Thoughts? Zero down payment loans are now available for REI

[Andrew B.]

Hey BP,

Just ran across this article and wanted to get the community to chime in on what you all thought about a product like this and how it might be utilized.

Is there really a need for it? Do you think it is useful? Is it already being done in other ways?

I thought it was interesting but not sure if it matters. My first take is it is nothing more than a marketing ploy. Aren't there other ways to accomplish basically the same thing?

https://www.housingwire.com/articles/48921-zero-down-payment-loans-are-now-available-for-real-estate-investors

Have fun! Looking forward to the responses.

Andrew

[Chris Mason]

It's an old model to 'put your best foot forward' in marketing. So you pick some implausible scenario that 1 in 100 people qualify for by the time you are done listing your "assumptions." And you have to honor what you advertise, you might actually lose money on that 1 in 100, but make up for it with the business you brought in the door the other 99 times. 

In this case, the terms/requirements/conditions on the website are incredibly vague and non-specific, so there's really nothing to "honor" since nothing was nailed down in detail. So it might not be 1 in 100, it might be 0 in 100, or 1 in 5000. But the important thing for them is they got you on the phone and can pitch you some other thing that you do 'qualify' for. No different than advertising "no PMI" to owner occupants without mention of the rate -- no one is going to take 5% on an owner occ 3% down loan when you can get 4.25% with PMI that is at say 0.43% (total = 4.68% = less than 5%). BUT you got them on the phone, didn't you? Ergo, the advertisement copy worked.

We have to use owner occ examples here since so few market to REI, but here's another example: Top mortgage bank in the United States by volume. Markets heavily. Puts an attractive interest rate out there in large print, but has 2.125% in junk fees buried in small print. On a $1m loan, that's over $20,000 in junk fees! Also no owner occupant puts 25% down to get a $200k loan for a SFR, that's a 3.5% or 5% down price range. See above about losing money on that 1 in 100, making money on the other 99 people putting 5% down.

Example number 3. The top "obamacare for mortgages" faux-marketplace has a minimum monthly buy-in of $5000 per month per loan officer. That's the minimum, not the maximum, and not the number that will get you to show up on a lot of search results. Who do you think is paying for that, either in their rate or in their fees? Damn skippy it's the borrower, who else could it possibly be? 

I guess my point is to be incredibly cautious when you read marketing for mortgages (this includes like 2/3 of articles @ Housing Wire). Every time they pass a new regulation to clamp down on deceptive advertising, the marketplace just finds new ways to maneuver around it ("it's not advertising, it's journalism! 1st amendment, you can't stop it!"), like water flowing around rocks in a stream. If there wasn't a "gotcha" to this amazingsauce new program, they'd 100% run out of money to lend out in like a month. So if they still have money to lend in a month, it's safe to assume there is indeed a "gotcha" of some form.