“IMF reports that a credit union in San Francisco rolled out a no money down, $2 million jumbo loan program that doesn’t require mortgage insurance. Called the Poppyloan, critics immediately used terms such as “we’re in another race to the bottom”…

…….but it certainly turned some heads. Bxxx Iyyyy reported that, “San Francisco Federal Credit Union on Tuesday announced that it is offering no-down payment purchase mortgages with loan amounts of up to $2.0 million. The loans are available to borrowers who work in San Francisco or San Mateo County. The loans are structured as 5/5 adjustable-rate mortgages with 30-year terms. The credit union is quoting an initial interest rate of 4.00 percent for some qualified borrowers. Private mortgage insurance is not required. The origination fee charged on the loan varies based on the loan-to-value ratio, with 100 percent LTV ratio loans having a fee of 1.0 percent of the loan amount. Steven Stapp, president and CEO of San Francisco Federal Credit Union, said, ‘We studied the problem and realized that there was no reason our credit union couldn’t offer up to 100 percent financing without requiring private MI…Other credit unions have had success with similar programs and we built the Poppyloan as the best possible solution we could offer to our members.’ Poppyloan is the acronym for the mortgage, which SFFC calls ‘Proud Ownership Purchase Program For You.”, Excerpt from December 2015 Mortgage Industry Newsletter

“This SF credit union and its CEO has learned nothing from the 2008 financial crisis. If they think a mortgage borrower “owns the home,” when they (nor anyone else) haven’t put a single penny as a down payment, they are fools. With no “skin in the game,” this mortgage borrower has essentially obtained an option to default on their mortgage, with little long-term consequence. California real estate laws only allows the lender to pursue the home and not the borrower’s other assets. So, if Bay Area home prices fall significantly, which is not an unreasonable scenario given how much they have risen in recent years and how much they are tied to the technology sector (which also might be a bubble that soon bursts), the borrower can “walk” (with no financial loss, other than a temporarily-damaged credit score and ability to borrow) and yet the lender will absorb losses of 25% or more. And if Bay Area home prices continue to rise, the borrower earns an infinite return on investment (because they put ZERO capital at risk!) and the credit union gets its money back, plus about 4% interest. That’s a terribly asymmetrical, dumb, and risky transaction for the credit union, especially a bubbly Bay Area one, and post-crisis EVERYONE should know this is not a prudent home loan.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Posted on December 9, 2015, in Postings. Bookmark the permalink. Leave a comment.

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