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A shady financial tool from the housing-bubble era is making a comeback | CNN Business (www.cnn.com)

submitted 2 months ago by [email protected] to c/[email protected]

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[–] Varyk 27 points 2 months ago (2 children)

Zero down mortgages don't seem like a bad thing as long as the asessments of the borrowers and their mortgages are genuine.

This article keeps equivocating the subprime mortgage crisis with this zero down mortgage tool, but the subprime mortgage crisis was caused by literal fraud, not the existence of a particular mortgage process.

Zero down mortgages can be structured as schemes to fool people, but that's not what caused the mortgage crisis, the mortgage crisis was caused by creditors falsely assessing variable mortgage values and knowingly selling them to people who couldn't afford them for a short-term profit.

Zero down no interest mortgages on the other hand, can be a great tool for people looking for a home.

Read what the contract says, do your due diligence before you buy and make sure you have enough to keep up with your mortgage, like with any mortgage.

The risks the article talks about are the same risks you're going to get with any type of mortgage, not just zero down mortgages.

[–] ryathal 17 points 2 months ago* (last edited 2 months ago) (1 children)

The subprime crisis was way more than just fraud. It was many compounding levels of fraud. Assessors would essentially be bribed into justifying whatever value the agent wanted, now they don't have direct contact and can't just pick a number around the offer number. Brokers could get approval for someone either no verified income, assets, or even a job in some cases, this again is no longer actually possible for conventional mortgages. Insurance companies gave safety ratings on mortgage securities that were entirely made up, again this isn't happening anymore. Mortgages were bought and sold so many times there wasn't really a record of who actually owns many of them, again no longer possible and managing ownership with physical paper is required. Mortgage securities were also leveraged as safe assets to guarantee further loans, which once again isn't actually allowed anymore.

Edit: I forga big one. Adjustable rate mortgages had no total cap on rate growth, so rate could increase each adjustment period indefinitely, now they are limited to a maximum increase usually 5%. So now if you get about ARM at 5%, it will never go above 10% for the interest rate.

[–] Varyk 4 points 2 months ago

Yup, it was fraud.

[–] [email protected] -5 points 2 months ago (5 children)

I disagree. If borrowers are unable to afford a down payment, that almost certainly means they have very little financial flexibility, which is necessary when owning a home. Now, I'm not trying to blame borrowers for this scenario. They are living through an affordability crisis and are almost certainly affected by the housing crisis if they are renting (as opposed to living rent-free/light with family). By allowing zero down mortgages, it's treating a symptom, but letting the underlying causes fester.

[–] [email protected] 15 points 2 months ago (1 children)

Sure but if people have been able to consistently pay rent higher than their mortgage I think they'll be fine.

[–] [email protected] 2 points 2 months ago* (last edited 2 months ago)

I know that's the case in some markets, but I think it's pretty close in most places. Especially when you consider the other expenses of ownership like maintenance, property tax, insurance, etc. I know in my situation, we have a few hundred dollars a month more flexibility by owning instead of renting.

[–] [email protected] 5 points 2 months ago (2 children)

Zero down may be the only way a family can afford to buy a home. In a time where older starter homes are north of 300k, we’re asking families to save 60k cash to get to 20% down. That’s about the median household income.

If you’re able to save 10% of your paycheck (after taxes), you’re going to spend about 10 years saving for today’s price. Which will likely be much lower than next years price.

[–] [email protected] 1 points 2 months ago

Is 20% the rule where you live? The article says the down payment is 3%.

[–] [email protected] 0 points 2 months ago

Family making 60k, has no business buying 300k house esp with zero down.... How do you even budget these numbers lol

Get real

[–] Varyk 3 points 2 months ago* (last edited 2 months ago)

I understand your concern, but that's throwing the baby out with the bath water. And then throwing out a baby next door from a crib who wasn't even taking a bath.

Treating a symptom does not mean you aren't working on a cure.

In this example, specifically, working with zero down mortgages affords borrowers the ability to make their own choices without stopping me you or anyone else from trying to change the underlying mortgage system.

It's one more tool

[–] [email protected] 3 points 2 months ago

If borrowers are unable to afford a down payment, that almost certainly means they have very little financial flexibility.

Possibly. It might also deplete their only source of financial flexibility, too.

[–] [email protected] 2 points 2 months ago

I disagree. If borrowers are unable to afford a down payment, that almost certainly means they have very little financial flexibility, which is necessary when owning a home.

I think you're looking at this one particular point in a vacuum. On the surface it would appear that someone that can't produce $20k-$40k cash to put down on a house doesn't have the financial wherewithal to produce $20k in cash that may be needed to replace a roof or HVAC system on a house.

However, zoom out a bit and you'll see these non-homeowners have been financially savvy to successfully navigating rental rates outpacing inflation by 40%! source. Once they have a fixed rate mortgage, their ability to plan an save for home repairs becomes much more attainable.

Ask yourself this: How would your personal finances look right now if your house payment had been rising every year for the last decade and is now 40% higher that when you signed your mortgage paperwork?

[–] [email protected] 17 points 2 months ago (1 children)

Subprime 2: Electric Boogaloo

[–] xmunk 4 points 2 months ago

The market is back - can our hero kill it dead this time?

[–] [email protected] 4 points 2 months ago

The shady financial tool was NINA loans. Banks were giving out money to people with zero evidence that they could pay it back.

[–] [email protected] 1 points 2 months ago

Solution is more housing and lower prices... Not paper voodoo