No, that's a big part of the housing problem now. People didn't bother saving before they bought a house that was out of their price range to begin with. That's why there's such a thing as starter homes. You don't need a McMansion first time outta the gate.
The problem now is people bought with ARM’s and interest only loans. Then when the rate adjusted they couldn’t afford the payment and couldn’t refinance (like they’d planned) because the house didn’t appraise. And they didn’t appraise because the price they’d paid initially was more than the house was worth BECAUSE they’d bought with ARM’s and interest only. Many of these people could have put 20% down and would still be upside down.
With that said, I agree it’s smarter to put the 20% down so you don’t have to pay PMI and can get the escrows waived. HOWEVER, there were 80/15 loans. People got two loans but only put 5% down and paid no PMI and got escrows waived. That means these loans that defaulted had no PMI to pay the bank. Plus, I’m sure these people didn’t pay their escrows either.
Then there are those who simply lost their job and can’t afford the payments. We’re definitely in a mess that’s gonna’ get worse.
Right now it’s not that easy to get a loan with good credit. BOA has bailed on the wholesale mortgage business. 3.5% does not attract many investors.
I don’t think that writing a mortgage for 90% or even 95% of a home’s value is so out of line but when lenders were writing 105% loans they were out of their minds.