Funding for Zero-down Home Loan Programs Restored by President Barack Obama

Before that I tell you the detail of the announcement. I would like to share with you the historical background of the Ninja Loans.

Ninja Loans (“no income, no job or assets” Loans)

These loans were the invention of the two big real estate organizations Freddie/Fannie. These were the organizations due to which we have faced the mortgage meltdown that cause the current economic crisis.

These can be known as an invention of Democrats.

Historical Events that supported financing for Low income people

Here I have mentioned all those events in an approximate sequence during which these loans were authorized:

1. President Jimmy Carter has passed the Community Reinvestment Act (CRA) of 1977 taking effect from the pressure imposed by the groups like ACORN. At that time there was a practice of redlining. According to this practice fewer loans were being given to poor areas. But as soon as the Community Reinvestment Act (CRA) of 1977 was passed, the practice of redlining was stopped.
2. In the early 1990sm in order to collect racial statistical data, home loan data was required by the government. That data was used later on to make the false case that in the loan market minorities were being treated differently against others.
3. In 1995, Bill Clinton took another step to strengthen the CRA. By the government orders, subprime loans were authorized specifically in order to facilitate lower income minorities to buy their homes without meeting the usual loan requirements.
4. Late in his second term Clinton signed the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000. As a result of this the GSEs of Fannie Mae and Freddie Mac were established.
5. Fannie Mae and Freddie Mac started buying subprime notes. So they also give rise to entities like Countrywide that specialized in the practice of buying subprime notes. Fannie and Freddie incur huge number of bad loans, as a result of which the GSEs went bankrupt leading us towards the mortgage meltdown of 2008. The rest, as what is said by them is nothing but a history.

President Bush tried to reform Fannie and Freddie in 2002

In order to prevent what was about to happen in 2008, President Bush in 2002 tried to reform Fannie and Freddie but in 2003 he was blocked by Congress. And now the government has prepared itself to repeat history. What we can call a bad history.

Although at present we are at a position that whatever we have experienced due to the economic crisis we are all aware of the fact that people that who can’t afford to pay off the loans shouldn’t get them. But we can not explain this to the government that it is not just a nightmare that we can forget; all of us have suffered a lot in economic downturn.

Restoration of funding for Zero-down Financing

After that the decision of restoring the funding to a federal loan guarantee takes its effect, zero-down financing for some buyers will come back again. This funding was halted since April.

Under the U.S. Department of Agriculture’s Rural Development program, guarantees are provided to 30-year, fixed-rate mortgages at market rates. And these are offered to moderate income buyers.

The best thing for these loans is that no down payment is required for these loans and the borrower does not have to pay any monthly mortgage insurance premiums.

Have you heard any thing like this during the prevailing tough credit environment? At least I haven’t. But this is good for those who are facing financial problems. But it is good if these borrowers pay back the loan and won’t default in their payments. But if they don’t then we have to think that are we ready to repeat the history?

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