BofA Launches Zero-Down Mortgages… But Only For Black And Latino Neighborhoods

With mortgage rates about to crack 6%, the housing market rolling over, and mortgage apps collapsing as even Blackstone halts home purchases, Bank of America has found a new bagholder to keep the party going: blacks and latinos.

In a move which has sparked outrage over ‘discriminatory’ preferential treatment – BofA will be offering zero-down payment mortgages with no closing costs or minimum credit scores to first-time home buyers in Black and Hispanic neighborhoods in Dallas, Detroit, Los Angeles, Miami and Charlotte, North Carolina, Bloomberg reports.

Applicants won’t have to disclose their race, as the bank will use US Census data to determine which neighborhoods are predominately black or hispanic. The program will have no minimum or maximum loan size for the new offering, which qualifies as a FDIC “special purpose credit program.”

Those who apply for the loans will be considered based on nontraditional factors such as reliable payment of rent, utilities, cell phones and auto-insurance, the company said in a Tuesday statement.

According to AJ Barkley, head of neighborhood and community lending at BofA, the program will ditch credit scores so that “people can use other mechanisms to define their creditworthiness, buy a home and build their wealth” (for various values of ‘building wealth’, we assume).

MBA Mortgage Applications -3.7%, Last -1.2%
Purchases -1.8%, Last -2.8%
Refis -7.8%, Last -2.8%

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BofA says the pilot program, called the Community Affordable Loan Solution, will “help make the dream of sustained homeownership attainable for more Black and Hispanic families, and it is part of our broader commitment to the communities that we serve.”

And what happens when all these houses are underwater amid a deteriorating economic backdrop and even higher interest rates? For starters, BofA is giving the borrowers $10,000 to $15,000 so they have ‘immediate equity in their homes.

While no-down-payment mortgages potentially make it easier for lower-income borrowers to buy homes, they’re not without risks. If the housing market were to slump, homeowners without a significant amount of equity may have little incentive to keep paying their mortgages, hurting their credit scores and sticking lenders with foreclosed homes. Under the BofA program, the lender is giving homebuyers down-payment grants of $10,000 to $15,000 so they have immediate equity in their homes. -Bloomberg

In order to qualify, first time home buyers need to obtain certification from the US Department of Housing and Urban Development and counseling, according to Barkey.

“We will qualify applicants to confirm they have demonstrated an ability to repay,” she said, adding “What we don’t want to do with this program is place people in homes they cannot stay in.”

Shielding the whites from 100% loan-to-value mortgages while interest rates are at decade+ highs and values falling quickly. They’ll be trapped underwater and unable to refinance when rates decline. Predatory lending at its finest.

— Nuclear Energy Revivalist Swan ☢️ (@TheWuhanClan) September 1, 2022