I received an email this week from a mortgage lender with the details on Fannie Mae's new 3% down mortgage program. It appears to be targeting first time home buyers (the group of Americans that have been reluctant to join the home buying party since the last crash). The lending restrictions on the program will continue to loosen until we arrive at the next major crash and American tax payers once again have to write a check for hundreds of billions of dollars in losses.
No one pays attention to the cause, but they are always very upset when the effect arrives. Here are the major details of the program:
- 30 year fixed mortgage
- Primary residence only
- At least one of the borrowers must be first time home buyer
- Minimum credit score 640
- 3% down payment (which can be a gift)
A "gift" means that if a young American is purchasing a $300,000 home, they can get the $9,000 (3%) down payment needed from Mom and Dad. So a young American fresh out of college that has found a job and has $65,000 of student loan debt (government financed) can instantly get another $291,000 in mortgage debt (government financed) without having to save a penny. All they need is a $20,000 car loan (government financed) and a nice 0% deferred interest plan on $15,000 to furnish the home and they are officially living the American dream.
$400,000 in total debt (including the $9,000 they owe Mom and Dad) which they can now try to pay down for the rest of their life. The economy grows due to the credit expansion, the rich get richer, and 15 years later that young American wonders why the middle class is running in quicksand while slowly sinking.
God bless America.