# $1000 down mortgages again!!!



## Chuck Smith (Feb 22, 2005)

This should be very alarming to everyone. This is apart of the reason why the housing market got to where it is today! This is almost of a repeat of what was happening in the 90's! And portions of the goverment (both sides) is backing this!

The Return of the $1,000 Down Mortgage
Fannie Mae and State Housing Agencies Are Offering Little-Money-Down Mortgages. But Why?
By Annie Lowrey 8/5/10 6:00 AM

In Wisconsin and other states, home buyers might be eligible for 100 percent financing on mortgages. (Creative Commons.)

"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."

Image by: Matt Mahurin

Image by: Matt Mahurin
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It sounds too good to be true. But it is true. This offer does not come from a subprime 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 pilot program is called "Affordable Advantage," and it has now been adopted by three states - Massachusetts, Wisconsin and Idaho. (Other states, such as Pennsylvania, California and Colorado, have similar state programs.) The initiative is small, reaching just a few hundred people so far. But it is looking to expand. Given the dangers of these types of mortgages and the specter of the housing bubble, where unconventional loans wreaked disaster, it is also raising questions from wary housing experts and legislators.

Fannie Mae helped to create Affordable Advantage after the state government agencies tasked with expanding homeownership found they were having trouble doing their job. Before the recession hit, these housing finance agencies, known as HFAs, issued tax-free bonds and used the funds on programs to encourage developers to build in underserved areas and to support single-family mortgages. When the financial crisis hit, private companies - leery of the collapsing housing bubble and freezing mortgage market - no longer wanted to buy the HFAs' bonds. Their business ground to a halt.

To help HFAs move forward, Fannie Mae and NCSHA stepped in. Fannie Mae agreed to purchase mortgages with tiny down payments, as long as the homebuyers were vetted - had excellent employment histories and credit, and merely lacked a cash reserve for a down payment. And the participating HFAs agreed to buy back loans if they became delinquent, in lieu of Fannie asking for more-traditional mortgage insurance.

"[The program] was created to support state HFAs and their efforts to provide qualified first-time homebuyers with financing in the wake of the housing and economic downturn," Janis Smith, a Fannie Mae spokesperson, says. "HFAs are nationally regarded leaders in affordable housing finance and their business is prudent, sustainable business. HFAs work closely with their borrowers to ensure they're well prepared for homeownership. As a result, the loans delivered by HFAs have very low delinquency rates. In addition, HFAs work with first-time homebuyers who need and are qualified for affordable housing - a segment that has seen increased demand with the downturn in the housing market."

Now, qualified homebuyers in the three states pioneering Affordable Advantage do not need to put down the 3.5 percent minimum down payment required by the Federal Housing Administration, or much of a down payment at all. They can get 100 percent financing - a loan as big as the purchase price of the house - for a 30-year, fixed-rate mortgage - a vanilla mortgage. The deal includes a program to help homebuyers if they become unemployed, lowered fees and there is no requirement that the homebuyer purchase mortgage insurance.

Wisconsin started the program first, in March, offering 100 percent loan-to-value mortgages for borrowers with a minimum credit score of 680. "It's a good credit score," explains Kate Venne, the spokesperson for the Wisconsin HFA. "In addition, we want to see what other lines of credit people have, and their performance. We look at their work history. We call their employers." Thus far, Wisconsin's HFA has offered $52 million in mortgages to 450 buyers.

But there are concerns and problems intrinsic to purchasing a home with almost no money down. First and foremost, if the housing market turns down even a fractional amount, the homeowner will go "underwater" immediately. If the price of the house falls by even a bit, he will owe more on the mortgage than the house is worth. If he needs to sell it, he needs to come up with extra cash to pay the bank back. And the fact that the homeowner only had a thousand dollars to put down in the first place implies that he does not have much financial breathing room and might default.

"That is clearly a worry," says Barry Zigas, the director of housing policy for the Consumer Federation of America. "But for people who are buying a home first and foremost as a place to live, the fact there might not be much equity, or the equity might go negative - that's not the most important feature."

He argues that vetted low-income buyers have excellent track records in terms of default, as long as they are invested in their communities and have good employment and credit histories, if not savings. "The more equity you bring to your transaction, the more security you bring. But this can be a great way for people to gain access to homeownership who might not have been able to otherwise. And with mortgage rates what they are" - at historical lows - "this program lets those specific people gain mortgages."

Others disagree. "Haven't they noticed what's happened to the country in the past five years?" asks Dean Baker, the co-director of the Center for Economic and Policy Research. "You're not necessarily helping if you're helping them buy a home where they're in the position they won't be able to afford it. I don't understand the logic of this. House prices are still going to fall. And when they do, we haven't helped these people who are going to have to work like crazy to pay their mortgage off, or they're going to default. If you're in a situation where this is the only mortgage you can get, you shouldn't be buying a house."

And many of the governments' own economists believe that houses should not be many Americans' primary investment. Karen Pence, who leads the Federal Reserve's real estate finance research group, argues that homes are a terrible investment and believes the government should offer fewer programs and incentives to subsidize homeownership.

On top of that, Affordable Advantage raises questions since, at the end of the day, taxpayers are backing its investments - Fannie Mae being under the government's conservatorship, and Treasury being the main purchaser of bonds from the state HFAs. In recent months, the government has turned away strongly from programs helping encourage mortgages with low down payments.

The Federal Housing Administration, for instance, considered a plan to let homebuyers use the Obama administration's $8,500 first-time homebuyer tax credit to cover the 3.5 percent minimum required down payment. It received such push-back from the Hill, incensed the federal government would pay homeowners to have no skin in the game, and from housing experts, that the Department of Housing and Urban Development pulled the program. Indeed, faced with a 14 percent delinquency rate, the Federal Housing Administration increased the premiums it charges to insure some mortgages this year. And it set down payment requirements at 10 percent for borrowers with low credit scores.

On the Hill, increasing numbers of legislators want to ban mortgages with low down payments outright. Rep. Scott Garrett (R-N.J.) last year introduced legislation requiring FHA borrowers to put down 5 percent at least. This spring, Sen. Bob Corker (R-Tenn.) requested an amendment to the financial regulatory reform bill requiring minimum 5 percent down payments for private mortgages. Multiple legislators from both sides of the aisle have recommended looking at down-payment reform for Fannie and Freddie.

Low-income housing advocates argue that the state programs have much lower default rates than the national average, because the state HFAs had good track records of checking out prospective candidates and offering loans only to good ones. Kate Venne, of the Wisconsin HFA, says its default rate is just 1.83 percent. But more and more believe that the products are simply too dangerous, and that the government should no longer boost homeownership for Americans without the means to put at least 3.5 percent down.

"In today's world, without question, we've learned two lessons," FHA Commissioner David Stevens told reporters this winter. "One: homeownership is important to the sustainability of communities. And two: not everybody should own a home."

Correction: A prior version of this article misstated the name of the Federal Housing Administration, as the Federal Housing Agency. TWI regrets the error.


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## Chuck Smith (Feb 22, 2005)

Here is the thing that scares me the most. THese programs are good if the right people use them.

But the whole down fall of the housing market was anyone could get a loan. People with 600 or less credit scores were getting homes. Some below 500 were getting them. This did two things..... Made house prices jump! Which is good and bad. Good for the seller bad for the buyer.....more debt, less income or flex in income if one becomes unemployed. Then come resale...people would want to get a down payment back out of a home plus pay a realtor, closing costs, etc.... So prices keep soaring up. Now houses are so inflated in price in certain area's and home owners can't get out from under them.

Now with this program or programs like this....it will start the cycle again!

This is a huge concern! People should be more worried about this.


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## TK33 (Aug 12, 2008)

> THese programs are good if the right people use them.


I disagree, the right people have other means of getting loans. A person shouldn't have a house unless they can afford the down payment, period.


> Made house prices jump! Which is good and bad.


 I disagree again. It is always bad. Tying into my first sentence, house markets getting inflated and manipulated is always bad, actually it is bad for everything. This leads to massive deflation in values, like we have now, inflated property tax rates and assessments, too much confidence in the market, not enough purchase scrutiny, etc.

Right now ND is doing good, comparitively. I still think we are setting up for a major crash of our own though, if oil and ag both tank at the same time. No one watches their own city government and city planning. Right now IMO Fargo is over building, existing homes less than 20 years old are not selling, yet building permits are being fired out like out of a machine gun, assessments are starting to get outrageous, the Western part of the state needs funding to protect their infrastructure, Devils Lake Flooding, Fargo flooding, etc. Yesterday a report came out that wages dropped 1.6%, no one seems to want to talk about it.

This is all a political ploy for November. Trying to get votes from certain groups while simultaneously paying back their contributors. Hopefully people are smart enough to see through it and put people (no matter what party) in office that have the experience, intelligence, and guts to stand up and say it is time to hit the brakes and seriously evaluate what the hell we are doing here.


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## Chuck Smith (Feb 22, 2005)

TK....

What I meant by good and bad is....good for the person selling the home. Bad for the person buying. Yes inflated markets are bad period and will make the market "crash" at some point in time.

Now the $1000 down programs and things like that are good. Here is how they are good. Lets take a person who has the 20% needed for a down payment. They get into this $1000 down program with no PMI (Principle Mortgage Insurance) and keep a low rate and low payment. They have a slush fund of extra $$$. They can use this money to pay down the mortgage. If a person takes that 20% and applies that to the monthly payment each month... They will have the house paid for in less time.

A simple example.... $100,000 home at 5% with 0 down is a payment of $536 for 30 years. Now lets divide an extra $100 a month you can use out of the 20% you have saved. But now you are in the 0 down program. 20% ($20,000) divided in $100 monthly payments is 16 years of extra $100 saved. This will make your loan be paid in full in 21 years instead of 30 years. Now I am not even figuring interest you could be making on $20,000. Or the fact that you have a "slush fund" of cash to pay a monthly mortgage or bills if you are ever short on cash a certain month.

Like I said these programs are good for people who have $$ saved up and are financially ready to put down a big down payment. They can take advantage of these programs and gain great ground. But on the flip side is these programs are targeted at people who should not be buying homes in the first place and go deeper into debt!


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## farmerj (Jun 19, 2004)

oh give me a break on credit score.

It's a farce created by the finance industry to justify classifing certain people.

I live within my means, pay my bills and all that. But I still have a credit score in the tank.

Why? because I got a divorce and lost a house in the process of it. For three years I have been putting my finances back together again to recover from something they say takes 3-5 or even 7 years to recover from financially.

last house I bought was bought under the advice/pressure from a builder/buyer/banker and parent.

ALL of them told me to buy the house I could afford in 4-6 years. Yeah right. So eventually I caved to their advice.

Wish I would have ignored every single one of them and bought the house I could afford on LAST years income. Guess the idiots writing the loans are still not learning.

With a real two income family, that house was not an issue but a divorced family could never afford it.


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## Chuck Smith (Feb 22, 2005)

farmer.....you are correct. Credit score is a sham. There are people out there with poor credit scores that could buy a $300,000 home with cash. All they would need to do is sell some stock, land, cash in bonds, etc.

Like you stated people are pushing programs and people to purchase out side of their means. You even stated that happened to you. That is the problem. The goverment is pushing these loans and programs.

It is funny how everyone blames Bush....but yet it was clinton who set up the frame work for these programs. IT was a democratic congress that pushed more of these programs during the bush era. Now bush signed the loans and did not veto them (dumb on his part but what else could have he done?)


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## farmerj (Jun 19, 2004)

With the access online to fiancial planning and calculators, a person is more than able to adequately plan their own future. We have a bank in town that advertises $15 overdraft fees. I used to bank there too. I swear the used it as a line item for income.

People need to take charge of their finances and it's not with some of what they have to offer. Since my divorce, I have been more relaxed on monthly bills. It's happened because I forward plan. I have also quit listening to so many "experts" and went to a "cash only" strategy. Screw their credit score. Cash trumps credit any day of the week

Are medical savings plans really worth it when you can put those same funds into a money market and get more interest. "But it's tax free!" So is itemizing those expenses at the end of the year. Every penny you spend on some ones gimmick like that or even a 401 like program is money out of your pocket.

Funny things you see happen when you use finance management software like Quicken.


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