I was reading an article off my old favorite housing website and came across an article about LA County prices continuing to erode. Granted it is Southern California, not our Sacramento region, but I couldn't help but wonder why someone with such a significant downpayment would not qualify for a loan. I'm sure this is happening here, too.
They likely did not have much in the way of provable income. Since I am a mortgage broker, I see that all the time. The buyers likely wrote off so much of their income that their tax returns showed very little leftover. 95% of the self-employed clients I have claim expenses out of nowhere. That obviously lowers their tax burden, but it also destroys their ability to qualify for mortgages.
It is really easy to see when a self-employed person is buying a new primary residence after having rented for a while. They may be paying $3,000/month on rent for years, yet their tax returns only show $4,000/month in net income. They fully expect to be able to qualify for a $3,000/month mortgage payment, yet they cannot after having defrauded the IRS for years.
You would be surprised how often I see the above situation.
As for Fannie Mae and FHA having really strict guidelines.....NOT REALLY. Both only require credit scores of 620, which is not a good score. Fannie is more strict in that their maximum debt-to-income ratio is typically 45%. FHA, on the other hand, allows for 57% across the board on every loan. NOT ONE subprime lender ever allowed debt-to-income ratios that high. (except on stated income loans, which were obviously fraudulent)
