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- To help borrowers afford their homes, some lenders have introduced no-down payments.
- Some suspect these products may trigger a repeat of the 2008 foreclosure crisis.
- Experts said that while the fear was understandable, the restrictions on loans today are much stricter.
A mortgage that requires no down payment, closing costs, or a minimal credit rating may sound too good to be true.
After Bank of America announced its new zero-rate mortgage offer last month, people took to social media to express concern that it would lead to another real estate slump like the one in 2008.
“The premise is to help marginalized communities, but come on friend. Literally stop and read – it’s the same trend as the 2008 incident,” said TikTok user Inkwater. She said in a September video.
But experts say this isn’t the 2008 market and lending standards are much higher. A spokesperson for the Consumer Financial Protection Bureau, a state-owned consumer protection group, told Insider that fears are misplaced and lenders like Bank of America, Navy Federal Credit Union, and Northpointe Bank have expanded access to mortgages. using unconventional methods to obtain mortgages. ability to use pay, eg B. Checking a borrower’s payment history for rent, phone, car, and bills.
“It’s an interesting way to help people who may not have a traditional credit profile,” the spokesperson said. “Think of someone who doesn’t have student loans or credit cards, but pays all their bills, rent and utilities on time.”
In addition, stricter lending criteria apply to the new wave of zero-interest mortgages. As long as borrowers make solid financial decisions and can afford the monthly payments that come with buying a home, experts say they don’t have to worry about foreclosure.
“Using this type of measure as the ability to repay is actually an interesting way to reach people who may have fallen into the cracks earlier,” the CFPB spokesperson said.
Lending standards have improved since 2008, making new mortgage offers safer
With prices soaring in the real estate market, potential homebuyers and lenders who help fulfill their home dreams are looking for different ways to afford to buy a home.
The Federal Reserve’s fight against rising inflation has led to numerous interest rate hikes that have led to a significant rise in mortgage rates. As interest rates rise, the typical home buyer’s mortgage payment has increased high up 15% since August.
This, combined with the price boom of the pandemic, means that many potential buyers are finding it difficult to afford home ownership, regardless of falling home prices across the country.
To address the affordable housing crisis in the United States, several mortgage lenders introduced Products to help potential borrowers better afford their homes.
Bank of America’s recent mortgage offering, called Community Affordable Loan Solution, requires qualified borrowers to complete a homebuyer certification course before applying.
While the offering is available to buyers of any race in certain markets, it is advertised as a way to bridge the racial gap in home ownership in markets that include historically Black and Hispanic neighborhoods in Charlotte, North Carolina. Dallas; Detroit; Los Angeles; and Miami.
While the BOA program was being implemented praiseit has also received its fair share of criticism
A Twitter And Tick Thankspeople are suspicious of offering mortgages and others of its kind. While critics have numerous reasons for their concern, a common sentiment is that zero-cut mortgages could help trigger a 2008-style housing slump.
During this period, a combination of cheap debt, predatory lending practices and complex financial techniques has resulted in many borrowers being inaccessible. When the situation reached boiling point, it resulted in a foreclosure crisis among homeowners, particularly among people of color, and a credit crunch among investors who held defaulted mortgage-backed bonds. The end result was a global recession.
As some of the factors that led to the 2008 housing crash resurface, many Americans fear history will repeat itself.
According to Brian Moynihan, CEO of Bank of America, the company’s zero-down payment product is unlikely to trigger such a catastrophe.
“The point here is to give a down payment – which we have been doing for years with so many special programs – to a buyer who, whoever he is, as long as he meets the income requirements, can buy a majority-minority house in the neighborhood”, Moynihan She said Fox News, adding that the company’s loan-to-value ratio is in the 60% range, so it’s “very suitable for high FICO scores, so arrears are next to nil.”
His self-esteem has not yet allayed the concerns of suspicious Americans.
– Chris Fenton (@TheDragonFeeder) 8. September 2022
The CFPB said Americans shouldn’t panic because this isn’t the housing market of the mid-1980s.
“The 2008 housing crisis was caused by a complete lack of underwriting,” the spokesperson said. “The advance itself, while being a risk factor, can be mitigated by other factors. In 2006, people were insured with nothing but a credit score and the lenders didn’t even check the rules the office put in place to ban such behavior. “
The CFPB said the BOA’s program is robust and will help make home ownership more accessible to Americans who may have previously been blocked. To ensure that Americans can continue to pursue home ownership in a healthy environment, the CFPB says it is pursuing mortgage products.
“We have issued a guide, as have the HUD and other agencies,” the spokesperson said. “Something to remember is that most mortgages are now backed in some way by the federal government. They must meet the rules of Fannie, Freddie, FHA or VA in addition to what the bank has.
“So we have rules and lenders have to follow them, so the same thing that happened in 2008 can’t happen the same way this time.”
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