Isn't this partially what contributed to the burst of the housing bubble in 2007? The latest Florida mortgage deal carries a potential taxpayer burden that could leave you wondering what happened to the last four years.
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Earlier this month, The Daily reported a plan being developed in Cape Coral, to address the community's vast real estate problems. It's no secret that Sunshine State has been hit hard with a double whammy of depreciating home values and astronomical foreclosure rates.
A large developer in the Southeast region of the country, Adams Homes believes it has come up with an attractive solution. The program, nicknamed "A-Dollar-and-a-Dream," would allow prospective home buyers to purchase a brand-new $150,000 home (model below) with a down payment of $1.
According to The Daily's report, the developer stands to lose nothing as they receive the full purchase price, regardless of the buyer's ability to continue making mortgage payments. This risk in this scenario is assumed by two government programs (in other words, you the taxpayer) that guarantee the loans for those who want a house but lack the cash for a standard down payment and closing costs.
The deal provides for two different mortgages. The first comes courtesy of the Federal Housing Authority, which services a mortgage for 96.5 percent of the purchase price. The second involves a smaller federally insured loan covering some or all of the down payment and closing costs.
Adams Homes website
In other words, prospective homeowners have very little to lose under this arrangement, and thus very little reason to remain in the property should they ultimately have trouble making their payments.
So it won't come as a surprise to learn that many real estate experts are sounding the alarm.
"This is a recipe for a new, massive wave of foreclosures," warned Jack McCabe, founder of Miami-based McCabe Research and Consulting. "That's what got us in this problem in the first place, giving 100 percent financing and not requiring the homeowner to have any skin in the game."
While Adams Homes may not have much trouble finding buyers with such an attractive offer, the types of government-backed mortgages utilized here enables irresponsible behavior all around, say some experts.
"These [programs] are terrible," said University of Texas-Dallas economics professor Stan Leibowitz. "Allowing people into homes with zero down leads to much higher defaults than average. Government budgets are in bad enough shape that they cannot afford to be subsidizing homes that are likely to go into default, costing taxpayers more money."
I'm starting to see more of these creative lending deals pop up, and not just from developers. Lenders are boasting about non-FHA loans that require "far less" than a 3 percent down payment.
What's really amazing is how short everyone's memory has become. Apparently, turning back the clock even four years is just a few years too far.