It’s a perfect time to do something really stupid, like offering zero percent down payments on mortgages.
Perfectly Stupid Timing
Morningstar reports One of the Biggest U.S. Lenders is Offering 0%-Down-Payment Mortgages for First-Time Home Buyers.
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, chief operating officer at UWM, told MarketWatch.
The company had previously allowed buyers to put down as little as 1% on their homes, but it wanted to go further to help home buyers, she said. The lender is anticipating a higher volume of borrowers with its new zero-down program, Wilner added.
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.”
A balloon payment refers to a bigger-than-usual one-time payment that is required by the lender at the end of the loan term, according to the Consumer Financial Protection Bureau.
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.”
Not Like 2008?!
- Housing prices are stretched
- The economy is slowing
- The lender has no cushion against falling home prices
- There are indications of steeply falling homes in many markets.
OK, we don’t have massive liar loans like we did in 2008. But mortgage affordability is the lowest ever, and unemployment is starting to tick up.
Anything to Keep the Bubble Going
To top it off, these mortgages are explicitly for people who make 80% or less of an area’s median income.
How dumb is that? In general, such borrowers have no down payment, if any savings at all, and many are already likely on the edge.
It would make more sense giving these mortgages to those who make 120% or more of an area’s median income, provided they also have little debt, and just lack the down payment.
Vote Buying
President Joe Biden called on Congress to provide up to $25,000 in down-payment assistance to first-generation home buyers in his State of the Union Address.
These vote buying proposals to keep the economy humming long enough to win an election are always at the expense of those who fall for the scheme.
The loss of a job or any unexpected debt will throw these buyers right over the cliff.
There are many signs a slowdown is underway.
Economic Slowdown Underway
May 24, 2024: Another Massive Revision, This Time Durable Goods, What’s Going On
The Commerce Department revised March durable goods orders from +2.6 percent to +0.8 percent. Now it reports a 0.7 percent gain vs an expectation of -0.5 percent.
May 23, 2024: New Home Sales Sink 4.7 Percent on Top of Huge Negative Revisions
New Home Sales plunged. And the Census Department completely revised away last month’s fictional 8.8 percent rise.
May 22, 2024: Discretionary Spending Tumbles at Target, Shares Drop 10 Percent
Target CEO Brian Cornell said the results show “continued soft trends in discretionary categories.” [The key word above is continued.]
May 22, 2024: Existing-Home Sales Decline 1.9 Percent, Sales Mostly Stagnant for 17 Months
Existing-home sales fell 1.9 percent in April and are also down 1.9 percent from a year ago. Sales have not gone anywhere for 17 months.
Key Highlights
- Existing-home sales faded 1.9% in April to a seasonally adjusted annual rate of 4.14 million. Sales also dipped 1.9% from one year ago.
- The median existing-home sales price rose 4.8% from March 2023 to $393,500 – the ninth consecutive month of year-over-year price gains and the highest price ever for the month of March.
- The inventory of unsold existing homes climbed 9% from one month ago to 1.21 million at the end of April, or the equivalent of 3.5 months’ supply at the current monthly sales pace.
Big Negative Revisions to BLS Monthly Jobs in 2023
On April 24 the BLS released a little-read jobs report that shows reported jobs in 2023 may be wildly overstated.
On April 24, I commented Expect Big Negative Revisions to BLS Monthly Jobs in 2023, GDP Too
The BED report is based on records on 9.1 million private sector establishments. Current Employment Statistics (CES) is the monthly jobs report based on 670,000 establishments.
Obviously, the BED report is more timely, but it lags. CES provides an opportunity for economists (and the president) go gaga over numbers likely to be wildly wrong.
CES Overstatement
- 2023 Q2 CES Overstatement: 489,000 Jobs
- 2023 Q3 CES Overstatement: 832,000 Jobs
- Q2+Q3 Overstatement: 1.321 Million Jobs
Thus, the BLS says that the BLS monthly job reports for 2023 Q2 and Q3 are overstated by a total of 1.321 million jobs.
Zero Percent Down Synopsis
An economic slowdown is underway (see five previous links).
Jobs are overstated by 1.3 million, discretionary spending is faltering, and UWM (UWMC) is offering zero percent down mortgages to buyers most likely to get in trouble if anything goes wrong.
For discussion of the lead chart, please see Home Prices Hit New Record High, Don’t Worry, It’s Not Inflation
The Case-Shiller national home price index hit a new high in February. That’s the latest data. Economists don’t count this as inflation.
Other than the late stages of the 2008 housing bubble, there has been no worse time in history to offer zero percent down mortgages.
These are dirty (dirtier) loans. Even willing to give (wait!((borrow the lender)), 15 thousand if they buy the place. In some regard the banks make the money on the front end of the loans while buyer assumes risk of owning and get to live in it, thus the bank doesn’t really care what happens to it once they underwrite it, or so it seems at times.
good analysis. this dude got past r/e bubble burst correct.
There are only bubbles if they pop and there’s not enough inventory for prices to go anywhere but up. NAR reported first-time homebuyers accounted for 33% of sales and all-cash sales accounted for 28% of transactions in April, identical to March and one year ago. Whether they’re individual investors or institutional investors, low inventory continues to make any housing offer competitive and the lower the prices go, the more investors will keep prices up. That’s the nature of today’s housing market, whether borrowers go into foreclosure or not. With so many all-cash transactions, at this point, lenders will go with whatever works to finance a home. There’s no bubble.
What are the home price limits?
Just in time to pay the buyer’s agent.
“The lender has no cushion against falling home prices”
Of course they do. Same as always: Taxpayers. And productive people, who The Fed can, and do, rob in order to keep the theft rackets afloat and its favored idiot leeches in unearned splendor.
“Lenders” don’t take risks, in fully financialized dystopias. Instead, competent people are the ones saddled with all risk. That’s why central banking was invented in the first place: As a means to steal from the competent and productive, in order to hand the loot to the incompetent but connected.
I’m old…so old I remember the days before ARMs were introduced – i.e. the 1970s. So old that I remember the introduction of collateralized mortgage obligations (CMOs). I was then a financial auditor, and my client was one of the nation’s largest homebuilders – who also owned a captive mortgage company that financed many of the homebuilder’s sales.
Over time, that era’s homebuilders and mortgage companies learned the hard way what happens when they ignored, one after another, the ages-old :3Cs of residential finance: Cash flow, collateral and character.”
Abandoning 80% conventional loans for 90%, 95% and finally 100% LTV loans gutted the value of “collateral.” Ignoring a potential borrower’s credit history killed “character.” And finally, no-income-qualifier loans murdered “cash flow.” The result? Massive loan defaults and foreclosures, which triggered the complete destruction of the residential lending industry (S&Ls). First in the late 1980s, and again in the mid-2000s (remember Lehman Brothers? AIG?).
Finally, a brief come-uppance for the smug Goldman Sachs quants who had up until then persuasively argued that the 3Cs were actually irrelevant to residential finance.
And here we are again, with Wall Street’s bankers once again arguing that lenders should waive downpayments, make 100% LTV loans based on “highest in history” home prices, and ignore employment/income status and credit worthiness.
What could go wrong?
This is just another of the governmental/financial markets’ demonstrations that “those who ignore history are doomed to repeat it.”
Interestingly, all the planets are in phase for our federal government to own, as a consequence of borrower defaults, our nation’s residential real estate – socialists’ nirvana. Is this an unintended consequence? Or is it by design?
The Howdy Doody Puppet’s administration loudly proclaims its’ superior competence (the adults are in charge). So did Jeff Skilling.
Since we are going down memory lane and retread redux. Im thinking of starting a SPAC
Then buy my other new company that offers buyers:
1) Rent to Own
2) Buy Now Pay Much Never (BNPML)
Who would be interested in the SPAC offering?
Who would be interested in the consumer services provided?
Welll………thank God Basel 3 “endgame’ don’t apply to United Wholesale Mortgage ! IN fact NO bank regulation applies ! But Fed will still bail em out.
On his YTube channel the other day, John Williams was talking about co-ownership, where family or friends buy a house, together.
VERY bad idea in most cases Rarely does it work Speaking from personal experience
The answer is so simple. Apply the same rules / policies that are used for student loans (deferments, income based payments, etc.) to all mortgages below $500k.
And then illegally forgive the loans altogether and have the taxpayers foot the bill?
I live in nyc,would like to buy on long island. even 10% down payment the mortgage is bonkers so 0% it would be like 4-5k a month.
“UWM’s program is different, Wilner said.”
The old adage of “it’s different this time.”
We need moar leverage in housing. Like synthetic collateralized debt obligations, tranched to CDO^3. Ok, the CDO^2 blew up in the financial crisis, but the Fed saved us. The same thing can’t happen again, its always a different bubble pop, so why not ramp up housing again? Zero down is a good start …
The Federal Reserve Bank of Chicago supervises state member banks, bank holding companies, and foreign banking organizations that do business in the 7th District, which includes most of Illinois, Indiana, Michigan, Wisconsin, and all of Iowa. We promote a safe, sound, and stable financial system that supports the growth and stability of the U.S. economy. We work to make sure banking organizations are in secure financial condition, comply with laws and regulations, treat their customers fairly, and meet the needs of their communities.
Let’s take a moment to taunt Jeff Green and the Tesla Fan Boys:
Only 244 new battery electric vehicles were registered in New Zealand in January 2024 (after 4,455 were registered in December 2023). The low-cost models seemed to have the highest reduction. The leader of the pack in January (supplanting the MG4) was the Seal, with 31 units, followed by the Tesla Model Y (25 units) and then third place going to the Toyota BZ4X (23 units).
https://cleantechnica.com/2024/02/07/new-zealand-ev-market-crash-5-penetration-in-january-2024/
EVs will soon be going Full Titanic.
The charging network is already a problem — who would invest in expanding that network — when EV sales are collapsing? We are already seeing maintenance issues with the existing networks — expect that to worsen.
And as prices of used EVs plummet… we’ll get us a perfect storm…
This sucker is headed for the bottom!!!!
The perfect complement to the trillion dollar increases in debt every 100 days!
And who knows what other juicy policies are running in the background to fend of the imminent collapse that we are not being told about.
Jean-Claude Juncker, Luxembourg PM and Head Euro-Zone says “When it becomes serious you have to lie”
https://mishtalk.com/politics/jean-claude-juncker-luxembourg-pm-and-head-euro-zone-says-when-it-becomes-serious-you-have-to-lie/
This is now beyond desperate.
They have realized they cannot reduce rates to pump up the declining housing market… so some bright young thing at the Fed said ‘I know – let’s reintroduce no deposit housing purchases!!!’
Will Liar Loans also make a come-back?
Will it work? Consider what a 7% mortgage looks like on a house with no money down.
7% mortgage no money down, means you have to have ~$120K income minimum, and United Wholesale Morts says they’re for bottom quintile area income buyers. Which means if you’re providing back massages in Beverly Hills scraping by at $120K per year in “tips” and everything, you get to buy a crap shanty on Rodeo drive with outdoor plumbing on a lot shielded from the street, overlooking brick walls on 3 sides, to qualify for this mortgage.
You still gotta pay $4K per month in interest and fees, and insurance.
Sing along folks… We’re gonna’ party like it’s 2 oh oh and eight!
A Balloon loan is not necessarily larger at the pay off point contrary to what the Consumer Financial Protection Bureau says. A 5 year balloon with a 30 year amortization is mostly interest with some principal so the pay off would be less then the original balance.
This one I am sure will be larger due to deferred payment. Which brings us to what is the rate of interest on this balloon? I don’t see it mentioned but maybe I missed it. Details, details. You probably have the right to pay something on the balloon if you want.
I would guess that the mortgage holders are counting on the Fed cutting rates and inflation raising the price of housing. After all, we gotta inflate away the Federal/State debt don’t we?? Under writing quality and good appraisals need to be done. (Stop laughing, it’s unseemly!!:-)
If this is really aimed at the lower quality applicant; last hired, first fired, and unemployment is rising, hang on to your hat.
0% down mortgage = extreme desperation
Yup. Looking for more suckers. They’re “helping” young buyers the same way they “helped” Ukraine with the ol’ “let’s you and him fight” ruse.
Seems kind of like a “rent to own” alternative but with a twist.
Bailouts are in the batter’s box in one form or another.
As a renter, I don’t want my taxes to go a bailout of bad financial decisions, public or private.
Since when does what we want matter?
“Subprime is contained.” “Inflation is transitory.” “The vaccine is safe and effective!” “Bidenomics is working!”
The inflation must be kept up in any way possible.
This is the $20 all you can eat shrimp of the housing market.
LOL!
“This is the $20 all you can eat shrimp of the housing market.” will you be having your order with drinks or a side of Private Equity?
“What cannot be repaid, won’t be repaid”
After the dot-com bubble bust the Democrats created a new fad to boost the economy. The community act, during GW Bush, offered subprime borrowers [FICO<600] low down and teaser rates. Construction starts rose 100%. Banks and mortgage brokers salivated. Home prices doubled between 1995 and 2006. Home ownership reached 70%. Between 2003 and 2006 FFR rose from 1% to 5.25%. The Fed poke the balloon in 2008. In Oct 2008 the Fed raided bank accounts for the first time.
They probably won’t have a significant volume of these loans as the borrows won’t qualify based on credit and/or income. If a borrower is lucky to qualify and defaults on the mortgage they can probably live in the house rent free for 5 years during the foreclosure proceedings. I was in the mortgage industry for over 9 years. One of the MAJOR problems is that 1st time homebuyers aren’t required to take a homeowners class to review ALL the extra expenses of owning a new home and putting together a reasonable budget. (i.e. annual cleaning of furnace and air conditioner, putting aside money to repair and replace appliances, faucets, budgeting for increased costs for these items and increases in insurance {homeowners, auto, healthcare}. Private mortgage companies used to require this if less than 20% down but eliminated this requirement later.
“Deja Vu all over again.”
Probably the only one here, but I have no problem with zero down for a primary home. After the divorce, I pay more in rent than a mortgage, and make a good income. Why minimize the risk for the bank with a down payment if there’s a market downturn (if we’re at the highs, it’s a good chance it’s coming) if I could keep my down payment for other purposes? I mean, I’ll be paying mortgage insurance on top of it anyway to again, protect the bank…
I can understand why you are divorced.
You’re funny, but tell me what’s wrong with that? Tie up, say, 20% of my money in a home that most likely will fall in value in the near term, just to mitigate the bank’s risk, or use it for a better purpose?
Why not continue renting?
Zero-down non-recourse loans are PERFECT for those prepared to walk-away from the house and leave the lender and taxpayers holding the bag. What could possibly go wrong (again)?
And then refer to these people who put zero percent down as “homeowners”.
LOL…
At best, what they actually “own” is an out-of-the-money (due to transaction costs) call option on the future value of the house. At least they get to live in it in the meantime – as long as they can afford to continue making property tax and insurance payments for the real “owner” – the holder of the mortgage.
…but then again, why put money down to satisfy the bank’s risk portfolio when most will pay mortgage insurance anyway?
I’d prefer to put that down-payment into something else, frankly, rather than to reduce the risk of being upside-down to a bank
Yes, these zero percent down “homeowners” also have to pay mortgage insurance. The loans all wind up in FNMA/FHLMC/FHA portfolios anyhow.
The thing is …
We won’t be returning to record low interest rates… so the downside risk on property prices is far greater than the potential for upside…
So only a total f789ing retard would buy now with 0 money down.
I would recommend that United Wholesale Mortgage contact Tesla and do a cross-promotion with Tesla owners (put that valuable dbase to work)….
That would surely be wildly successful given Tesla owners are all about losing money on their purchases
Now we need to create a 0DTE homeowners market …
2008, here we come… again
Yup, it’s amazing to me how many people claim it’s “different this time”. SMH…..
In the last month I have received at least 4 offers of 0% interest for 21 to 24 months, INCLUDING balance transfers if done in the next 30-60 days, from banks/CC providers
These guys are taking a walk on the wild side but ultimately they have been conditioned to know they will get bailed out by the CRIMINAL federal reserve when their reckless shit goes south
You probably have a solid FICO … the quants know what their doing /s.
Plus, SHTF in the 20-24 months AFTER bonuses received, cashed and hidden.
We call them banker wankers for good reason.
Most people do not know what that Aussie term, Wanker (Pronounced, “WANK-AH”) here in America. They also do not know what a FANNY is to Aussies. I do.
“Give that fanny a lickin’” was our inside joke….around the Women Folk.
Recession call! Drink!
Hate to break it to you, but 0% loans were back less than a year after the 2008 crash. Poor underwriting and really stupid appraisals (and appraisers and the whole appraisal process) will make it happen again.