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We’ve seen this movie before. It was called the “Great Recession and Mortgage Meltdown.”

Lenders 15 years ago were under pressure from government officials and community stakeholders to lower the mortgage qualifying bar to make access to homeownership easier for Black, Brown and low-income borrowers.

This pressure to broaden homeownership was admirable. Americans gain much of their community esteem and family wealth by owning property. A home provides stability and family shelter, a savings account of sorts for owners who benefit by paying down the mortgage (rather than paying rent) along with historical property appreciation.

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Let’s revisit for a moment the loose lending practices in 2006, which were a recipe for disaster.

A class of unscrupulous mortgage lenders funded a cornucopia of predatory mortgages to unsuspecting homebuyers and refinance borrowers, getting them funded with little or nothing down. Oftentimes these deals came with easy underwriting requirements, too. Coupled with asleep-at-the-switch mortgage regulators and ivory tower policy writers, it was a predictable disaster that destroyed the American dream for many underserved homebuyers and their communities.

Before we throw the baby out with the bathwater, let’s ponder whether no downpayment loans and looser underwriting are inherently bad.

Several experts I interviewed cited a lack of down payment funds as a significant barrier to homeownership. So, zero down, zero closing cost SPCPs can work, they said, especially when reasonable underwriting standards are added to the credit decision rigor.

 

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