3 Percent Down Payment

It’s been a while since the US made a wholesale push to get more cash and income-strapped households into the ever more unaffordable American dream of owning a house. Three years to be exact, which is when nationalized housing agency Freddie Mac last rolled out a conventional mortgage that only required a 3 percent down payment for certain borrowers.

Even with the modest requirements, the mortgage program had back in 2015, most Americans who needed access would be excluded. The program, which as we described at the time was designed for qualified (that being the key word) low-and moderate-income borrowers – i.e., Millennials – saw limited progress over the last few years. FHFA Director Mel Watt told Congress last year that Freddie’s 3 percent down payment program (along with a similar one from Fannie Mae) was continuing to grow. It just wasn’t growing fast enough. While putting 3 percent down payment may not have been especially challenging for most Americans, having even the modest income required to go along with it, was.

So according to Zero Hedge, last week, Freddie Mac announced on Thursday it was about to supercharge its 3 percent down payment program. It launched a widespread expansion of the offering when it announced that it is rolling out a new conventional 3 percent down payment option for qualified first-time homebuyers. Effectively, it was the same as the 2015 program… with one small difference: there would be no geographic restrictions; more importantly, there no longer will be any income restrictions.

Assuming I understand the program correctly, first-time buyers need ONLY the 3% down payment to buy a house. That means no income!

There is one big potential hurdle, I say with tongue in cheek, when all the borrowers are first-time homebuyers, at least one borrower must participate in homeownership education in order to qualify for the mortgage.

The New York Times said in February 2015, “But it is important to know that the low-down payment options now available are not synonymous with the subprime loans that proliferated during the housing bubble, which often required little more than a pulse to qualify. Without these new programs, advocates said swaths of the population would be locked out from the forced savings plan that is homeownership. After all, it would take 20 years for a household earning about $50,000 to save 10 percent, plus closing costs, for a $158,000 home.”

It now looks like sub-primes are back, and all you need is a pulse to buy a house. The insanity is back.

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