Remember when the housing bubble burst back in 2008? I bet you’re thinking there’s no way we could ever be stupid enough to create those conditions again and cause a similar problem to happen a second time, right? Well, unfortunately, you have way too much faith in the human condition, because guess what? We’re making the same mistakes all over again.
And it all starts with zero money down mortgages for first time home buyers.
A new report from Zero Hedge says:
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, who currently serves as the chief operating officer at UWM, said to MarketWatch during a recent conversation.
Nothing ticks me off more than seeing people be stupid and ignorant enough to continue repeating mistakes that could easily be avoided, especially when the lesson should have been learned the first time around. UWM is not getting it.
The company had previously allowed home buyers to put down a very small percentage on their homes — we’re talking 1 percent — however Wilner said they wanted to go the extra mile and provide a bit more help for people looking to purchase a home. They are now anticipating a higher volume of borrowers with the new zero-down program. Yeah, this is going to cause another bubble, folks. People are going to purchase homes they really can’t afford and when it comes time to pay the piper, and they can’t, a whole bunch of loans will default at the same time.
Then it’s 2008 all over again.
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.”
What the heck is a balloon payment? It’s a larger-than-usual that is required by a lender at the end of the loan term.
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.”
We currently have more than a few of the same conditions present in the housing market that were around back in 2008, such as housing prices being stretched, a slow economy, no cushion for lenders against falling house prices, and we have some evidence pointing to some homes experiencing a steep fall in many markets.
What’s really dumb is that a lot of the mortgages being pushed are aimed at people who are making 80 percent or less of an area’s median income. We’re talking about people who have no money to make a down payment, no savings, and are on bad financial terms. These mortgages should be going to individuals who are making over 120 percent or greater of the median income, as long as they don’t have much debt, and just simply don’t have money for a down payment.
Let’s be real for a moment.
This is just President Joe Biden buying votes, just like he’s doing with the student loan forgiveness program. The current administration does not care that any of the people who are getting these loans unexpectedly find themselves out of work or accrue unexpected debt, which would send them spiraling downward and make them incapable of paying their home loans. All that matters is victory over Trump.
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