Zero Down Payment Home Loans! Subprime Loans — Again?!

By Prof Steinberg ~ July 1st, 2010 @ 12:31 am

: Image by respres via Flickr

From Bloomberg:

“Builders and lenders are dusting off a familiar pitch: mortgages with $0 down and 100% financing. The deals, which take advantage of a little-known loan program at the U.S. Agriculture Dept., are bolstering sales in some areas. These new mortgages share some characteristics with the old ones now wreaking havoc on the housing market—and critics fear lending standards could slip. Says Daniel Oppenheimer, an analyst with Credit Suisse: ‘Unlike beef, these loans should be described as USDA subprime.’” . . .

“The government-backed loan program is buoying builders and lenders. Analysts say federal loans, including those guaranteed by the USDA, accounted for 64% of sales at builder D.R. Horton (DHI) in the latest quarter. In Port St. Lucie, Fla.—a coastal town littered with foreclosures and empty subdivisions—roughly one in five mortgages is coming through the Agriculture Dept., according to local industry players. “Everyone is fighting for every little sale they can get, and the USDA financing is a huge opportunity,” says Jim Belfiore, president of Belfiore Real Estate Consulting in Phoenix.” . . .

“The USDA, builders, and lenders defend their use of the loans. The agency argues it adheres to strict underwriting standards, assessing each borrower’s credit, income, and cash flow. Joaquin Tremlos, acting director of the USDA’s home loan program, says the agency’s portfolio of loans has a low default and delinquency rate. The USDA ‘has not relaxed our guidelines…. We’ve intensified them to make sure that these loans continue to be sound.’” Click Here for more info.

Professor Steinberg’s Response:

THIS IS INSANE!

I think we’ve had zero-down payment home loans before. Can you remember something called “the subprime crisis”? I don’t think that ended so well.

The USDA argues: “It adheres to strict underwriting standards, assessing each borrower’s credit, income, and cash” Well USDA, please answer this. If your loan standards are so strict, why the heck can’t buyers come up with a down payment?

The bottom line. These federally backed loans will default. And then the federal government (meaning us taxpayers) will take huge losses on the homes. Just another Obama administration give away — financed by your tax dollars.

I wonder how much homebuilders have donated to Democratic candidates?