Zero-Down Home Loan Program

A new effort is underway to raise the low rate of home ownership among under served groups of home buyers. The Neighborhood Assistance Corp. of America is hosting several events across the country, helping borrowers with low credit scores to apply for 15- or 30-year mortgages with cheaper interest rates.

NACA CEO Bruce Marks told CNBC. “There have been zero foreclosures among the loans that we’ve originated in the past six years.”

Borrowers are required to go through an education session about the program, as well as counseling for budget planning to make sure they can afford a mortgage payment. They also must still submit all necessary documents, such as income statements amd phone bills. The program serves only those who are buying a primary residence, not an investment property.

‘Nonprime’ Loans Expand Mortgage Options

Subprime mortgages—which were blamed for sparking the last housing crisis—are reappearing, this time being dubbed “nonprime” loans. This lending option, which carries new quality standards, is growing for buyers who have damaged credit.

California-based Carrington Mortgage Services is one company expanding its nonprime loan offerings. “We believe there is actually a market today for people who want to buy nonprime loans that have been properly underwritten,” saysRick Sharga, of Carrington Mortgage Holdings, told CNBC.

Carrington Mortgage Services, which plans to manually underwrite each loan, will qualify borrowers with FICO credit scores as low as 500. The lender also will qualify borrowers who’ve had recent problems reported on their credit histories, such as a foreclosure, bankruptcy, or a history of late payments. But borrowers who are at higher risks will be required to make a bigger down payment, and the interest rate on the loan will be higher.

Other lenders also are getting into the nonprime space, including Angel Oak and Caliber Home Loans; more than 80 percent of Angel Oak loans are nonprime.

Source: “Subprime Mortgagees Make a Comeback—With a New Name and Soaring Demand,” CNBC (April 12, 2018)

What Has Analysts Worried With FHA Loans?

The number of riskier mortgages is growing, which is increasing delinquencies—albeit slightly—and raising concerns about defaults, USA Today reports. Federal Housing Administration loans, which typically require down payments of 3 percent to 5 percent, are at the center of most of the concern.

FHA-backed loans are becoming more available through non-banker lenders, who have in some cases eased credit standards compared to banks.

The big concern to many economists is if home prices peak and then decrease, homeowners who made a down payment of just 5 percent and are less creditworthy may be more likely to default.

But non-bank lenders say the loosening of FHA standards is a welcome sign and not one to fear. Your comments?

Source: “Concerns About Riskier Mortgages Are Sprouting,” USA Today (March 12, 2017)