Thousands line up for zero-down-payment, subprime mortgages

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Program offers mortgages with no down payment, low interest 3:09 PM ET Fri, 12 Oct 2018 | 01:21

Magdalene Altidor lost her home to foreclosure during the subprime mortgage crisis, but this week she was first in line at a four-day event in Miami where borrowers with poor credit were offered no-down payment, low interest rate loans.

"I left home, it was about 4 a.m.," she laughed. "I'm ready to purchase a home."

The event is one of several being held in cities across America this year, run by the nonprofit, Boston-based brokerage Neighborhood Assistance Corporation of America, or NACA.

"It's a national disgrace about the low amount of homeownership, mortgages for low- and moderate-income people and for minority homebuyers," said Bruce Marks, CEO of NACA. "In the loans that we've originated in the past 6 years, zero foreclosures."

Marks and NACA were front and center during the subprime mortgage crisis, holding mass mortgage modification events across the country with banks and servicers. Bank of America was there then and the bank is with NACA now, backing the program with $10 billion in mortgage commitments.

"It's total upside," said AJ Barkley, senior vice president of consumer lending at BofA. "We have seen significant wins in this partnership. Just to be clear, when we get those loans with all the heavy lifting here, we're over a 90 percent approval, meaning 90 percent of the people who go through this program that we actually underwrite the loans."

Borrowers can have low credit scores, but have to go through an education session about the program and submit all necessary documents, from income statements to phone bills. Then they go through counseling to understand their monthly budget and ensure they can afford the mortgage payment. The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent.

Why 5 percent mortgage rates could benefit first-time home buyers, expert says 2:54 PM ET Tue, 9 Oct 2018 | 01:46

"That's what's going to help people who've been locked out of homeownership to really become homeowners and to build wealth," said Marks.

Critics of the program argue that with no down payment, no skin in the game, these borrowers have no reason not to walk away should their homes lose value. That's what happened during the financial crisis. The difference in this program is that the borrowers cannot be investors. In order to get the loan, they have to live in the home.

"People have skin in the game in a real way," said Marks. "The people that walk away are higher-income people who look to homeownership as an investment, just like buying stocks and bonds. Working people look at their investment in homeownership for their family, for their neighborhood, for themselves."

Quentin Carswell is a first-time homebuyer who tried to get a loan from a traditional bank.

"They tell you they have a lot of first-time homebuyer programs, and then once you get there they tell you these outrageous numbers. It's hard for normal class people to afford to get into a house, and you know put $20,000, $30,000 up for down payment. That's a lot of money."

Few programs like this one

He and his girlfriend were in line early in the morning as well, prepared with an armful of financial documents.

So far more than 10,000 potential borrowers have shown up at various NACA events in cities like Charlotte, North Carolina, and Atlanta, according to Marks, and more are planned. NACA receives a $3,000 commission on each loan.

Timothy Trumble | NACA Online Operations

Potential borrowers who are participating in the NACA Homeownership event in Miami, Florida.

While the Veterans Administration offers no-down payment loans to veterans and their families, there are few other programs like this. Most low-down payment programs require mortgage insurance, which can be costly. The NACA program does not.

Following the financial crisis, lenders locked up, requiring much higher credit scores and at least 3 percent down payments. The subprime mortgage crisis was precipitated by lenders offering no-down payment loans with short-term "teaser" rates as low as zero. They asked for no documentation, and sometimes tacked interest onto later years of the loan, so-called, negative amortization loans. The NACA loans are all fixed rate with full documentation.

Another big difference today is the housing market itself. Home prices have been rising strongly, and there is a critical shortage of entry-level homes for sale. If a borrower finds themselves in financial straits, it is far easier today to sell the home quickly.

Altidor is confident she can make the low, monthly payments this time around. A small price, she says, for something far more valuable.

"I think a home, 10, 15 years from now, that's an investment," she said. "Homeownership is freedom."

Yup, they are back.

A good sign we are near the top of this cycle.

Just like last time, when the no down, no documentation mortgages showed up it's not long till the peak.

Debt free was an awfully good position to be in during the last crash. Rents in my area dropped to half. With no mortgages, I could ride it out. Landlords depending on rent to pay the mortgage were in trouble.

"Another big difference today is the housing market itself. Home prices have been rising strongly, and there is a critical shortage of entry-level homes for sale. If a borrower finds themselves in financial straits, it is far easier today to sell the home quickly."

Uh-huh. Just like last time. Demand rose and quickly consumed inventory, but when the economy slowed and foreclosure began, some folks could hardly give their home away.

Negative amortization loans? Do you all remember 125% LTV loans? Basically, these are the same thing except the overage of loan to value will accrue over time, very quickly due to compounding. Give it 5 years and a loan that started as 100% LTV will be 115-125%. One slip of the economy, which is about to enter 10 years of a bull cycle... How depressing to a borrower to find that after 5 years of payments they still owe more than what they purchased for? Strategic default is a known strategy now. People who did it last time will remember what worked before. No one will come after them. There's nothing to come after.

And the originators are collecting $3,000 per loan fees. Of course they are happy.

So this could be the countdown to bargain hunting time. My plan is to take more advantage of opportunities this time around, and we should be in a better position to do so!

Wonder if we could end up with negative interest rates this time around? Have Govt programs that pay people to borrow money to buy houses, as long as they don't default. Stick taxpayers with the cost of paying back the interest subsidy. With the ability to conjure money out of thin air, it's probably not as unlikely as one would think.

just like 'the last time". :-/ The lower end housing stock hit a dead end and Sellers & Mortgagors alike needed to "do something" to keep housing vibrant.

This time around the #'s regarding affordability are topping out and the # of sales on this type housing stock is leveling out/dropping.

So...what to do...… go after the marginally qualified and hop that it dos not fall too far too fast.

"Quentin Carswell is a first-time homebuyer who tried to get a loan from a traditional bank.

"They tell you they have a lot of first-time homebuyer programs, and then once you get there they tell you these outrageous numbers. It's hard for normal class people to afford to get into a house, and you know put $20,000, $30,000 up for down payment. That's a lot of money."

He and his girlfriend were in line early in the morning as well, prepared with an armful of financial documents..."

I sort of glossed over this in my first reading.

Without making any moral judgments on anyone, I will simply state that I do not understand people who says they are okay with:

1) exchanging bodily fluids repeatedly, and act which potentially leads to...

2) ...producing other human beings for which both parties have a legal responsibility regardless of how much they grow to hate each other over the next 18 years and finally decides it's wise to...

3) ...purchase homes/other assets together, making each person jointly and severally liable for hundreds of thousands of dollars in payments, but which have a relationship that lacks the basic legal structure to handle division of assets/liabilities formally

But says they view marriage as "too much of a commitment".

Get a BOX OF TISSUES to dry my eyes, it was so hard to read that story from TONY of NJ.

NOT!!!

Give me a Break. Are you serious 10 million dollars flushed down the drain.

In todays economy people are not taking entry level jobs but would rather be on welfare.

The Subprime lending fiasco was an issue that these types of mortgages did not survive and they did bot learn from the housing crisis that peaked in 2008.

We all know that tenants who are on the low end of the credit scores when something in their financial world goes bad they run. And during the subprime lending fiasco many people ran because the market did not bear the cost of the excessive mortgage on the house. PLUS there are foreclosures that are still on the market 10 years later and thousands are owned to the bank in interest. The foreclose costs and interest Plus the original unpaid mortgage amount are more than the house is worth. Due to the fact the house is in poor condition.

Like NE of PA and Ken of NY says its an excellent opportunity for more flips to happen and to increase their rental inventory.

Yes the Real Estate Market is up in many areas across the country and over the top with it being a Sellers market in many areas. However these problem loans start to enter the market again and in a few years these homeowners will run because they can not afford the increase in the mortgage due to no increase in income THEN there will be a second crash like 2008.

Zero DP is something we already seen a few years ago and we also remember what followed. Folks who obtain 100% financing are the first ones to walk away from their homes when they can't make the payments.

BTW, any mortgage 90% LTV or higher, requires MPI - Mortgage Payment Insurance - something that sticks to you like rubber glue that you can't get rid of for years to come.

The only saving grace from what I have seen is at least the low down notes are well underwritten.

Still I sold a $450k house where the buyers were first time home owners and only put $5k total of their money in it. They could not have rented that house for $5k out of pocket, the security deposit along with first month would have been $8k.

Chris of CT. the banks are to blame to a degree HOWEVER with the Federal Regs that banks have to deal with that helped to create the problem as well. Especially with the Redevelopment Act, it wanted everyone to own a home. As landlords we know that some of the prospective tenants and former tenants will not and should not be homeowners. Because when the first sign of financial trouble occurs they run. And they should NEVER have been home owners. Now the Frank/Dobb bill that was to fix the financial woes in 2008 real estate fiasco is not a fix either.

Oh sure there are two factors that will be key in a potential mortgage foreclosure: Divorce and the death of the main wage earner will create a financial spiral being able to pay a mortgage.

Zero down and adjustable rates are two of the worst products for mortgages. OH sure its great 2% interest looks EXTREMELY enticing when buying a house. However, once that rate starts it's climb to the max and wages do not keep up with the increased mortgage payment theres the start of the financial spiral down ward