July 15, 2024

New Home Loan Test Program

As the US housing bust continues and actually has a high probability of accelerating in 2023, there are still many people who believe this downturn is not going to be anything like it was in 2008.

New Home Loan Test Program - San Diego 4Br. home for sale

Their main rationale for this is that they believe it’s much harder to qualify for home mortgage loans now.  Quite different from around 2008, when loan mortgage qualifying criteria were extremely lax. Actually, around that time I think the term ‘liar loan’ was coined. Yes, you could pretty much say that you are a neurosurgeon making $250,000 a year and get your home mortgage loan approved without any real verification.  Well, maybe that’s true, or perhaps a slight exaggeration, but in any case loans were very easy to qualify for back in 2008.

New Home Loan Test Program

News has just come out that Bank of America has just launched a new test home mortgage plan in four different cities.

New Home Loan Test Program - San Diego real estate market

From what I understand, the plan is aimed at minority communities within these four (Los Angeles, Dallas, Detroit and Charlotte) cities.  In an effort to help minorities purchase their first home, this program offers home mortgage loans without any down payments, closing cost,  or the necessity of getting private mortgage insurance!

Well, this test program also does not require any minimum credit score.  Instead, the qualifying will be based on the applicant’s payment history of rent and utility bills.  The pilot program does require that applicants must first finish a homebuyer certification program where they’ll learn about the responsibilities and obligations of homeownership.

Although many may think that this program is a great stepping stone for minority homeownership, I think the rollout timing of it pretty much ensures a huge foreclosure rate.  Personally, I feel that offering this program without any down payment is the first big mistake. I think it’s critical that any homeowner have some skin in the game.  The second big mistake, is offering this program without any minimum credit score criteria. And lastly, as we accelerating into a very real real estate downturn, the timing of this program couldn’t be worse.

Let’s say that people who take advantage of this pilot program in the first half of 2023, find out in December of 2023 that their home value has now dropped by 5, 10 or $20,000.  The fact that the program requires no down payment, seems to encourage people who may fall into this situation, just a walk from their properties.  After all, what do they really have to lose?

Now if Bank of America is offering this on their own without Federal subsidies, they certainly have that right, and I wish them good luck, but I’m sure glad that I’m not an owner of their stock!  Now, if the program is being subsidized somehow by the Federal Government, in my opinion it would be a complete waste of taxpayer monies.

New Home Loan Test Program

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