even more had they put in 20% of their own cash.


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5 responses to “The perils of 5% down

  1. Anonymous

    Can you identify which condo you are referring to?

  2. Anonymous

    fair enough; and honorable.

  3. Anonymous

    That kind of bubble financing (IMHO) contributed to the bust, mortgages structured like that allowed buyers to avoid paying mortgage insurance premiums. Don’t get me wrong, I might be one of your few readers who don’t mind programs that allow less than 20% down payments but for anyone who buys like that, they SHOULD have to pay a premium to qualify.

    I know of several people who say they did 80/20 first and second loans during the bubble years to avoid paying MIP on the first mortgage…don’t know if that’s true or not but I can’t see any other reason for structuring your loans in that manner.

  4. Anonymous

    Anon 5:20. Because they were broke. Or, incredibly sleazy thinking they’d eventually just walk as a backstop against loss.