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Let’s not go jumping to any conclusions here, but San Francisco Federal Credit Union just announced a zero down payment loan for home purchases that will go as high as $2 million. Yup, you read it right, no down to $2 million!
It’s a 5/5 year adjustable rate with a present start rate at 4% plus a 1 point origination fee, for the zero down option. Oh, by the way, there is no required mortgage insurance coverage. Isn’t this the type of lending that helped get the mortgage industry into trouble in the not too distant past? SFFCU says not this time, it’s different.
These zero-down loans are being offered to qualified home buyers as a result of ever increasing rents in the San Francisco area. Based on the experiences of other credit unions offering similar programs, Steven Sapp, President of SFFCU, says he sees no reason why this program should not be successful. So, is it that competition is driving the deal; SFFCU wants to do them one better?
SFFCU believes their new “Poppy” loan, as it is dubbed, is a viable lending alternative to assist their members in realizing their American Dream of homeownership. Possibly true, as long as the credit union is diligent in how they manufacture and approve these loans. Quality is key. FYI, “Poppy” stands for “Proud Ownership Purchase Program For You”.
Accurate appraised values become essential as well as validation and verification of adequate income to carry the debt with sufficient resources and reserves to maintain the property. In addition, as these loans will adjust every 5 years, will the borrower still be able to make the payments at the adjustments? Prudent underwriting must prevail.
Hopefully, those taking this loan and the credit union providing it, will still be Proud Owners down the road and not victims of biting off more than they can chew.
Will this new “Poppyloan” open a new field of funding for homeownership or could it be that the creators may have laid down in a poppy field before coming up with the program? As usual, only time will tell.
We wish them luck.
San Francisco is a unique market. The average rent to income is 47% and rent is generally higher than the a mortgage payment including taxes and insurance. 100% is not a problem for a lender risking its capital, but the US system is not without a government safety net. So you have the typical struggle between private capital and public implied insurance, which is a kin to freedom verses safety. Back to the issue at hand. Jumbo loans were, are and always will be a credit and capacity decision more than a collateral issue. Thus the risk for this jumbo program is a life event that impairs income. The institution risk is loss severity to the life event impacted by property value. The tax payers risk is too many life events that impairs the balance sheet and requires institutional liquidation.