There were plenty of bad actors that contributed to the housing crisis in 2009...the banks that underwrote mortgages for people that they knew couldn't afford the home they were buying and then turned around and sold those loans to unsuspecting insurance companies via RMBS structures...the high school janitor making $50,000 a year who suddenly figured he could afford a $750,000 home...the 22-year-old Las Vegas stripper who took out millions in mortgages so she could make "easy money" flipping homes...there was plenty of blame to go around.
But, given that those mistakes were made just 8 short years ago, you can imagine our surprise to learn today that a developer in Sacramento seems intent upon making all the same mistakes all over again. As the Sacramento Bee points out, The Mill at Broadway is a brand new housing development where recent college graduates, with no savings and minimal credit history, can easily pick up a $300,000 - $400,000 home with no money down...
The Mill at Broadway, central Sacramento’s largest infill housing development, has begun offering mortgage loans with no down payments, hoping to entice more young first-time buyers who don’t want to pay high rents, but don’t have cash for upfront payments on a house, its developer said.
The new housing will be priced from the high $200,000s to the low $600,000s, he said.
While the prices are billed as affordable by Sacramento’s recently escalating real estate standards, the typical down payment requirements and closing costs make homebuying impossible for many, especially members of the millennial generation, Smith said.
“There are a number of qualified people who may have just graduated and gotten their first state job, and have some student debt, so they don’t have a big nest egg to put down, and they are not from a family where Grandma and Grandpa can write a check for down payment,” Smith said.
Smith said his goal is to sell to people who have “reasonable financial circumstances” which will enable them to make monthly mortgage payments, even if they don’t have money to put down.
Of course, there is a small catch for millennials looking to escape mom's basement without the hassle of actually saving a little cash first...any home purchased with no money down must fall below FHA limits of $424,100. Just in case something goes wrong, the developer and financing company would like to make sure the American taxpayer is explicitly on the hook for their bad decisions as they have absolutely no interest in getting Lehman'd.
The no down payment loan, part of a Federal Housing Administration program, is available only for loan amounts of $424,100 or less, said Nick Peters, of the Mill project developers lending partner, Finance of America. The program involves a first and second mortgage. The second mortgage is forgiven for most buyers if the owner stays in the home for at least three years.
Peters said the program allows more people to buy homes, but he said his company prefers to get buyers to put at least 3.5 percent cash down, and get into a more conventional loan that has lower rates, below 5 percent, than the no-down payment loan, where the blended rate is slightly above 6 percent.
So, who's behind this latest, taxpayer-backstopped scam? Well, if you guessed another wall street private equity firm seeking further self-enrichment courtesy of the American taxpayer, then you're absolutely right.
Ranch Capital is a private equity firm founded in October 2002 that specializes in unique investments that represent significant growth opportunities or are undervalued, out of favor, or in need of financial or operational restructuring. Ranch has developed a specialized expertise in residential real estate land opportunities in California and Colorado.
Founders Lawrence Hershfield and Randall Jenson, possess more than 30 years of relevant senior management experience in leading, managing, operating, improving and investing in companies and projects.
Since its inception, Ranch and its partners have committed approximately $2 billion, including significant investments in companies or assets in Real Estate, Financial Services, Energy, Mining, Transportation, and Gaming. Investments to date have ranged in size from $1 million to over $500 million.
Of course, if you're still not convinced you can afford one of Ranch Capital's homes, and prefer to rent until you can afford a down payment, then you should promptly watch the following video. To summarize our understanding of the video, if you buy a home from Ranch Capital you'll end up making hundreds of thousands of dollars and taking luxury European vacations but if you rent then you'll end up dying alone and broke in a tiny apartment. The choice is clear...