3% Down and No PMI - Good or Bad Sign?

5 Replies

Ran across this article on Housing Wire that says that BofA is offering 3% down, no mortgage insurance loans to help buyers get into a home.  Apparently they're conforming loans which means they can be bundled up and securitized which smells a lot like what got the housing market into trouble last time around.  

Granted they're not doing ninja loans or anything but there have been a few articles recently pointing to the fact that home buyers in the $150K - $300K range have less equity in their homes than they did even before the 2008 financial crises.  

Just wanted to throw that out there and hear from of of the old hands regarding what they think this means for the overall housing market.  

My inexperienced take on it is that if so many home buyers can't afford to put 20% down either wages or home prices are out of whack.  

Fannie and Freddie are starting to drift back towards this, and that gives me pause about putting money into the market (Quicken Rocket Mortgage is a good reminder of pre-crisis lending). That being said, they appear to be trying to attract millennial buyers, however, at the sametime, some of the other larger banks are closing out of certain residential/consumer mortgage lending practices. Additionally, some of the securitized Non-Agency RMBS that are coming to market have much higher lending standards than they did 8 years ago, due to most of the large banks maintaining higher underwriting standards, because they don't want the bad press of a taxpayer funded backstop. 

At the end of the day it really depends on the market. I would just say that NY/Miami would be forward economic indicators, so if I saw a slowdown in the NYC rental market, like I do now, I would anticipate a ripple effect through the residual markets surrounding the area, as personal experience is indicating. Lastly, there was a real estate investor that mentioned on one of the podcasts that the number of cranes on a skyline is inversely proportional to the direction of said housing market. If you were to look at the NYC skyline right now, there's a lot..... just saying. 

They have PMI, it's just lender paid PMI in exchange for a bumped rate. But that doesn't make for as good a tag line.

These are just vanilla Fannie/Freddie loans with fancy branding. 

Clicking around the FNMA website a while back, I found a little 'marketing' section where they gave me the option to rename Fannie Mae HomeStyle to whatever I want, upload company logo, and poof out comes a PDF flier for my ra-branded FNMA HomeStyle loan with the compliance small print already in place, my contact info, and with a fancy custom product name to create a sense of exclusivity, as well as company logo. 

I did a Rebel Alliance symbol for the company logo and called it the Han Loano, but didn't actually use it for anything. shrug Maybe I just need BofA's marketing resources, so journalists can write advertisements for me and call it "journalism." 

In any case, these Agency 3% down loans are fully underwritten, documented income/assets, the underwriting department calls your employer to ensure you still work there the day before the loan funds, bla bla bla. Nothing shady about them. Fannie/Freddie are just trying to compete with FHA, as well as each other.

Fun Fact: Freddie Mac's FTHB low down payment option will do 2-4 unit. Great way to separate yourself from the ten bazillion people out there trying to do FHA 3.5% down on a 2-4 unit. Yours is obviously no 25% down offer, but it'll show better than FHA shows.

@Brian Dalton :  Yes, the article did note that credit scores are improving.  I didn't mean to suggest that the buyers weren't quality.  Was looking more at it from the angle of what does it say about the market or the economy that so few people can afford 20% down.  On the surface it looks like you have two main factors, either people aren't earning enough to save up 20% down (totally possible as this is aimed at millennials who might already be up to their neck in student debt) or it means that housing prices have accelerated past the point where people can easily cobble together 20% down.  Or it could be a combination of both.  Or something entirely different :-)

@Chris Mason :  Interesting.  It wasn't clear how this worked behind the scenes.  Thanks for the insight.  

@Chris Mason , Han Loano. If only I needed a loan in CA. I'd totally use that one!

And where is @Chris Mason s office - at the Chewbanka!!

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