New loan programs target home buyers with just 3% down—or less

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Some of the more concerning ones:

-Crowdsourcing

CMG Financial, a lender based in San Ramon, California, has created Homefundme.com, where prospective home buyers can tap the collective pockets of their social network.

“They can basically ask their family, friends, associates, colleagues, Facebook friends to give them five bucks here and there” toward a down payment, Lawless says.

-Rental income

Meanwhile, Seattle-based Loftium allows prospective home buyers to rent out a room in their future home to help seed their down payment.

In exchange for a future share of the rent from your room on Airbnb, Loftium will forecast the income and give you a percentage of that upfront, which you can then apply to your down payment.

The borrower will need to kick in 1% of the total down payment; Fannie Mae allows the other 2% to come from Loftium, Lawless says.

Here are some good example scenarios of how the FNM HomeReady program plays out. My biggest concern is it basically allows you to use income-by-association that has no skin in the game as part of the approval process. There are no mechanisms to determine if that additional income will be willing or available when the borrower runs into trouble down the line.

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A big reason prices have gotten to those insane levels is easy credit and loose standards. You can’t charge more than the market can bear. If no one can afford a 750k home, the owners of those homes have to lower their prices.

This is why in the years following the financial collapse, in markets where the typical buyer didn’t have access to credit, prices dropped through the floor. Condos and 900 sqft shacks that were going for $450k at the peak could be bought for as little as $50k at the bottom in the CA Bay Area.

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Incidentally, one of the indicators a bubble is going to pop is when new participants (whether it’s houses or tulips) can no longer afford to get in at the entry level. That means the move up buyer has no one to sell to, and so on up the ladder. The whole thing grinds to a halt.

This is why these ‘exotic’ first-time buyer programs are especially interesting to me. They indicate the market is straining to keep new blood coming in.

 

 

h/t billbixbyakahulk

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