I agree with you about the effects of reducing seller contributions. My point is merely to get the conversation off of 1 specific aspect. The buzzwords of the mortgage crisis, "skin in the game", "subprime", "liar loan", "option arm", etc paints a poorly devoloped picture. The reality is these bad things only became bad when they were paired with other lenient underwriting guidelines. The issue is not just skin in the game, it is the rest of the criteria. FHA offers lower standards for borrower credit and debt versus income ratios, for that reason, having a vested interest in the property will do just as you say.
To move forward, we have to stop looking at individual pieces and start looking at the whole picture. For every loan product with a negative connatation, I can show that they work when offered to the borrowers for which they were originally intended and the borrowers fully understand the terms.
Our mess resulted from making specialized products mainstream and because we, as an industry, did a poor job of informing borrowers of the ramifications.
What concerns me is that FHA is serving far more borrowers then for which it was intended. Becasue of this, the insurance fund is showing signs of fracture. I agree with those that want to tighten the guidlines, howvever, tightening them too much will eliminate many of those for which the program was intended. It is a tenuos balance, but I think increased insurance premiums and decreased seller contributions are a fair tradeoff for the other liberal borrower requirements. If we do not make minor adjustments now, it is possible that this product's viablity could be in jeopardy.