Survey Says Bigger Downpayments Prevent Foreclosures

Posted by: Chris Palmeri on July 3, 2009

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ING Direct, the discount stock broker best known for its bright orange logo and branches that look like sandwich shops, is releasing a survey on people’s attitudes toward home ownership and mortgages on July 7.

Thankfully, two thirds of the 2,100 people surveyed still believe that home ownership represents the American Dream. Asked what could have prevented this housing meltdown and 42% said requirements for bigger downpayments would have reduced the number of foreclosures. More than 40% also said they may refinance their mortgage this year.

ING is promoting one of its products called the Easy Orange mortgage. The idea is that you can make payments every two weeks instead of once a month and pay off you mortgage faster. Of course you can usually pay more toward your mortgage without incurring fees, but for most people in the past decade paying off a loan early was a radical concept.

I can still remember my Dad’s glee when he tossed the burning receipt from his very last mortgage payment in the fireplace. Hopefully more people will take that approach in the future and get out of debt instead of under it. That way the American Dream doesn’t become a national nightmare.

Reader Comments

george hants

July 3, 2009 9:25 AM

How much did a survey that any 8 yr. old could have told them the results of, cost.
The world is going completely mad.

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July 3, 2009 9:25 AM

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george hants

July 3, 2009 9:43 AM

How much did a survey that any 8 yr. old could have told them the results of, cost.
The world is going completely mad.

Damian Palmares

July 3, 2009 10:50 AM

I still think home ownership is a good American dream to pursue. I think a down payment will put a little "skin in the game" and force a person to think a little bit harder about whether they can actually afford the house they are buying. There are still great benefits to owning rather than renting. Our recovery in the housing market and the economy is going to be a little rough because so many people didn't have skin in the game and were so over-leveraged or extended that a hardship such as losing a job can literally wipe them out in a matter of 6 months or less. If our GDP wasn't reliant upon 2/3 of the product being consumer consumption, we would have been in a much better position to face this recession.

GloomBoom.com

July 3, 2009 3:17 PM

Wow, there's some rocket science. Larger down payments keep people in their homes. These people must be geniuses!

wowlfie

July 3, 2009 9:00 PM

That dream died when home prices went through the roof from the early 90's to 06'. That's why so many people had to be creative to own a home in the first place was the GREED of the existing homeowners selling and the builders. When so many people realized if they didn't jump on the bandwagon it was going to leave them behind and their chance for a home piggy bank that's what started this mess in the first place. The government should have had in place a ways to cool the market by reducing or increasing the interest deduction long before the collapse occured and then this would never have happened. Then homes would have appreciated closer to inflation instead of almost 100% higher than inflation. I don't hear many people talking about how REPUBLICANS overheated the market by encouraging homeownership such that millions who bought should never have bought. It should be mandatory 10% at least down and no more of this BS of 0 to 3 to 5% down purchases.

Strategery

July 3, 2009 10:48 PM

A bigger down payment might keep people from walking away from their house that they have no equity in, but it will do nothing for those who have lost a job and cannot make their payment. There are bigger issues here, like falling real wages and high inflation and a high cost of living that have made it difficult for lower and middle class families to save money for a down payment and emergencies, and for them to afford their house payment along with everyday expenses. The lack of job security and affordable healthcare are other issues that need to be looked at too.

jofabian

July 4, 2009 5:36 AM

I own a condo and have an outstanding balance of $140k, consisting of $104k primary and $36k secondary. I took the home equity to consolidate debts. At the time the property was valued at $163k but now it is valued at $134k. I'm looking to sell because i am engaged and will be moving into my fiancee's home. Check http://obamamortgage2009.blogspot.com/2009/03/obamas-mortgage-modification-do-you.html If I have a buyer who offers me within say $5-7k of the outstanding, can i agree to assume a loan on the residual and pay the bank the difference over time with interest? The same bank holds both mortgages.

Yolanda Vidales

July 4, 2009 4:25 PM

July 4, 2009. From Yolanda Vidales
I thought about payments every 2 weeks and pay off my mortgage faster, when I was working.
The problem is that most of the times employees are paid twice a month, and it is a hardship to make an extra payment, twice a year.
Alternate similar plan could be: at the end of each year pay one extra payment.

Say that we have a $300K loan at 5% for 30 years:

Monthly payment (12 x $1,610.46)
at the end of 30 years:
Interest paid $279,769.64
Monthly + 1 payment (13x$1,610.46)
at the end of 26 years 4 months:
Interest paid = $ 230,966.31

Biweekly payment (26 x $805.23)
at the end of 27 years and 4 months:
Interest paid $228,277.17
Bimonthly payment (24 x 805.23)
at the end of 30 years:
Interest paid = $279,167.30

In brief, monthly +1 could be convenient, if one has bonus once a year, otherwise it is hard to save for that extra payment.

In my case I am paying monthly, nothing extra, specially because I have no job for two years now, and agressively looking for one.
My savings are exhausted and if the situation continues I will not have home in four months from now.

bull run

July 5, 2009 11:31 AM

As the housing slump continues,more banks will require at least 20% down, as this has long been the standard.The return to morgage standards, 20% down and 25 yr. term will also reduce the number of applicants to purchase new homes. America's need for dreams has caused this nightmare, but America has always been built around excess and greed, which is the main ingredient for a bubble.

TomK

July 6, 2009 12:06 PM

Ok this headline should say "Bigger downpayments prevent foreclosures DUH!!!!!!!"

Angela Walker

July 6, 2009 2:37 PM

I disagree with you opinion in this blog. I believe what will always prevent foreclosures is an honest banking system that properly educates lenders as to the types of loans available from their institutions, and ALSO to be required to tell anyone applying for a mortgage loan that it is much wiser to go with a "Fixed Rate" mortgage loan. So many banks do not inform people that "Fixed Rate" loans are even available and do not tell them the advantage of a "Fixed Rate" loan over an "Adjustable Rate" loan. Greedy Bankers using their knowledge against many people's lack of education is the real problem to all foreclosures - who do you think you are fooling!

emptyp

July 7, 2009 1:56 PM

This may be "no duh" but if it is, why are there millions of people facing foreclosures? Buying too much house with too little down.

Sometimes Americans seem to need that slap to the head saying "C'mon, think!"

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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