It seems it’s not enough to reduce the required down payment to 3%, we need to go even further. How about requiring no money down? That’s right a zero down payment; the consumer technically having no “skin in the game”. That’s what BBVA Compass is offering. Read all about it (Zero Down).
Will such a program really spur homeownership by attracting more qualified buyers or just open the door to those who cannot afford to buy or own a home? To make it more risky, the program requires the buyer to purchase in a designated low to moderate area or have an income no more than 80% of the median income for the area in which the property being purchased is located.
That translates into those with the least money and no cash reserves, buying homes in areas with the oldest housing stock on limited income. I believe we watched this movie and, unfortunately, we know how it ends; not well.
In our zeal to increase home ownership and help more families realize their share of the American Dream, are we doing more harm than good? Are we really helping a family with limited income and resources when we place them in a property which may require more than normal expense for upkeep due to age and location? Especially if the buyers have limited if any homeownership experience?
Required homeowner counseling is a nice touch but, to date, it has not proved to be beneficial when the homeowner faces real problems. What happens when the winter is cold and heating bills are high, the house needs a new roof or water heater, or any other normal homeownership expense? These buyers do not have the reserves or resources to cover these expenses.
Something has to give and that usually is their ability to make the monthly payment. Regardless of how low of an interest rate, the amount the down payment (or lack thereof), or a reduced monthly premium, these homeowners are destined to default. Maybe not all will default but, odds are, many will.
Then who did we help? We didn’t help them, as they lose their home and destroy their credit. We didn’t help the loan holder, as their loan is no longer performing. Surely, we didn’t help the community, as now there is another home in foreclosure in the neighborhood. We need to develop programs which not only help people buy a home, but also helps to ensure that they can afford it.
Remember under the law the lender must establish the consumer’s repayment ability, regardless of the good intentions of the loan program.
Do you still believe a zero down program is good for the consumer (and lender)?