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0 pointscamgunz3y ago0 comments

This seems materially different than the predatory adjustable rate mortgages pushed on minority communities in the 90s-00s. They're assessing creditworthiness using other metrics to try and work around institutional racism, not pushing bad mortgages on people who can't afford them. I deeply mistrust banks, but I don't find anything outwardly malicious here.

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taxyz3y ago

The loans they are proposing do not require any down payment, have no closing costs, and do not factor in credit score. There are a couple things here that are predatory in the same way that the loans in the 90's-00's were.

First, the no down payment means that the borrower would have no equity in the home. Most mortgages are very front loaded with interest. If something were to happen in which the borrower had to get out from the house/loan they would be in a very precarious financial situation since the seller is responsible for the agents' fees and commission.

Second, and I may not be sure how this works, but no closing costs means that presumably there isn't an escrow account set up with any prepaids such as taxes. The article doesn't really touch on this but worse case scenario this means that the borrower could be surprised by huge tax bills?

Third, if the bank is not using credit score, and is taking on all the risk by issuing loans that are 100% LTV, I can't imagine the interest rates are going to be favorable to the borrower which kind of exacerbates my first point above, where the borrow is going to be making huge interest payments and not building any equity.

Bank of America is not stupid and they are certainly not a charity. To me this seems kind of predatory. I am sure they have run the numbers on what the risk is, how many borrowers they expect to default, what they anticipate making, etc. If this isn't predatory towards black or latino people, they should release those numbers.

camgunzOP3y ago

Mortgages being front loaded with interest is unrelated to not requiring a down payment. If you have to sell a home in the first 3-6 years it's usually pretty bad, as your equity doesn't outstrip your fees and taxes yet (this usually isn't too bad, but depending on the situation it might be nice to have the closing costs, agent fees, taxes, and difference between your mortgage and your rent over N months back). Having a down payment just means you also locked that up, so that's probably even worse, not better as you're arguing.

And depending on the market, down payments may not be large anyway. People with higher credit scores (honestly not that high) can get an FHA loan for as little as 3.5% down. That's not that significant, especially compared to 10-20%.

Re: being surprised by a big tax bill, BofA is running this program under its Community Homeownership Commitment, all of the programs under which provide--and sometimes require--new homeowner financial education.

Re: interest rates, the existing Affordable Loan Solution loans (again under the same Community Honeownership Program) are around .25 and .5 points higher than comparable normal mortgages. That's significant, but hardly predatory, and they're all fixed rate and have caps on LTV (105%).

I mean, I'm also distrustful. I feel like a bank shill, which is pretty uncomfortable. I believe their policies have immiserated and killed people knowingly, and they should probably be regulated out of profitability. But this program seems like what most people in the field have been advocating for for a while: lower barriers, educate and support people, help them start building wealth in their homes and grow their communities.

[education]: https://homeloans.bankofamerica.com/affordable-lending

[community homeownership commitment]: https://promotions.bankofamerica.com/homeloans/homeowner

[community affordable loan solution]: https://newsroom.bankofamerica.com/content/newsroom/press-re...

[rate]: https://www.freeandclear.com/resources/mortgage-insights/ban... (not the best source, but best I could find)

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