It's Back!! -- No Money Down -- Almost?

When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down. In our greedy hey-day, they were the mortgage lenders rising star; if you wanted a house you obviously couldn’t afford -- no problem. Oh, you don’t have a down payment? -- No problem, you don’t need one. Oh, you have a low credit score? No problem we’ll waive that. Oh, you have bad credit too? No problem, we’ll just increase your loan rate one point and there’ll be no credit check. Step right up buyers! Here are the keys to your new “shining home on the hill.” No matter you can’t pay the monthly mortgage or the taxes or even the utilities -- no problem!! Next customer please; and so it went, mortgage after bad mortgage creating havoc with our financial institutions and leaving millions of foreclosures and abandoned homes in its wake as far as the eye could see.

Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government take over, is slowly getting back into the market for mortgages with no down payments. Harvard’s Joint Center for Housing Studies reports that this type of loan might be the kind necessary to restart the housing market, because down payment requirements are keeping first time home buyers out. Low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting.

This new program is called Affordable Advantage, available to first time home buyers in four states and created in conjunction with the states housing finance agencies. The initial program is small but if successful it will be available in other states as well. So far Idaho, Massachusetts, Minnesota and Wisconsin are offering them. The loans are a thirty (30) year fixed mortgage with mandatory home ownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts) and buyers must invest one thousand dollars ($1,000) in the home and they must live in it. The Wisconsin Housing Authority has issued 500 of these loans since last March, making it the first state to act; and to date there are no delinquencies.

It’s the mission of Federal and State agencies to put people in their homes and keep them there, not to foreclose unless all other options have been exhausted. This new form of sub-prime loan is much safer because income is fully documented, monthly payments are fixed, credit score requirements are generally higher and borrowers must be thoroughly counseled on the home buying process and managing their debt. With the growth and enhancement of the Affordable Advantage program it may very well be that the young first time home owner will help lead us out of our housing doldrums and -- WITH NO MONEY DOWN -- ALMOST?

We wish them well in their mission.


Dick Clark
Alpine Lakes Real Estate
Campton NH
800.926.5003 or 603.726.4580