Unlike subprime loans, which were subject to minimum underwriting standards before the housing crash and the Great Recession of 2007-09, UWM’s zero-down loans must meet standards set by mortgage giant Freddie Mac.
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A new zero-down-payment loan program launched last month by the largest U.S. mortgage lender has been welcomed by homebuyers, but not some consumer advocates who worry if If house prices fall, borrowers will be “immediately in trouble.”
United Wholesale Mortgage launched the “0% down payment purchase” program on May 15, allowing borrowers with incomes below 80% of the area’s median income to apply for Freddie Mac Homepossible loans, covering 97% of the home’s value. UWM then provides a second mortgage for the remaining 3% of the purchase price.
Second mortgages are capped at $15,000, and the program is limited to homes priced at $500,000 or less. Borrowers pay no interest on the second mortgage and do not have to make monthly payments, but they must pay it back if they sell their home or refinance their first mortgage.
Matt Ishbia
“UWM’s 0% down purchase program is a game changer this buying season,” UWM CEO Mat Ishbia said in a statement. “No other wholesale lender in the country offers this service, which means independent mortgage brokers now have a significant advantage among consumers and real estate agents. Thousands of borrowers are on the sidelines because they don’t have a down payment — —This program removes that barrier.
But several academics and consumer advocates told CNN that if homeowners who apply for such loans must sell their homes before their home equity builds up, they are more likely to end up in foreclosure.
“These mortgages are going to be a ticking time bomb, just like subprime mortgages, unless home prices continue to rise significantly,” Better Markets CEO Dennis Kelleher told CNN of UWM’s new product.
UWM also expanded a loan program last month that aims to save some borrowers time and money by taking title and settlement service providers out of the process, but UWM objects to that comparison.
Unlike subprime loans, which were subject to minimum underwriting standards before the housing crash and the Great Recession of 2007-09, UWM’s zero-down loans must meet standards set by mortgage giant Freddie Mac.
Freddie Mac’s Home Maybe and Fannie Mae’s Home Ready programs let borrowers put down as little as 3%. Last year, UWM, Rocket Mortgage and Zillow began offering grants that allow borrowers who qualify for these programs to get a Home Possible or Home Ready loan with just a 1% down payment.
Alex Elezaj, chief strategy officer at UWM, told CNN that demand for new zero-down-payment loans that meet Freddie Mac’s Homepossible criteria is “very strong.” We have submitted thousands of loans.
Some down payment assistance programs in California and other states follow a similar model, offering deferred-payment second loans that cover down payments on FHA and conventional loans. Last fall, loanDepot began offering fully amortizing second mortgages that allow borrowers to spread the down payment on an FHA mortgage over 10 years.
Down Payment Resource is an Atlanta-based technology provider that tracks assistance programs offered by federal, state, county or local government agencies, which can be deposited through integrations with multiple listing services (MLS), lenders and agents. Pick. Freddie Mac offers a similar tool for lenders, DPA One, that allows lenders to enter customer qualification parameters and receive information about down payment assistance programs.
Another option for borrowers to raise a down payment is the growing number of lenders offering Special Purpose Credit Programs (SPCPs) to borrowers in underserved areas who might otherwise be denied credit or offered less favorable terms.
Through SPCP, Bank of America offers zero-down-payment, zero-closing-cost mortgages to first-time homebuyers, serving select markets including predominantly black or Latino communities in Charlotte, Dallas, Detroit, Los Angeles and Miami.
The program is part of Bank of America’s $15 billion community home ownership commitment, which sets a goal of helping 60,000 individuals and families purchase homes by 2025.
Other lenders offering mortgages through SPCP include:
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