It’s a perfect time to do something really stupid, like offering zero percent down payments on mortgages.
Perfectly Stupid Timing
Morningstar reports One of the Biggest U.S. Lenders is Offering 0%-Down-Payment Mortgages for First-Time Home Buyers.
Home buyers will be able to buy a home without putting any money down under a new program launched by United Wholesale Mortgage, one of the largest U.S. mortgage lenders.
The Pontiac, Mich.-based company’s new program will be available to first-time home buyers and people earning at or below 80% of an area’s median income, the company said in a press release.
UWM (UWMC) will give eligible buyers a second-lien loan of up to $15,000, in the form of down-payment assistance, for 3% of the home’s purchase price. The loan will not accrue interest or require a monthly payment.
“Homeownership is something we’re very passionate about,” Melinda Wilner, chief operating officer at UWM, told MarketWatch.
The company had previously allowed buyers to put down as little as 1% on their homes, but it wanted to go further to help home buyers, she said. The lender is anticipating a higher volume of borrowers with its new zero-down program, Wilner added.
Poor underwriting practices were a key driver of the subprime-mortgage crisis in the U.S., the International Monetary Fund wrote in 2008. But unlike the low- and no-down-payment loans that proliferated during that time – when lenders made loans to people who eventually were unable to pay them and lost their homes – UWM’s program is different, Wilner said.
“The aspect of this program that makes me nervous is the silent second mortgage,” Anneliese Lederer, senior policy counsel at the nonprofit Center for Responsible Lending, told MarketWatch in an interview. “It’s great that there’s no interest on it, but it’s a balloon payment, and borrowers need to understand what a balloon payment is.”
A balloon payment refers to a bigger-than-usual one-time payment that is required by the lender at the end of the loan term, according to the Consumer Financial Protection Bureau.
On its website, UWM states in the fine print at the bottom of the page that the second loan “has no minimum monthly payment requirements, a term of 360 months and is fully due as a balloon payment upon the occurrence of either a refinance of the [first mortgage], [or] payoff of the [first mortgage] or the final payment.”
Not Like 2008?!
- Housing prices are stretched
- The economy is slowing
- The lender has no cushion against falling home prices
- There are indications of steeply falling homes in many markets.
OK, we don’t have massive liar loans like we did in 2008. But mortgage affordability is the lowest ever, and unemployment is starting to tick up.
So a rent to own like program? Sounds good. Maybe get the construction industry back to building, new home..new immigrants new taxes victims, helps pay my ssn. Just need to have work for these loans and enforce non payers, no welfare better then subsidized
No! I have told all you dumb people over and over again that liberal lending and borrowing is wrong but you just won’t listen because you like to have your easy mortgages and low monthly payments, at least until the balloon payments are due and then you act like you don’t know what’s going on. Oh! “So unfair” you say. I shouldn’t have to comply with my legal contractual obligations because I can’t make my monthly payment. Too bad so sad! Easy money easy leads to easy debt. Easy for the banks to take over your lives and easy for the state to arrest and imprison you when you can’t pay. You may think you did nothing wrong but you did and you will pay the price and your freedom will be taken from you. As Jesus said. But you don’t care until it’s too late. Stupid sheeple. I predicted ALL THIS more than ten years ago. But you wouldn’t listen. So don’t come crying to me now for help. This land is my land and you’re not welcome. Sorry that you’re hungry but you should have planned better and heeded my warnings.
Yes, lord!
So thousands of previously unqualified borrowers will be able (and highly encouraged) to borrow more than they can reasonably and sustainably afford, then lose their investments when times get tighter and banks foreclose.
Didn’t we just do this?