Down payments overshadow reserve issues

Re: 'Lenders wise to beef up default-risk reserves' (May 5)

Dear Editor:

Briefly stated, in the last 10 years or so lenders have done everything they could to offer everything but "PMI type" products because the alternatives were easier to sell and far more profitable to the investors on those mortgages. Now, though I agree a higher private mortgage insurance and lender reserve standard would help in the future, we have a deeper problem.

Many of the PMI companies are pulling in the strings at an ever-growing rate and lenders are scared to loan. Many don't want to exceed even 90 percent (financing), so they'd only be insuring 10 percent of the upfront transaction. That will leave the riskier first-time buyer with basically one alternative -- FHA, never a spry alternative in times past.

Reserves don't matter if the buyer cannot come up with 10 percent (plus or minus) down payment to begin with. Until the backlog of units is absorbed and the first-time buyer can afford what they have to qualify for today, the rest of the machine sits idle. The 97 percent to 100 percent programs could be fine right now, just like FHA, if the borrower had to meet credit and income standards guaranteeing they can make the payments.

Bill Wilbanks
Orlando Mortgage Masters
Orlando-Winter Park, Fla.

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