WALDORF, Md. – In a recent discussion about the mortgage industry, experts shared their insights on the controversial topic of issuing high-cost, high-risk mortgages to individuals with good credit. The conversation shed light on the potential consequences of such practices and explored the introduction of new programs aimed at assisting homebuyers.
On the 37th episode of The BayNet’s Podcast, “Get Real with Chris & Mark,” the hosts ‘Get Real’ with Sherri Bowen from Interlinc Mortgage about the redistribution of risk and explored a new program offering down payment assistance for first-time homebuyers.
The conversation began with Mark expressing frustration over the practice of redistributing the burden of high-cost, high-risk mortgages onto individuals with good credit. He pointed out that responsible citizens who diligently paid their bills and maintained good credit scores were being penalized with higher interest rates.
“It is kind of crazy. Let’s say your 740 or higher on the credit score, you’re going to see a difference in about a quarter in the rate,” Bowen explained.
“If I have, you know, 660, I might be good. I might not have to pay that. But it’s not just if you have a higher credit score. It’s also if you put 20% down. So you’re putting in a huge down payment, and have good scores, then you’re going to see the difference,” Bowen continued.
In summary, Mark stated this means “they’ve opened up the ability to put people with lower credit into homes that they can’t afford.”
The conversation then shifted to a new program introduced through FHA, offering down payment assistance for individuals with a minimum credit score of 600. This program aimed to help lower credit score borrowers enter the housing market by providing a second mortgage to cover the three and a half percent down payment required for an FHA loan.
“I want to be clear to the people listening what this program does,” Chris spoke out, “So if I’m a first-time homebuyer and I qualify for an FHA loan, this program, which FHA is three and a half percent down on the loan amount. You can get a grant to pay that three and a half percent down for you, which would mean you can 100% finance a home. So I want to put that out there because it’s really big news.”
Chris and Mark raised concerns about the potential risks associated with such programs. Mark argued that offering high-risk loans to individuals who might struggle to afford them seemed counterintuitive and unsustainable.
Bowen clarified that the interest rates on these loans were higher, and borrowers were required to pay back the second mortgage over time.
Despite differing opinions, the interviewers acknowledged that these programs provided an opportunity for individuals with lower credit scores to become homeowners. They emphasized the importance of responsible financial planning and cautioned against overextending oneself, especially for those with lower credit scores.
“I just think it’s super important that you work with somebody who’s going to get you the best thing,” Bowen concluded.
The interviewers delved into the broader implications of these practices, highlighting the government’s need to maintain the economy’s stability. By offering high-risk loans, the government aimed to stimulate economic growth. However, they acknowledged that this approach was not without risks and potential consequences.
In conclusion, the episode sheds light on the controversial practice of redistributing risk and the challenges faced by the mortgage industry. While programs like down payment assistance offered opportunities for individuals with lower credit scores, the interviewers emphasized the need for responsible financial planning and cautioned against excessive borrowing.
As the industry continues to evolve, borrowers must stay vigilant and seek professional advice to navigate the changing landscape of mortgage rates and programs.
To get a full understanding on the new program introduced through FHA, watch the full episode: https://youtu.be/OTDoDySkMKs
Once a week, Century 21 New Millennium Realtors Chris Hill and Mark Frisco ‘Get Real’ with topics surrounding life in Southern Maryland while showcasing local business tastings and highlighting hidden gems in the area.
You can watch or listen to previous episodes at: www.thebaynet.com/podcasts
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If you receive a grant for the the 3.5%, how are you “financing 100%”?? Answer: you are not “financing” 100%. You are financing 96.5%. No different than if mommy and daddy gave you the 3.5%.
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