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.

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What's the Current Situation Regarding Mortgage Rates?

You may have heard mortgage rates are going to stay a bit higher for longer than originally expected. And if you’re wondering why, the answer lies in the latest economic data. Here’s a quick overview of what’s happening with mortgage rates and what experts say is ahead. Economic Factors That Impact Mortgage Rates When it comes to mortgage rates, things like the job market, the pace of inflation, consumer spending, geopolitical uncertainty, and more all have an impact. Another factor at play is the Federal Reserve (the Fed) and its decisions on monetary policy. And that’s what you may be hearing a lot about right now. Here’s why. The Fed decided to start raising the Federal Funds Rate to try to slow down the economy (and inflation) in early 2022. That rate impacts how much it costs banks to borrow money from each other. It doesn't determine mortgage rates, but mortgage rates do respond when this happens. And that’s when mortgage rates started to really climb. And while there’s been a ton of headway seeing inflation come down since then, it still isn’t back to where the Fed wants it to be (2%). The graph below shows inflation since the spike in early 2022, and where we are now compared to their target rate:   As the graph shows, we’re much closer to their goal of 2% inflation than we were in 2022 – but we’re not there yet. It's even inched up a hair over the last 3 months – and that’s having an impact on the Fed’s plans. As Sam Khater, Chief Economist at Freddie Mac, explains: “Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates.” Basically, long story short, inflation and its impact on the broader economy are going to be key moving forward. As Greg McBride, Chief Financial Analyst at Bankrate, says: “It’s the longer-term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates. Inflation, inflation, inflation — that’s really the hub on the wheel.” When Will Mortgage Rates Come Down? Based on current market data, experts think inflation will be more under control and we still may see the Fed lower the Federal Funds Rate this year. It’ll just be later than originally expected. As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), said in response to the Federal Open Market Committee (FOMC) decision yesterday: “The FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.” In the simplest sense, what this says is that mortgage rates should still come down later this year. But timing can shift as new employment and economic data come in, geopolitical uncertainty remains, and more. This is one of the reasons it’s usually not a good strategy to try to time the market. An article in Bankrate gives buyers this advice: “ . . . trying to time the market is generally a bad idea. If buying a house is the right move for you now, don’t stress about trends or economic outlooks.” Bottom Line If you have questions about what’s happening in the housing market and what that means for you, let’s connect.

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