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1 Ominous Sign of a New Housing Bubble

One major cause of the housing bubble came from lenders that offered loan terms that proved to be too good to be true. Yet even after the difficult lessons of the financial crisis, at least one financial institution has come out with similarly attractive terms that have some worries about the potential ramifications on the recovering housing market.

In the following video, Motley Fool investment-planning editor Lauren Kuczala talks with longtime Fool contributor and financial planner Dan Caplinger about the latest no-money-down mortgage loans. Dan notes that although having no equity in your home does leave you with less incentive to stay current on a mortgage, there are some key differences between these loans and the mortgage products that major banks used during the mid-2000s. Moreover, with the lender in this case keeping the mortgages on its books, the threat to government-sponsored Fannie Mae and Freddie Mac is nonexistent.

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Editor's note: The volume levels in some segments of the video are low. We apologize for the inconvenience.

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Read/Post Comments (11) | Recommend This Article (14)

Comments from our Foolish Readers

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  • Report this Comment On May 05, 2013, at 11:50 AM, cityperson wrote:

    You can bet on that, no money down for home loans will start the bubble all over again.

  • Report this Comment On May 05, 2013, at 3:59 PM, Hjin wrote:

    The Obama Administration has tried everything to prevent the housing market from correcting itself.

  • Report this Comment On May 05, 2013, at 4:28 PM, jhf678 wrote:

    Why don`t you try to apply for a loan right now and let me know whether it is easy or not?

  • Report this Comment On May 05, 2013, at 5:32 PM, jilluma wrote:

    Ok, sure we all need down payment makes common sense. I am really really sure that most people WANT to own a place of their own, and this is a habit of most living beings - even animals, birds, all species do not rent, they own or claim and maintain their territory. This is a primitive, primordial instinct. Housing industry will NEVER burst no matter how hard anybody tries as they have been doing. It was so easy to buy a home, And again by the same instinct MOST people wanted to quickly pay off their loans and no pre-payment penalty helps that. When the economy was good with plenty of jobs available, both home owners worked - that is both spouses worked and so making the payments were no problem - this was the normal world.

    Then somebody CREATED SITUATIONS ON PURPOSE to introduce AUSTERITY. They used ideas like BOTH SPOUSES CANNOT WORK - FAMILY is suffering and being torn apart, MORAL issues in the work place - stories about having a WORK WIFE and a REAL WIFE, saving the environment, climate change stuff - more pay going to computer folks than other fields - this kind of competition for pay, then gender and age came in - who is better to be employed and more cost efficient - then outsourcing issues, now gun control, illegal immigration - all these are ways to make the bubble burst happen. The bubble will never burst on its own. Everyone wants a dream home. 99.99999999999999 percent want to pay of their loan and own the home as quick as they can and are struggling mentally and physically and laying their lives and everything on the line to do it. Then these states and other countries want to get into the tug of war - they say don't buy there buy here - they do it all the time so no one can buy any thing any where. See the trend? No my friend, zero downpayment or not - make it happen. Give the jobs, lett people work, let they get the loan, let them pay it off, let them own the home, let they get workers working, keep building and let everyone build. Mother earth can handle it. Just don't keep pricking that needle into the bubble - keep your sticky fingers out. Everything will be fine. Send the nay sayers into a corner where they can sit and nay say all they want but don't let them have any power to get their hands on that needle they are itching to.

  • Report this Comment On May 05, 2013, at 5:37 PM, jilluma wrote:

    Forgot another thing. Gay marriage or not, love or arranged marriages, family or job - just why is all this such a deep issue now of all times. My answer is somebody DOES NOT LIKE somebody else BUILDING but they can build. This is wrong.

    All want a home. The ant, the elephant, the monkey, the birds,the apes, the worms, the bees, the butterflies, the cat and the dog and the pigs and the rest of the animals and of course the homo sapiens, neanderthals or hominids. And all usually work very hard to pay off so they can own their homes. Bubble will never burst. Just keep the needle from getting into the hands of you know who.

  • Report this Comment On May 05, 2013, at 9:00 PM, xerophythis wrote:

    I bought a house with 0 money down...it was a USDA loan. It's only $200 more a month than what I was paying in rent. It's different for everyone, I knew what I could afford and didn't over-extend myself, I got approved for almost $400K, in no way shape or form could I EVER afford that kind of mortgage. People need to get a reality check and use their head, just because someone says you're approved for a certain amount does NOT mean you can actually afford that monthly payment.

  • Report this Comment On May 05, 2013, at 9:31 PM, taug99 wrote:

    THE FIRST SIGN OF A HOUSING BUBBLE IS THE DEMOCRATS IN POWER.

    JUST LIKE CLINTON, INSTRUCTING THE JUSTICE DEPT TO INSTRUCT THE BANKING COMMISSION TO GIVE LOANS TO MINORITIES, EVEN THOUGH THEY KNEW, FULL WELL, THESE PEOPLE WOULD NOT PAY THEIR LOANS BACK.

    WHY ? BECAUSE CLINTON BOUGHT THEIR VOTES, AGAIN, WITH AMERICANS MONEY.

  • Report this Comment On May 05, 2013, at 9:34 PM, taug99 wrote:

    But I must finish. If they paid the loans back, and there was 1 % of that happening, Clinton looked good, but there was never any intention of this, so,

    when they all failed, and they did, then the socialist agenda is furthered, by creating MORE GOVERNMENT PROGRAMS.

    BIGGER AND BIGGER GOVERNMENT,

    THIS IS THE DEMOCRATIC AGENDA.

    WHY ?

    BECAUSE ITS EASIER TO STEAL AN APPLE FROM A BARREL, THAN FROM A BOWL.

  • Report this Comment On May 06, 2013, at 12:53 AM, Dadw5boys wrote:

    Taug99 Clinton raised interest rates freed up money and tried to get the Economy Back on it's feet to pay off some of Reagans debts.

    The only people who benifit from Smaller Government and fewer Laws are Criminal and Gangesters.

    Less Regulation look at Texas 14 dead fire fighters. really you want to live in a country where workers are in danger all the time.

    Anyway the only reason to make loans with no down payment is to sell to investors to remodel and resell.

  • Report this Comment On May 06, 2013, at 7:23 AM, FBYguy wrote:

    I need help. My wife and I are in our early 30’s. I purchased a 2 bedroom condo in 2007 that is now underwater by $35K. We are expecting a second child at the end of summer. We really outgrew our condo and need a single family home with at least 3 bedrooms. We have the 20% for a down payment if you include how much we put into our 401K. We plan to rent out our current condo. I know our condo mortgage payment will be included in the approval for a new mortgage, but as we do not have a lot of other types of debt, this would be okay.

    What should we do? I really don’t want to use our 401K, so a lender discussed the option of a FHA loan. Is that a good option for our situation?

  • Report this Comment On May 06, 2013, at 12:09 PM, SyDVooh wrote:

    According to Census Bureau data, the rate of home ownership has hit the lowest point since 1995, at 65% in the first quarter of 2013, year to year down from 2012 at 65.4%, and it was the same 65.4% tn the last quarter of 2012! Everything about this real estate "boom" says "bubble" created by smoke and mirrors.

    2FBYguy: Offer to pay a higher interest rate, say 5 or 6%, to a private investor, with the proviso that you are allowed to refinance in 2 or 3 years if lower rates are available then. With bank and bond rates so low, a lot of investors would jump at 5% right now.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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