The residential housing bubble is teetering. Therefore, loan originators are being permitted (encouraged) to once again offer subprime loans to keep buyers in the market, housing prices artificially inflated and investors happy (for now).
This type of program is predatory and leverages borrowers who typically do not have the financial resources to maintain the property, account for any cost of living increases, or have the savings necessary to sustain mortgage payments if they lose their job or their financial situation worsens. These types of loans create an incentive for homeowners to purchase homes that are overvalued, and when prices adjust, the homeowner is upside down and often abandons the home.
Ultimately, the tax payer is on the hook for any losses, and the investors swoop in and purchase homes for pennies on the dollar. By now, we know that this is exactly why these loans are offered in the first place- because the game is rigged.
While megabanks like Bank of America, Wells Fargo, and JPMorgan Chase grabbed the headlines earlier this year by separately announcing plans to offer mortgages that only require a 3% down payment from the borrower, there is another major lender that is quietly requiring even less from borrowers.
Unbeknownst to many in the market, Quicken Loans began offering an even better deal for borrowers late last year – a 1% down mortgage.
First, Quicken’s 1% down mortgage program isn’t for everyone, as there are several stipulations and requirements, but a 1% down payment is still a 1% down payment.
So why did Quicken Loans decide to break the mold?
After being tipped off to Quicken’s 1% down program by mortgage industry insider Rob Chrisman, who noted Quicken’s program earlier this week, HousingWire contacted Quicken to answer that exact question.
Now, in an exclusive interview, Bill Banfield, Quicken Loans’ vice president of capital markets, provides more details on how this program came about, how it works, and why it’s so important for Quicken.
According to Banfield, the 1% down loan program isn’t quite as shocking as it appears.
The program is actually part of a partnership between Quicken and Freddie Mac that was announced in October 2015.
At the time, the details on the partnership were sparse, with the two organizations stating that the program will feature “unique, co-developed products to meet the needs of emerging markets, including Millennials, first-time homebuyers and middle-class borrowers.”
As it turns out, one of those loan options is a 1% down loan, but as Banfield notes, the loan is actually structured to be part of Freddie Mac’s Home Possible Advantage program, which the government-sponsored enterprise launched in December 2014, and requires a 3% down payment.
So how does Quicken Loans get from 1% down from the buyer to the 3% necessary to take part in Freddie Mac’s program? Quicken grants the extra money to the borrower, Banfield said.
“We require 1% from consumer and we give the consumer a 2% grant, so the client has 3% equity immediately,” Banfield told HousingWire.
But the 1% down program isn’t offered to everyone, Banfield said. There are several rules as to who is eligible…………………………………