Thousands line up for zero-down-payment, subprime mortgages
By Diana Olick @ CNBC
November 5, 2018

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.

Key Takeaways

  • 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.
  • They must 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.

“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.”

Originally published on CNBC… Read more