Even in today's environment we can still find Loan Officers pitching the miracle of no money down loan programs. In some cases they are assisted by a Title/Escrow company or a Realtor in putting together a "class" on how to take advantage of these programs. There are 100% LTV programs but these loans are not for everyone. So why pitch these programs? Let's call a spade a spade. Those touting these loans are really only on a big fishing expedition for potential buyers. Some that probably shouldn't be buying in the first place.
So what is really left out there for a borrower with no money of their own? 2 programs..VA and USDA Rural Housing. For everyone? Not exactly. As I have noted to some, these 2 programs are for specific subsets of all potential borrowers.
VA? Gotta be a vet or a qualifying widow of one. USDA? Can't make too much money and you must buy a home either in the country or in a town of less than 20,000 people. On top of those entry requirements the debt to income ( DTI ) restrictions are such that not even all the potential qualifiers are eligible. The VA makes sure the vet can not only afford the house payment but the utilities and food and clothing for the family. USDA has DTI restrictions as well. No wonder these programs have the lowest default rates of any loan programs..ever.
RE agents love any loan that can get a buyer into a home. Title and Escrow companies do too. The reason is simple, close a deal..get paid. To be fair a loan officer's mentality is pretty much the same. We don't get paid until a deal is closed either. The issue is that we as loan officers have an ethical, fiduciary responsibility to the borrower that far exceeds any that an RE agent has.
The loan officer is the only person in a position to inform the borrower of their choices AND the consequences of them. We have a responsibility to say, "wait a minute, is this really what you want to do?" We are the only ones that have a complete understanding of a borrower's financial state. We are the ones that know what they can truly afford. We are the ones that, if we are asking the questions we are supposed to, know how their household budget stands. We are the guardians of their financial future.
So why do I have a problem with pitching 100% loan programs to everyone? Because it puts a borrower into a position where emotion ( the desire to have the American dream ) can override logic. Who doesn't want to own a home? But it is an established fact that borrowers that don't have their own skin into the game are more likely to default on a loan. Need an example? One of the reasons that FHA no longer allows a seller to "contribute" ( through a sham of convolution using "non profit" entities ) the buyers down payment any longer is because borrowers using seller contributed down payment defaulted on their loans 3 1/2 times more frequently than borrowers with their own funds...nuff said.
So the question is, do we as an industry continue along the path that got us where we are today, giving anyone that wanted to buy a loan? Or do we have enough guts to say to a potential buyer, "maybe you should wait" or "let's look at something more reasonably priced for you"?
I know where I stand. I would prefer to advise a client to wait if it is appropriate for their situation. What do you think?
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