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.
Anything to Keep the Bubble Going
To top it off, these mortgages are explicitly for people who make 80% or less of an area’s median income.
How dumb is that? In general, such borrowers have no down payment, if any savings at all, and many are already likely on the edge.
It would make more sense giving these mortgages to those who make 120% or more of an area’s median income, provided they also have little debt, and just lack the down payment.
Vote Buying
President Joe Biden called on Congress to provide up to $25,000 in down-payment assistance to first-generation home buyers in his State of the Union Address.
These vote buying proposals to keep the economy humming long enough to win an election are always at the expense of those who fall for the scheme.
The loss of a job or any unexpected debt will throw these buyers right over the cliff.
There are many signs a slowdown is underway.
Economic Slowdown Underway
May 24, 2024: Another Massive Revision, This Time Durable Goods, What’s Going On
The Commerce Department revised March durable goods orders from +2.6 percent to +0.8 percent. Now it reports a 0.7 percent gain vs an expectation of -0.5 percent.
May 23, 2024: New Home Sales Sink 4.7 Percent on Top of Huge Negative Revisions
New Home Sales plunged. And the Census Department completely revised away last month’s fictional 8.8 percent rise.
May 22, 2024: Discretionary Spending Tumbles at Target, Shares Drop 10 Percent
Target CEO Brian Cornell said the results show “continued soft trends in discretionary categories.” [The key word above is continued.]
May 22, 2024: Existing-Home Sales Decline 1.9 Percent, Sales Mostly Stagnant for 17 Months
Existing-home sales fell 1.9 percent in April and are also down 1.9 percent from a year ago. Sales have not gone anywhere for 17 months.
Key Highlights
- Existing-home sales faded 1.9% in April to a seasonally adjusted annual rate…
Read More: Zero Percent Down Mortgages Return, What Can Go Wrong? – MishTalk