UWM's Zero-Down Loans Gain Buyer Favor but Raise Concerns Among Consumer Advocates

UWM's zero-down loan initiative garners buyer interest but raises concerns among consumer advocates. In contrast to the lax underwriting standards of subprime loans prior to the 2007 housing crash, these new loans adhere to strict criteria set by Freddie Mac. 

According to CNN, United Wholesale Mortgage (UWM) introduced its "0% Down Purchase" program last month, proving popular among homebuyers. However, some consumer advocates fear that borrowers could quickly find themselves owing more than their homes are worth if property values decline.

Under this program, borrowers earning less than 80 percent of the area median income can secure a Freddie Mac Home Possible loan covering 97 percent of the home's value, with UWM providing a second mortgage for the remaining 3 percent, capped at $15,000. Although the second loan accrues no interest and requires no monthly payments, repayment is mandatory upon home sale or refinancing.

UWM CEO Mat Ishbia hailed the program's potential to revolutionize home purchasing, highlighting its removal of the downpayment obstacle for thousands of prospective buyers.

However, critics caution that borrowers with minimal equity are at greater risk of foreclosure if forced to sell prematurely. Better Markets CEO Dennis Kelleher likened these loans to "ticking time bombs" akin to subprime mortgages.

Despite objections from UWM, comparisons to subprime lending persist. Nevertheless, unlike pre-crash subprime loans, UWM's zero-down loans must meet stringent Freddie Mac standards.

Similar low-down payment programs exist, such as Freddie Mac's Home Possible and Fannie Mae's Home Ready initiatives, allowing borrowers to put down as little as 3 percent. UWM, Rocket Mortgage, and Zillow have expanded accessibility by offering grants to eligible borrowers, reducing the required down payment to as little as 1 percent.

Demand for these zero-down loans has been substantial, with UWM already processing thousands of loan applications, according to Alex Elezaj, UWM's chief strategy officer.

Additionally, various down payment assistance programs and Special Purpose Credit Programs (SPCPs) aim to assist underserved borrowers in securing homeownership. Bank of America, for example, offers a zero down payment, zero closing cost mortgage for first-time homebuyers in designated markets as part of its Community Homeownership Commitment.