Despite Decline, 100 Percent Financing Can Be Found
- -this ain't hurtin' us
Despite Decline, 100 Percent Financing Can Be Found
ERIC SMITH | The Daily News
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While most banks and mortgage companies have pretty much eliminated 100 percent financing for home loans, the product still exists. It just doesn't flourish like it once did.
Long gone are the days of no-documentation, no-money-down, stated-income loans that ultimately sent the housing industry reeling in 2007. In response to the subsequent subprime fallout and skyrocketing foreclosure rate, companies tightened their guidelines and removed many of the loan products that created those problems in the first place.
So, how much 100 percent financing remains? And will the mortgage industry ever bring it back to the same degree?
Chris Bowers, mortgage loan officer at Bank of America and president of the Memphis Mortgage Bankers Association, said that's a hot topic in the financial services industry right now as lenders struggle with the types of products they offer borrowers.
But what's not up for debate is how 100 percent financing has dropped off dramatically.
"It is not available the way it was a year ago, without question," Bowers said. "Almost daily, it seems, 100 percent products that were available are going away. They're just disappearing at a very rapid rate."
Rural possibilities
The problem lies primarily with the industries that have been severely burned: the private mortgage insurance (PMI) companies now refusing to insure 100 percent financed home loans, and investors in the secondary markets now shying away from those programs.
Reducing exposure to risk has become the mantra for those two industries, and the chain reaction resulted in the widespread dissolution of 100 percent financing by most major banks and mortgage companies.
But there is at least one viable alternative with the U.S. Department of Agriculture rural development loan program. Though it's generally geared toward homebuyers who live in rural areas, plenty of Mid-South communities are eligible, including all of Fayette and Tipton counties and parts of Shelby and DeSoto counties, said West Beibers, president of Cordova-based Delta Trust Mortgage Corp.
"For people who are looking in one of the suburban areas, 100 percent financing is available," Beibers said. "That's the big news. What we're finding is many people don't know the product is out there."
Although anyone looking to live in the city limits of places such as Memphis, Germantown, Collierville and Southaven isn't eligible, population trends show the outlying counties are experiencing steady growth, and perhaps the USDA option could help during the housing downturn.
"It's not for everybody, but it's an option that's out there and we're trying to get people to realize that financing is still going on, contrary to what you see on CNN," Beibers said.
Looking elsewhere
As for options that don't include moving to a rural area, they are fairly limited. Bowers said Bank of America, for example, once had "lots and lots of 100 percent programs with various options," including the now-defunct 80/20 product.
Just last week, Bank of America discontinued yet another 100 percent program that was available to "neighborhood champions," such as medical personnel, firefighters, police officers and teachers. Now the bank has only one 100 percent program remaining, and that's limited to physicians.
Greg Ellenburg, district manager at First Tennessee Home Loans and secretary-treasurer for the MMBA, said his company took a proactive approach and pulled back on subprime and 100 percent financing loans last year before the market "really went south," he said.
"We did that with the products which really created this debacle that we're in on the mortgage side," Ellenburg added. "They're unnecessary and they're really bad products for the consumer. We just backed off them."
The lack of full financing has changed the entire industry, forcing some to advise their borrowers to consider down-payment assistance programs to go along with a 97 percent Federal Housing Administration loan or a 97 percent conventional loan that allows such help - and not all do.
Could it return?
For Beibers, the pendulum might have swung too far the other way in response to last year's housing crisis, resulting in overly tightened mortgage guidelines. Since most lenders now require at least 3 percent down, homebuyers who once could have gotten a home with no down payment are in jeopardy of not qualifying today.
"We're going through a fit right now in the industry where we're saying, 'No, we want cash,'" Beibers said. "The problem with that is I'd rather have somebody with perfect credit and give them a 100 percent loan, than somebody with marginal credit and 10 percent down. That viewpoint may not be shared by other people, but if you've got great credit and you've shown an ability and willingness to handle your affairs, that's a basic core characteristic of an individual."
Whether or not the industry returns to that ideal remains to be seen. Certainly, borrowers with good credit scores are looked upon more favorably than credit risks, so while the rampant subprime practice likely won't return, some form of 100 percent financing just might.
"There will be a comeback, in time," Bowers said. "There's not going to be a quick comeback because you have got to allow these mortgage insurers and these investors the time to figure out what their risk is and price their risk appropriately. Right now, they're reeling from losses and everything else, so they said we'll just completely turn off the faucets."
Ellenburg agreed that the pendulum eventually could swing back, but it probably won't happen for at least two years.
"Clearly there's a need for that and there's a certain segment of the population that can handle that product," Ellenburg said, "but I don't think it will be anything to the level that it was before."
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