Magdalene Altidor lost her home to foreclosure during the subprime mortgage crisis, but this week she was first in line at a four-day event in Miami where borrowers with poor credit were offered no-down payment, low interest rate loans.
"I left home, it was about 4 a.m.," she laughed. "I'm ready to purchase a home."
The event is one of several being held in cities across America this year, run by the nonprofit, Boston-based brokerage Neighborhood Assistance Corporation of America, or NACA.
"It's a national disgrace about the low amount of homeownership, mortgages for low- and moderate-income people and for minority homebuyers," said Bruce Marks, CEO of NACA. "In the loans that we've originated in the past 6 years, zero foreclosures."
Marks and NACA were front and center during the subprime mortgage crisis, holding mass mortgage modification events across the country with banks and servicers. Bank of America was there then and the bank is with NACA now, backing the program with $10 billion in mortgage commitments.
"It's total upside," said AJ Barkley, senior vice president of consumer lending at BofA. "We have seen significant wins in this partnership. Just to be clear, when we get those loans with all the heavy lifting here, we're over a 90 percent approval, meaning 90 percent of the people who go through this program that we actually underwrite the loans."
Borrowers can have low credit scores, but have to go through an education session about the program and submit all necessary documents, from income statements to phone bills. Then they go through counseling to understand their monthly budget and ensure they can afford the mortgage payment. The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent.
"That's what's going to help people who've been locked out of homeownership to really become homeowners and to build wealth," said Marks.
Critics of the program argue that with no down payment, no skin in the game, these borrowers have no reason not to walk away should their homes lose value. That's what happened during the financial crisis. The difference in this program is that the borrowers cannot be investors. In order to get the loan, they have to live in the home.
"People have skin in the game in a real way," said Marks. "The people that walk away are higher-income people who look to homeownership as an investment, just like buying stocks and bonds. Working people look at their investment in homeownership for their family, for their neighborhood, for themselves."
Quentin Carswell is a first-time homebuyer who tried to get a loan from a traditional bank.
"They tell you they have a lot of first-time homebuyer programs, and then once you get there they tell you these outrageous numbers. It's hard for normal class people to afford to get into a house, and you know put $20,000, $30,000 up for down payment. That's a lot of money."
Few programs like this one
He and his girlfriend were in line early in the morning as well, prepared with an armful of financial documents.
So far more than 10,000 potential borrowers have shown up at various NACA events in cities like Charlotte, North Carolina, and Atlanta, according to Marks, and more are planned. NACA receives a $3,000 commission on each loan.
While the Veterans Administration offers no-down payment loans to veterans and their families, there are few other programs like this. Most low-down payment programs require mortgage insurance, which can be costly. The NACA program does not.
Following the financial crisis, lenders locked up, requiring much higher credit scores and at least 3 percent down payments. The subprime mortgage crisis was precipitated by lenders offering no-down payment loans with short-term "teaser" rates as low as zero. They asked for no documentation, and sometimes tacked interest onto later years of the loan, so-called, negative amortization loans. The NACA loans are all fixed rate with full documentation.
Another big difference today is the housing market itself. Home prices have been rising strongly, and there is a critical shortage of entry-level homes for sale. If a borrower finds themselves in financial straits, it is far easier today to sell the home quickly.
Altidor is confident she can make the low, monthly payments this time around. A small price, she says, for something far more valuable.
"I think a home, 10, 15 years from now, that's an investment," she said. "Homeownership is freedom."