Wells Fargo’s New Zero Down Payment Mortgage Program

Risk Of No Down Payment Mortgages

There is  longstanding and overwhelming statistical proof that zero down payment home buyers default on mortgages at a far higher rate compared to home buyers who make a down payment.   This matter has lately received more attention than in the past due to the large number of foreclosures related to zero down payment purchases during the housing bubble years.  In 2005, for example, nearly half of all home purchasers were made with zero down payment mortgages.

Zero Down Payments = Foreclosures

FHA Delinquency Crisis

Could FHA’s rising delinquency rate be due to FHA incorporating risky practices that have become standard in the mortgage industry? Since industry experts often cite 100% financing as being a major factor in the mortgage meltdown, let’s take a look at borrower down payment sources:

The delinquency rate clearly rises in tandem with the increase in non-profit funded down payments.

In 2005, HUD commissioned a study entitled “An Examination of Downpayment Gift Programs Administered By Non-Profit Organizations”. Later that year, another report titled “Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance” was completed by the U.S. Government Accountability Office. Both studies concluded that seller funded down payment assistance increased the cost of homeownership and real estate prices in addition to maintaining a substantially higher delinquency and default rate.

No Skin In The Game
The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.

Instead, the important factor is whether or not the homeowner currently has or ever had an important financial stake in the house. Yet merely because an individual has a home with negative equity does not imply that he or she cannot make mortgage payments so much as it implies that the borrower is more willing to walk away from the loan.

Rather, stronger underwriting standards are needed — especially a requirement for relatively high down payments. If substantial down payments had been required, the housing price bubble would certainly have been smaller, if it occurred at all, and the incidence of negative equity would have been much smaller even as home prices fell.

No Down Payment

No Down Payment

Courtesy: WSJ

Wells Fargo Initiates Down Payment Assistance Program

Ignoring the overwhelming evidence of high default rates on zero down payment purchases, Wells Fargo (WFC) this week announced a major nationwide down payment assistance program (DAP) to be used for down payment and/or closing costs on FHA, VA and conforming loans.  Incredibly, the program is being advertised as a means of helping low to moderate income applicants achieve the “American dream” of home ownership.

Based on the historical evidence, Wells Fargo is sowing the seeds for the next major crop of foreclosures.  Incredibly, this is being done even as the current foreclosure crisis grows in intensity.  Approving mortgages that immediately put new homeowners at a high risk of default is financial lunacy and a  disservice not only to the homeowner but to a nation already in financial chaos due to defaulting homeowners.

Down Payment Assistance Programs (DAPs)

Help More Low- and Moderate-Income Borrowers Achieve Home Ownership.

Refer your low- to moderate-income applicants to local housing agency contacts and help them achieve home ownership by using one of these Downpayment Assistance Programs (DAPs) approved for use with a Wells Fargo Wholesale Lending first mortgage. DAPs provide financial assistance for qualified borrowers and, depending on the program, may be used for debt reduction, down payment and/or closing costs on FHA, VA and Conforming Conventional loans.

Disclosures: None

4 Responses to “Wells Fargo’s New Zero Down Payment Mortgage Program”

  1. some people like me have always had to pay rent because i have five children and i am sole provider money is always tight but now with this new economy money is tigher than ever but i still find a way to pay the bills and my landlord counts on it and the bank gives my landlord loans all the time and he rents it to me and all the people in line from the bank to the landlord know i have to pay rent but for one reason or another people like me never quite qualify for a home loan but my landlord rent to me for a profit so i have to pay more than if i had a loan and if i don’t pay rent he can put me out in fifteen days and if he doesn’t pay the loan it can take six months to take it from my landlord so my point is if i can pay rent which is higher than a loan why can i not get a loan to put a roof over my children it just doesn’t make sense i have to pay to live somewhere and i always have and will why must it be so hard to obtain while so many houses sit in forcloser familys struggle in high priced rent and all the houses are in a few hands but not the people in the comumity only a few and they will be by on the first and if you don’t pay out by the 15th good luck with the economy while you follow the few and the rest suffer the load

  2. ISNT THAT THE TRUTH I PAY 1000 FOR RENT AND CAN MAKE THAT PAYMENT EVERYMONTH BUT CANT BUY A HOME WITH A MIDDLE SCORE OF 585 FOR A PMT OF 800 THATS WHY I CAN NEVER SAVE A DOWNPAYMENT OF MORE THAN 3.5% NOW ALL THE INVESTORS ARE BUYING THE FORECLOUSED PROPERTIES FOR A REALLY GOOD DEAL AND RENTING THEM TO US FOR 600 MORE PER MONTH THAN THEIR INVESTMENT PAYMENT…. I THINK SOMEONE SHOULD STEP IN AND CHANGE THINGS OR NON OF US ADVERAGE FOLKS WILL NEVER HAVE A FUTURE THATS BRIGHT AND BE ABLE TO MOVE FORWARD

  3. is this program still available

  4. No, not from Wells, but there are other lenders still doing minimal FHA loan programs.
    See FHA Zero Down Payment Financing Returns
    http://mortgagedfuture.com/fha-zero-down-payment-financing-returns/

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