Zero Down Payment Mortgages Are Coming – But Is There a Catch?
September 6th, 2022
Last week’s market summary (August 29th-September 2nd, 2022):
- S&P 500: -2.73%%
- Dow: -2.70%
- Nasdaq: -3.25%
- Bitcoin: +0.58%
I hope you all had a relaxing Labor Day (as contradictory as that feels to write)!
Here's what we're covering today:
- Bank of America Is Launching Zero Down Payment Mortgages
- Crypto.com Unintentionally Bought a Woman a Mansion
- China's Real Estate Recession Has Morphed Into a Crisis
- FedNow, The Fed's Instant Payment Service, Is Coming in 2023
- Disney May Launch a Prime-ified Service Bundle
Finally, I'll explain why I think the consumer credit data that comes out on Thursday is worth keeping your eye on.
What Everyone’s Been Buzzing About
1. Bank of America Is Launching Zero Down Payment Mortgages
The new loan program, which is being called the “Community Affordable Loan Solution” will be available in select Black and Hispanic communities. Bank of America says that its offering these loans to help close the racial homeownership gap. These mortgages will also have:
- No closing costs
- No minimum credit score requirement
- No mortgage insurance
Eligibility will be based on the home's location as well as the homebuyer's income. Bank of America will also look carefully the payment history of each applicant's recurring bills like their rent, cell phone, and car insurance.
When I first heard about this program, I immediately feared that these homebuyers would be in danger of becoming underwater on their mortgages with just the slightest dip in the housing market. But it turns out that Bank of America will be making down payments on the buyer's behalf of $10,000 to $15,000, so borrowers will have equity in their homes from day 1.
To be honest, I'm having a hard time finding a catch with these loans. But this is a bank we're talking about here, so there has to be a catch…right? Or perhaps I'm just too much of a cynic.
You Have Options >>> 8 Best Ways to Fund a Home Purchase
2. Crypto.com Unintentionally Bought a Woman a Mansion
Ok, so they didn't actually buy the mansion for the woman, but they mistakenly gave her enough money so that she could buy one herself. The woman in question was a Crypto.com user and she was owed a $100 refund. But instead of sending her the $100 she was owed, the crypto exchange sent her $10.5 million.
Yes, you read that right.
But it gets worse. Not only did Crypto.com make this massive error, but no one even noticed it for 7 months. And by the time they realized what had happened and decided to politely ask for their money back, the woman had already used $1.35 million of the cash to buy a sweet pad for her sister in Australia.
In the end, the home will probably have to be sold. But even so, the sisters have been able to live the high life for about a year now. Maybe Matt Damon was right after all and fortune really does favor the brave.
3. China's Real Estate Recession Has Morphed Into a Crisis
Analysts have been warning about a housing bubble in China for years. But even the loudest naysayers couldn't have been predicted how fast China's real estate market has tanked since it introduced stricter lending restrictions in 2020.
Country Garden, the biggest real estate developer in the country, recently reported that its profits have plunged 96%. And, as a whole, China's real estate companies have seen their profits fall by 87%. Now scores of buyers are refusing to pay their mortgages, which is only exacerbating the funding crisis for developers.
For now, President Xi Jinping seems content to let the chips fall where they may and says that he's sticking to his administration's three red lines policy. But if China's housing crisis deepens, many are worried that it could pose a threat to the nation's overall economy and even potentially have global consequences.
4. FedNow, The Fed's Instant Payment Service, Is Coming in 2023
The service will allow individuals and business to send money in real-time no matter the day or time. FedNow has been in development for about a decade, but the Federal Reserve says that it could be finally ready for a full rollout as early as May 2023.
We're being told that FedNow will be cheaper than wire transfers and less costly for merchants than debit card transactions. On the surface, that sounds pretty great. But I fear that it's simply taken far too long to get FedNow to market.
While the Fed spent 10 years coming up with their own payment solution, several other services stepped in to fill the void including bank-owned Zelle and third-party aps like Venmo, PayPal, and Cash App. These services now have a huge head start. And that's going to make it more difficult for FedNow to gain market share.
5. Disney May Launch a Prime-ified Service Bundle
The Wall Street Journal reported this week that Disney is considering taking a page out of the Amazon playbook by offering an all-inclusive membership program. And it seems that some that some execs have gotten in the habit of referring to the (as yet unnamed) project as “Disney Prime.”
The program would reportedly not only provide access to the Mouse House's streaming services, but also include discounts to theme park tickets and merchandise.
According to WSJ, planning for this “Disney Prime” bundle is still in the early stages. But the idea makes sense for a company that owns such a variety of businesses. And it fits perfectly with CEO Bob Chapek's vision to build a future Disney that fully capitalizes on its “franchise flywheel.”
What To Keep Your Eye on This Week
July's Consumer Credit Report (Thursday, September 8th)
This should be a slower week in the world of finance and there's two reasons for that. First, we're nearing the end of earnings season. Second, there are very few scheduled economics events (as is typical of holiday weeks). However, I am interested to see the latest consumer credit data which will be released on Thursday.
Total outstanding consumer credit jumped by 10.5% in June. That was much higher than expected. Also, the New York Fed just reported that credit card debt has jumped by $100 billion over the past year, which is the highest annual increase we've seen in over two decades.
These are indicators that the strains of inflation are pushing Americans towards an over-reliance on credit cards to cover their bills. That's concerning, especially since the average credit card APR just hit a new high. If consumer indebtedness continues to climb, it could be yet another sign that we're heading towards a recession in 2023.
Break free >>> 10 Ways to Get Rid of Credit Card Debt Faster
Here are three stories from around the web that I found interesting this week:
If You Need One More Reason Why Stocks Will Likely Lose Money in September, Here It Is (MarketWatch). September has historically been a dismal month for the stock market. But Mark Hulbert explains that September 2022 could be even harsher than usual thanks to a ramp up in the Fed's quantitative tightening (QT) program. This article was really an eye-opener for me.
What Comes After You Quit (New York Times). Here's the hook for this one: “We asked people who quit during the “Great Resignation” how it helped them reconnect with their loved ones. This is what they told us.” After sharing their story, each interviewee is asked to answer one simple question: “Was it worth it?”
Crypto Will Become an Inflation Hedge – Just Not Yet (Cointelegraph). I'm not sure I share the author's conclusions about crypto eventually becoming an inflation hedge, but this article does do a great job of explaining why it's most certainly not one today. If you want to hedge against inflation, we recommend these assets instead.
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