You Can Get a Mortgage for No Money Down—Again!

Government loan programs give housing developers something to market.

If you've gone to pi.com in recent weeks, you may have seen that local homebuilder Polygon Northwest has been running banner advertisements with some enticing promises. "Communities located from Olympia to Everett," the ad copy says. "Prices starting at $159,990." And the real kicker: "$0 down and $0 closing cost opportunities available." Wait a minute. Isn't easy money—one of the biggest sources of the housing meltdown—supposed to be a thing of the past? Not exactly. James "Bob" Phillips, a mortgage consultant with Polygon Home Loans (a joint venture of the builder and Wells Fargo), explains that the ads refer to two government programs that his company makes available to customers. One is run by the U.S. Department of Veterans Affairs and guarantees loans for veterans. The other is operated by the state Housing Finance Commission and offers assistance to first-time buyers who have a combined household income of under $85,600; the state also offers second mortgages to help such people cover down payments and closing costs. Under the state program, banks issue the loans to customers, then the government buys them up. In return, banks get credit toward meeting their obligations under the federal Community Reinvestment Act, and collect a small fee. In fact, the fee's so small, says the Housing Finance Commission's Dee Taylor, that many institutions didn't even advertise the availability of these loans until recently, when many other options dried up. In the past year, the commission has more than tripled its number of down-payment mortgages, to about 1,000. In the process, it has also given companies like Polygon a way to market themselves in a punishing, post-crash environment—a somewhat ironic development given the way the business community often derides "tax-and-spend" government programs. And while those mortgages may look like easy money, Taylor says there are more strings attached to them than there were to the subprime loans that the banks handed out in the bad old days. Borrowers need to document their income, have good credit ratings, and take five hours of homeowner education.

 
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