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The Return of No Money Down Mortgages?

by Shilpi Paul

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It appears that no-money-down mortgages, the controversial product that some point to as the cause of the recent housing crisis, are making a come back. Two credit unions have started offering mortgages without requiring any down payment, Credit Union Times is reporting.

NASA Federal Credit Union and Navy Federal Credit Union claim that the loans are safe due to tight underwriting, and strong relationships with members. As far as our region goes, NASA FCU is also limiting the loans to the DC suburbs, where they believe prices have hit bottom.

From the Credit Union Times:

NASA FCU has confidence in the no money down loans because the credit union underwrites those more tightly than it does loans that are underwritten to the standard for the secondary market required by Fannie Mae and Freddie Mac.

“We focus on the ability to repay the loan as the standard independent of what might happen to the value of the underlying asset,” [NASA Federal Credit Union’s] Bill White said, contrasting NASA’s no money down loans to the sorts of no down payment lending that helped fuel the housing finance crisis. Those previous no money down loans offered by other financial institutions and mortgage brokers had been made on the assumption of rising real estate values, he explained, but NASA’s program focused on ability to repay.

In the past, no-money-down mortgages were troublesome because those who didn’t have the savings necessary for a down payment were also in danger of not being able to make their mortgage payments. In this case, according to the article, the NASA FCU is seeking out candidates who had no trouble making monthly payments in the past, but now have a strategic reason for wanting to hold on to their savings. While no down payment will be required, the loans will have a higher-than-normal interest rate.

See other articles related to: mortgages, mortgage lending, credit union

This article originally published at http://dc.urbanturf.com/articles/blog/the_return_of_no_money_down_mortgages/6831

4 Comments

  1. That Guy in DC said at 12:31 pm on Monday March 25, 2013:

    We received a no money down mortgage from Navy Federal last fall for, well let’s just say enough for a large Logan/Dupont condo—trust me, they looked at everything!!! Having a retirement fund, some savings, no credit card bills, a multi-year history of paying a very high rent on an apt in DC, and a long-term job at the same employer were all qualifying factors cited by NFCU. Both our agent and the seller’s agent couldn’t believe we received the mortgage product and said they haven’t seen anything like it in years. While the interest rate is slightly higher we were very glad to not have to put out a down payment and keep some dough in savings. And—big props to the folks we worked with at NFCU, they were great!

  1. mona said at 3:33 pm on Monday March 25, 2013:

    I don’t think loan products were the problem. It was the fact that no one was actually checking if anyone could actually pay these loans back. You can have a no doc, no down payment, interest only loan if you can actually pay this loan back and have a big credit score to prove it then it doesn’t matter what the loan product is. Loan products don’t make people not pay back loans

  1. Walt said at 7:46 am on Tuesday March 26, 2013:

    If the market makes another downturn, these folks have no skin in the game and the best business decision (not the best ethical decision) is to walk away. It’s not a good idea to loan to someone with no investment   If you can’t afford a downpayment then you can’t afford the house. Save FIRST. Then buy.  Just my opinion.

  1. Rolly said at 9:16 am on Tuesday March 26, 2013:

    Here we go again. Queue the irresponsible borrowers, do we ever learn? Part of the problem is underwriting or lack there of but No investment= no skin as Walt says.

    We count on houses to be cash machines but they are investments and with all investments come risk.  Risk that your investment will depreciate and no interest mortgages are assuming everything will always increase…not so.  The rampant sale of mortgages between lenders doesn’t help.  Good luck to you all in round 2!

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