We Have Liftoff: No Money Down Is Back

No-money-down mortgages are being offered by the NASA Federal Credit Union. (Pictured here is the Space Shuttle Discovery in 2009.)

No-money-down mortgages are coming back, but you may have to be a rocket scientist to get one.
The NASA Federal Credit Union earlier this month launched a special promotion that allows borrowers to make no down payment for a primary home purchase of up to $650,000, or just 5% down on a loan up to $850,000.
The deal applies only in Maryland, Virginia and Washington, D.C. Borrowers can also do refinance loans up to $650,000 with just 5% down and up to $850,000 with 10% down. The credit union will offer adjustable rate loans and 15-year fixed rate loans, and it will keep those loans on its balance sheet.
The deal isn’t restricted to members of the NASA credit union, which is drawn up of NASA employees and retirees but includes other groups. Indeed, officials say the program has attracted new business.
Potential homebuyers who have gone mortgage shopping recently know that lending standards have become much tighter. The credit union’s terms are rare by today’s standards. Outside of loans backed by the Federal Housing Administration, banks generally require down payments of 20%. Some borrowers can make smaller down payments if they buy mortgage insurance, but those generally have even more stringent underwriting.
NASA credit union officials say they’re only offering no-money-down loans until a pre-determined lending volume is exhausted. The offer will be limited to “highly-qualified” borrowers, who will face tougher underwriting and greater scrutiny of home appraisals. “We are surprised that the loan quality is even higher than we expected,” says Bill White, the vice president for mortgage lending at NASA Federal.
White says the company has been analyzing the product for the last six months and that it’s well aware of the increased risk of making no-money-down loans. But he says the company believes it can offset that risk by making loans to very high credit quality borrowers.
Home prices have fared better in the Washington region than the rest of the country. White says he’s comfortable that “we’re not going to see substantial, continued decreases” in home prices. Even then, he says, the bank is more concerned about ensuring that borrowers’ “ability to carry this obligation is considerably higher than what you normally see.”
Source http://blogs.wsj.com/