Is another housing bubble on the way in the United States? It could be housing bubble 2.0 as another American bank started to offer a very low down payment mortgage.
This week, Wells Fargo introduced the yourFirstMortgage program that offers customers mortgages of up to $417,000 with a down payment as little as three percent. This is just like it was in the late-1990s and early-2000s.
And the excuse is the same: helping the poor. Wells Fargo explained that the program is targeted at assisting low- and moderate-income consumers and first-time homebuyers who may not have enough for a down payment.
Although applicants will still be required to maintain good credit in order to be eligible for a mortgage, Wells Fargo admitted that it will be a lot more flexible with income and credit requirements. The financial institution will also use unconventional sources of credit for determining their approval, like utility bills and rent.
In February, the Bank of America unveiled a similar mortgage program that come with only three percent down payments.
Perhaps the banking industry is following in the footsteps of the federal government.
Last year, the White House ordered the Federal Housing Administration (FHA) to slash annual mortgage insurance premiums from 1.35 percent to 0.85 percent. Mortgage agencies Fannie Mae and Freddie Mac also announced at around the same time that it would lower its down payment rate to just three percent.
It seems David Stockman, bestselling author of “The Great Deformation” and former Reagan budget director, was right in his article “Housing Bubble 2.0“:
“I think it’s safe to say that America — especially the American media and Wall Street firms — has fallen in love with real estate again. But, this time around it’s not ‘all of America’ like the last time; when the most exotic mortgage loans known to mankind turned every ma and pa end-user homeowner into a raging speculator. One has to look no further than the generationally low level of purchase loan applications — with rates at generational lows — to realize something isn’t ‘normal’ about this housing market. Rather, controlling this housing market over the past three years has been a small, unorthodox slice of the population that “invests” in real estate using tractor-trailer trucks full of cash-money slopping around the financial system put into play specifically for this purpose. Over the past few years so much cash-money has been deployed into the housing sector by unorthodox parties, that in many regions ma and pa end-user hasn’t stood a chance to buy. Especially, if they need a mortgage loan, which of course presents numerous risks to the seller vs the all-cash buyer.”
The U.S. is in for some major damage in the years to come. With the printing press still operating 24/7 and interest rates still low, bubbles and debt will continue to balloon.
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