Zero down mortgages for borrowers with bad credit did not perform well a few years ago as foreclosures, short sales and loan modification have replaced the subprime lending options. Let’s face it, 100% home financing programs have had their day in the sun.
“Buy new with $1,000 down,” the advertisement says, the words resting atop a trim green clapboard house offset by a bright blue sky. “The time has come. Stop wasting rent check after rent check and start building equity in your own home. And with only $1,000 down, affordable monthly payments and no private mortgage insurance required, the dream is closer than you think.” It sounds too good to be true. But it is true. This offer does not come from a bad credit lender, looking to reel in thousands of unqualified and ill-advised homebuyers, only to slap them with add-ons, fees and variable rates. It is not a teaser or a trick. The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks.
The FHA home loan program already offers mortgages for just 3.5 percent down a program that now accounts for one in five U.S. home loans — but apparently the geniuses at Fannie Mae didn’t think that was enough of a taxpayer subsidy. Perhaps they were giddy at the prospect that the taxpayer bailout for them and sibling agency Freddie Mac will end up costing “only” $150 billion or so, although Fan alone still has nearly $220 billion in bad loans on its balance sheet.
Now, commentators left and right can agree that this [$1,000 down-payment program] is not a good idea. No matter how stable said low-income homeowners are, they shouldn’t be buying houses with no equity, because if they suddenly have to sell said houses, they’re going to have trouble coming up with 6% to pay the broker, closing costs, etc.
It’s true that this particular program is small — I don’t think the economy is going to be brought to its knees by several hundred houses. The important thing, however, is that this is how the government thinks about housing. This kind of attitude among the feds is why a story yesterday that the White House was considering a $46 billion bailout for homeowners, by paying down mortgage balances for homeowners whose loans are underwater, got so much traction before the Treasury shot it down. It is why President Obama gets such low marks from Americans on the economy. As I’ve said before, a president who inherits a recession doesn’t get judged on the recession itself. He gets judged on whether he’s making things better or worse, the direction in which his policies take us. And when the recession was sparked by a housing-market collapse featuring bad loans made to people who couldn’t afford them, doubling down on subsidies to unqualified buyers is the absolute last thing Washington should be doing.
0 Responses
Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.