Bank of America announces zero down payment loans
Rental Property Investor · Wilmington, NC · Member since 2019 · 69 posts · 51 votes
Bank of America announces zero down payment loans
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Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y@Nick Sansivero, I'm not a lending expert, but if I had to speculate, there's no shot Bank of America is holding these loans on their books. This has government-backed subsidizing written all over it. No such thing as a free lunch, there are only trade-offs.
32 Replies
- Member since 2020 · 241 posts · 179 votes4y
I think the stated income and subprime credit scores were the biggest factors in the collapse. Nevertheless, it's a lot easier to walk from a property when you have no skin in the game.
- 4yPeter MckernanBusiness MemberResidential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
Quote from @Nick Sansivero:
Bank of America just announced zero down payment, zero closing cost, and no minimum credit score mortgages for Black and Hispanic first-time homebuyers.
https://www.bloomberg.com/news/articles/2022-08-30/bofa-tests-no-down-payment-mortgages-for-minority-communities
I’m all for giving people opportunities, but isn’t this reminiscent of the kind of policies that lead to the 2008 mortgage collapse? Do we have anything to be worried about here?
I say this not being in real estate in 2008, the loans back then were a lot different then they are now which all include some very easy lending practices. These no money down loans are good for borrowers that are not in a place to buy (for the buyer's) and if the bank can afford it great along with the buyer's; however, my experience DPA (downpayment assistant loans) are not that easy to do and depending on the programs can take a long time to fund/close. This is also a position for B of A to get more business due to the slow down on purchase/re-fi business they are trying to put more products out there to increase their top and bottom line.
The McKernan Group4.957 Reviews - 4yMichael K GallagherBusiness MemberReal Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
Wow very Interesting loan product. My first instinct is this is great! we can get some of the most underserved communities the pride of ownership, BUT that excitement comes with some very strong apprehension about a few major factors.
1) Are the rates still 30 year fixed? If these are ARM's like in the early 00's and they ballon or adjust in 5-7 years then that is very concerning to me.
2) Anytime I see something from a major bank like BoA or fifth 3rd, or maybe Chase, I immediately think ... Can these banks even get these loans to closing at all? and can they get them to closing fast enough to be competitive? because doing this day in and day out, some of my worst lending experiences have come from big banks both as a buyer and as an agent.
3) If they are not using credit, (which I'm 100% in support of...but that's a whole other post) how are they determining eligibility? and because of that I immediately ask myself if these loans will actually get to the target market.
I hope products like this take off and help people get into home ownership...or even house hacking! But I'm exceptionally skeptical until I can find some data to address my above concerns.
@Nick Sansivero Thanks for the article and the discussion! very interesting for sure.
- 4yMatthew CrivelliBusiness MemberLender · MA · Member since 2021 · 1k+ posts · 1k+ votes
I've been trying to figure out Bank of Americas angle with this and I think it may just be a PR stunt. I have a feeling it's going to be a VERY small test program.
Freedom Capital Funding, LLC523 Reviews - Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes4y
@Nick Sansivero, I'm not a lending expert, but if I had to speculate, there's no shot Bank of America is holding these loans on their books. This has government-backed subsidizing written all over it. No such thing as a free lunch, there are only trade-offs.
- 4yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
That is a recipe for a disaster and a repeat of 2008 (as you said). If people aren't willing to do a down payment, they have nothing to lose if they default on their loan....and if they can't save enough for a down payment, are they going to be able to pay the mortgage, property taxes and regular maintenance that goes with owning a house?
- Rental Property Investor · Wilmington, NC · Member since 2019 · 69 posts · 51 votes4y
Quote from @Tom Fidrych:
I think the stated income and subprime credit scores were the biggest factors in the collapse. Nevertheless, it's a lot easier to walk from a property when you have no skin in the game.
Agreed, it's this line in the article that's concerning to me -
"If the housing market were to slump, homeowners without a significant amount of equity may have little incentive to keep paying their mortgages, hurting their credit scores and sticking lenders with foreclosed homes."
I'm very interested to see how the trial run goes. - 4yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
We just opened a joint checking and savings account with BOA. Does that mean we should apply? :-D
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Jill F.:
This is what small mom and pop landlords (like me) do for renters all the time. I think it's a great idea and good business (and I exited the eviction moratorium fully collected even in 'D' neighborhood rentals).
when I sold some of my REO's i had on the books a few of them went through Naca and they have been around for decades and lo and behold when I saw the docs B of A was the lender and these folks go in with no downpayment and seller ( me bought down the interest rate) to sub 2% .. heck the insurance cost more a month than the mortgage. so nothing new from my perspective and Naca is open to all colors and creeds. Tough to get to the finishing line with those folks they are quite disjointed but they do get some closed.
- Rental Property Investor · Marietta, GA · Member since 2017 · 131 posts · 101 votes4y
Quote from @Jaron Walling:
We just opened a joint checking and savings account with BOA. Does that mean we should apply? :-D
@Jaron Walling I don't think you're eligible... it's only for first time home buyers. ;)
- Member since 2019 · 7k+ posts · 4k+ votes4y
Quote from @Nick Sansivero:
Bank of America just announced zero down payment, zero closing cost, and no minimum credit score mortgages for Black and Hispanic first-time homebuyers.
https://www.bloomberg.com/news/articles/2022-08-30/bofa-tests-no-down-payment-mortgages-for-minority-communities
I’m all for giving people opportunities, but isn’t this reminiscent of the kind of policies that lead to the 2008 mortgage collapse? Do we have anything to be worried about here?
My comment is that this program is good because the program is isolated into Black and Latino neighborhood. So pretty much C class and lower from political-correct perspective. This is way better than giving all people low interest rate like in 2020 which only trigger more massive appreciation and left out the ones that needs housing the most.
- Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes4y
Quote from @Nick Sansivero:
Bank of America just announced zero down payment, zero closing cost, and no minimum credit score mortgages for Black and Hispanic first-time homebuyers.
https://www.bloomberg.com/news... all for giving people opportunities, but isn’t this reminiscent of the kind of policies that lead to the 2008 mortgage collapse? Do we have anything to be worried about here?
"Customers using the program will be evaluated for a home loan not by credit scores, but rather factors such as their history of making rent, utility, phone and auto-insurance payments on time, BofA said in a statement Tuesday. The program will be tried out in certain predominately Black and Hispanic areas of Dallas, Detroit, Los Angeles, Miami and Charlotte, North Carolina. BofA wouldn’t disclose the planned size of the program, which may be expanded later to other cities."
Sounds like a recipe for disaster. So you're not going to look a borrower's credit score, but you're going to consider other factors such as a history of on-time payments, which is already baked into a person's credit score?
Conveniently this will exclude negative credit score events like foreclosure, bankruptcy, judgements, etc which are indicators of creditworthiness. It's only looking at one piece of a puzzle. This would be similar to a landlord evaluating an applicant and renting to them primarily based on their history of rent payments but ignoring the large debts, previous evictions, and credit score.
People like to focus on the wrongs that banks perpetrated leading up to 2008 but they forget that it was actually government that pushed these bankers to make high risk loans. The obsession of politicians with the "American Dream" of everyone owning a home caused them to push policies like this to boost the homeownership rate by any means necessary. Government policy creates incentives, people make decisions based on those incentives, consequences are experienced down the road.
The irony is that programs like this are more likely to hurt minority communities with higher default and foreclosure rates.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Paul De Luca:
Quote from @Nick Sansivero:
Bank of America just announced zero down payment, zero closing cost, and no minimum credit score mortgages for Black and Hispanic first-time homebuyers.
https://www.bloomberg.com/news... all for giving people opportunities, but isn’t this reminiscent of the kind of policies that lead to the 2008 mortgage collapse? Do we have anything to be worried about here?
"Customers using the program will be evaluated for a home loan not by credit scores, but rather factors such as their history of making rent, utility, phone and auto-insurance payments on time, BofA said in a statement Tuesday. The program will be tried out in certain predominately Black and Hispanic areas of Dallas, Detroit, Los Angeles, Miami and Charlotte, North Carolina. BofA wouldn’t disclose the planned size of the program, which may be expanded later to other cities."
Sounds like a recipe for disaster. So you're not going to look a borrower's credit score, but you're going to consider other factors such as a history of on-time payments, which is already baked into a person's credit score?
Conveniently this will exclude negative credit score events like foreclosure, bankruptcy, judgements, etc which are indicators of creditworthiness. It's only looking at one piece of a puzzle. This would be similar to a landlord evaluating an applicant and renting to them primarily based on their history of rent payments but ignoring the large debts, previous evictions, and credit score.
People like to focus on the wrongs that banks perpetrated leading up to 2008 but they forget that it was actually government that pushed these bankers to make high risk loans. The obsession of politicians with the "American Dream" of everyone owning a home caused them to push policies like this to boost the homeownership rate by any means necessary. Government policy creates incentives, people make decisions based on those incentives, consequences are experienced down the road.
The irony is that programs like this are more likely to hurt minority communities with higher default and foreclosure rates.
Look no further than Clintons CRA to find the root of this
- 4yDan DiFilippoBusiness MemberReal Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
@Nick Sansivero you gotta love Social Justice. They get special treatment now *and* they'll get to complain about targeted predatory lending once they start getting foreclosed on.
- Real Estate Agent · Los Angeles, CA · Member since 2015 · 218 posts · 111 votes4yOh boy....
- Rental Property Investor · Sanford, NC · Member since 2017 · 39 posts · 35 votes4y
I'm more concerned about the no money down in a market that is almost certain to constrict in price in the 3-5 year range. I'm not accusing BOA of creating a predatory program under the guise of racial reparation, but many people could end up paying a ton of interest without much lowering their principal and then be left upside down in their mortgage should they wish to sell. No-Money down only makes sense if you are expecting steady appreciation, and they are specifically targeting communities that have been historically denied that appreciation. I suppose the thought might be that the program will help to upend that cycle and create wealth, but that seems a heck of a gamble.
- Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes4y
I'm glad I read the article because based on the title of it I thought this seems a bit racist to me to only offer these products to certain ethnicities. It seems like they are doing it in neighborhoods that are predominately black or hispanic but you don't have to disclose or prove your race to apply for the loan. I wonder if this could however have an unintended consequence of diversifying the area more since anyone can get the loan regardless of race. I am concerned about this plan long-term since I believe savings is a lifestyle and if someone hasn't been able to save up for a down payment are they going to have money or ability to get credit to help cover major expenses like new roofs or HVAC or are they just a breakdown away from losing the house or letting it get into a state of disrepair. I hope this works out though since there are a lot of bills people pay regularly that don't get reported but still paint a positive financial picture and if this is successful banks may be more ready to look beyond the score as long as no history vs. bad credit history is the issue with qualification.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes4y
Quote from @Nick Sansivero:
Bank of America just announced zero down payment, zero closing cost, and no minimum credit score mortgages for Black and Hispanic first-time homebuyers.
https://www.bloomberg.com/news... all for giving people opportunities, but isn’t this reminiscent of the kind of policies that lead to the 2008 mortgage collapse? Do we have anything to be worried about here?
Point of clarity, limiting it to Black and Latino homebuyers would be a fair housing violation.
So they will be limiting it to any buyer, providing they are buying in a designated (read: Black and/or Latino) neighborhood. Historically that means it'll be a gentrification accelerator, as white folks sign up.
Anyways, these programs aren't new, though they've clearly got the PR/marketing department working overtime.
Here are a couple translations from journalism-speak to what it normally means for mortgages:
- As stated, people of any racial group will be able to use it. They just have to buy a home in a designated census tract or community, which in this case they are selecting via Black and Latino demographic makeup. In the past, non-Black non-Latinos have been more than happy to take advantage of social welfare programs too, if they are appealing (see: PPP forgiveness). Often times these programs simply accelerate gentrification.
- The "no FICO score" thing means manual underwriting. This will make a difference for very few people. Use case #1 is "I have bad credit." OK, so for this to work that means this person doesn't pay their car payment or their credit card bills on time, but they somehow DO pay their car insurance, utilities, health insurance, and rent, on time, every time, and can document it for the last 12 months? I have never met that person, have you? Use case #2 is "I don't have established credit yet." It only takes a few months to go from "no established credit" to 680+ FICO scores. So for someone to have no established credit, but a bunch of utilities, etc, in their name, is fairly rare. Are we targeting the Dave Ramsey demographic? Because those people WILL have a down payment saved, meaning they wouldn't need to use this program with it's (I guarantee you) far higher than normal interest rates.
- "Affordable" in these contexts almost always means low/no down payment, it does not mean normal/low interest rate or monthly payment. As the heroic Admiral Ackbar once said, "it's a trap." A debt trap. A monthly payment trap. Invariably you add up the surplus interest paid over a fairly short amount of time, and it's a bigger number than the "help" you were given for the down payment. There are millenials out there who graduated college 10 year ago and don't understand why their student loans have a bigger balance than when they took them out, because they don't know how to calculate simple interest, and do not realize that their "income based repayment" minimum payment doesn't even cover the simple interest accruing in any given month. Oh, but that student loan is "affordable," right (in the student loan context "affordable" DOES mean lower monthly payment, but that just moves the "gotcha" somewhere else... as it always does)? I swear, I'm about to get PTSD from the violent abuse of the word "affordable" as it's commonly used in "but we're helping people!" contexts.
- Side note: I really like the 3% and 5% down programs for FTHB. It's a nice sweet spot. We know they can save, because they just did. So they aren't going to go broke over a hot water heater breaking, etc. There's a balance between propensity to have basic competence at personal finance 101, skin in the game, while still being accessible and realistic for folks of modest means, and so on. There are reasons why this sweet spot is rock solid, always available, while these "magic unicorn mortgage of the day" always flash hot & quick, get all the headlines, then burn out, and go away, until some other PR or other high mucky muck, at a different bank, has an amazing never before seen bright idea to solve all inequality in the universe, and then we rinse and repeat. (& to all the "omg 2008 all over again" commentators, if that was going to happen, it would have happened like 10 iterations of this exact same thing ago, there's nothing super unique or special about this unicorn-of-the-day).
Behind the scenes, the market has been so hot, that big banks have been unable to fulfill their community reinvestment act obligations. Sellers did not want to work with buyers using down payment assistance, FHA, etc. So the banks wound up with a backlog of CRA dollars that need to be spent/"invested," they need to play catch-up. And now the market is cooling, so there you go. Other lenders and banks, and I think this is a much better approach, are subsidizing interest rates for folks of modest income, relative to the census tract they are buying in, to deploy those dollars. For example.
- Realtor · Charlotte, NC · Member since 2017 · 357 posts · 292 votes4y
@Chris Mason that's a great summary and breakdown of what this will actually mean in real life. Big banks and their PR departments really sell certain things, but honestly I don't know that it'll mean unqualified people will be getting loans. To your point, people with terrible credit got there because they aren't making regular payments, etc. And of course they're not doing this out of the goodness of their wallet. It comes down to what they have to do. Perhaps if the down payment assistance programs weren't so dang tricky to navigate and take longer, the sellers wouldn't have a bias against them.
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes4y
In Australia banks will not be allowed to finance gas powered cars only battery powered cars. This is a sign of things to come as we move further away from a market economy. They love social engineering it can be both lucrative and in your face virtue, their two erogenous zones.
What if I don't identify as a white heterosexual mail? LOL
- Member since 2019 · 6 posts · 4 votes4y
@Nick Sansivero
I really don’t think big banks have to care about risk anymore with all the money they were given by the government at 0% over the last several years and ended up loaning it out at 4%+
Even if they make risky moves at this point they have basically been told the only people they have to answer to are the shareholders.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes4y
Quote from @Sagar Patel:
@Nick Sansivero
I really don’t think big banks have to care about risk anymore with all the money they were given by the government at 0% over the last several years and ended up loaning it out at 4%+
Even if they make risky moves at this point they have basically been told the only people they have to answer to are the shareholders.
The federal funds rate is adjustable rate debt. If you were a bank and borrowed a bunch of money at 0% in 2020/2021, the rate has gone up each time CNN told you that rates have gone up.
In real terms, consumer mortgages for example right now are in fact the actual free money.
Real interest rate = rate - inflation (google "real interest rate" for lots of results with the exact same formula)
2020: 3% minus 1.4% = 1.6%
2022: 5.5% minus 8.5% = -3%
- Member since 2018 · 61 posts · 46 votes4y
@Nick Sansivero
If they made 0 down 100% financing for whites only would this be considered racists and get a lot of back lash?
- Rental Property Investor · Gothenburg, NE · Member since 2015 · 74 posts · 111 votes4y
@Patrick Crehan
I wonder if these will be the next loans to be forgiven?
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