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Because while people can usually afford their home payments, it's much harder in today's market to afford socking away $40,000 just to buy a home. What difference does it make if someone puts 20% down or no money down? It makes no difference. Both homeowners are going to gain equity. Someone putting 20% down is not more capable of making payments than someone who doesn't.
Well not exactly ... a person who puts $40k down and who must make payments on a $160k mortgage balance IS more capable of making those monthly payments than a person who put nothing down and who must make payments on a $200k mortgage for the entire home purchase price (especially if the zero equity mortgage carries a higher interest rate to boot !)
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Get off the "gloom and doom" pot. Banks who "want" people to foreclose are non-existant. They LOSE in foreclosures!! They spend more money losing interest, investors, and taking the chance that although they may have a judgement from a foreclosure, they may never see that money.
Again, not exactly. Certainly banks make more money over the life of a mortgage loan if the borrower continues to make monthly payments on time than if they go 'belly-up'. But extremely few mortgages are actually held to maturity by banks these days ... they are resold onto the secondary mortgage market with the banks collecting an up front profit on the resale plus collecting 'service fees' over the life of the mortgage ... in fact banking regulations enacted after the S&L debacle REQUIRE this ! Thus today it is the secondary mortgage market (i.e Fannie Mae, US and foreign owners of mortgage backed bonds etc.) and not the banks that face the true risk of losses upon foreclosure / bankruptcy. The banks lose their 'service fees' and incur some collection / legal costs - which is an entirely different scenario from losing 10-20% of the home's purchase price versus auction price (that loss is now passed onto the secondary mortgage investor ... or in the case of Fannie Mae to the US taxpayer).