It feels like deja vu in mortgage land all over again.
Homebuyers are increasingly opting to put less money down when purchasing their homes, increasing their risk should the housing market, and specifically home prices, falter yet again. When home prices crashed in the last decade, millions of borrowers fell underwater on their home loans, prompting a foreclosure crisis of epic proportions. It all begs the question, could it happen again?
In the past 12 months, 1.5 million borrowers bought their homes with down payments of less than 10 percent, meaning they financed more than 90 percent. That marks a seven-year high, according to Black Knight Financial Services.
"The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upward in market share over the past 18 months as well," said Ben Graboske, executive vice president at Black Knight Data & Analytics, in a recent note. "In fact, they now account for nearly 40 percent of all purchase lending."
On the bright side, the bulk of the growth has not been at the lowest down payment level, that is, 3 percent or less. It is more in the 5 to 9 percent down payment arena. In addition, the low down payment loans of today are nothing like the ones the precipitated the last housing crash.